Mekong Partnership Vs. Chinese Debt Trap

By Mervyn Piesse

The United States announced a new Mekong-US Partnership at a virtual summit hosted by Vietnam on 11 September. An initial US$153 million ($210 million) will be made available to Thailand, Myanmar, Cambodia, Vietnam and Laos to encourage collaboration on a number of projects. It includes grants for hydrological data sharing, disaster management and efforts to address transboundary crime. South-East Asia is a site of growing strategic competition between the US and China, but it is unlikely that the partnership is large enough to alter regional geopolitics, says the author

The Mekong-US Partnership replaces the Lower Mekong Initiative (LMI) that the US launched in 2009. The LMI aimed to improve transboundary water management and food and water security across the region. Over 11 years, the US provided almost $3.5 billion ($4.8 billion) in assistance to the Mekong region through the LMI framework.

In his statement marking the launch of the partnership, US Secretary of State Mike Pompeo noted the challenges that the Chinese Communist Party (CCP) presents to the region. He stated that the CCP:

… increasingly threatens the Mekong’s natural environments and economic autonomy. The CCP’s unilateral decisions to withhold water upstream have exacerbated an historic drought. The United States stands with the region and the Mekong River Commission in calling for transparent data sharing. We encourage countries of the Mekong region to hold the CCP accountable to its pledge to share its water data. That data should be public. It should be released year-round. It should include water and water-related data, as well as land use, and dam construction and operation data. And it should be shared through the Mekong River Commission, the organization that serves the interests of the Mekong-region countries, not those of Beijing.

We are also concerned about infrastructure-linked debt and the predatory and opaque business practices of Beijing’s state-owned actors, such as China Communications Construction Company. Concerning also is the boom in trafficking of persons, drugs, and wildlife, much of which emanates from organizations, companies, and special economic zones linked to the CCP.

A report by a US-based research and consulting company, Eyes on Earth, found that Chinese dams in the upper Mekong (which is known as the Lancang in China) could significantly reduce water flow in downstream countries. The report has been criticised by Beijing, which also accuses the US of hyping China’s dam threat to ‘sow discord among Mekong countries’. Some interpretations of the report have also been questioned by independent hydrologists, who believe that its findings have been misinterpreted and are being used as a political weapon against China. While the dams are unlikely to have caused the drought in the lower Mekong basin, they probably exacerbated the severe drought conditions.

South-East Asian governments have hesitated to publicly accuse China of hoarding water. The Mekong River Commission (MRC), which consists of Laos, Cambodia, Vietnam and Thailand, refuted the claim that China was solely responsible for the 2019 drought. The MRC called on China to provide more water data, however, noting that there are significant gaps in its reporting. Beijing has committed to greater transparency, with the Chinese Premier Li Keqiang announcing that ‘Starting from this year, China will share the Lancang River’s hydrological data for the whole year with the Mekong countries.’

Improved data sharing between China and the Mekong countries is a positive outcome from the dispute over the findings of the report. Beijing has not responded to Pompeo’s other criticism, however, which relates to its so-called “debt-trap diplomacy”. Laos is likely to become the next country to fall victim to that predatory strategem.

Over the last two decades, Laos has spent US$7.5 billion ($10 billion) on hydropower projects in an aim to become the “battery of South-East Asia”. Most of those funds were sourced from the Export-Import Bank of China and the China Development Bank, according to data from the Stimson Center. Beijing has also helped fund a US$6.7 billion ($8.9 billion) high-speed rail project in the country.

Laos faces the prospect of defaulting on its infrastructure-related debts that it owes to Beijing. Its foreign exchange reserves have fallen below US$1 billion, which is lower than its annual debt repayments of about US$1.2 billion. The finance ministry has requested that China assist it in restructuring its debt to avoid a sovereign default. Government debt is estimated at US$12.6 billion ($17.2 billion), equal to about 65 per cent of gross domestic product. The state-owned power company, Électricité du Laos, is also estimated to have US$8 billion ($11 billion) of debt.

Vientiane is expected to cede majority control of its electricity grid to a Chinese company as part of a debt restructuring deal. While Laos could apply for assistance from the International Monetary Fund, it is unlikely to do so due to the financial transparency requirements that often accompany IMF assistance.

As noted in a previous Strategic Analysis Paper, Washington is likely to find it increasingly difficult to compete with Beijing in mainland South-East Asia. The geographical proximity of China to Laos and Cambodia, coupled with its increased economic engagement with those two countries, makes it very difficult for the US to counteract China’s rising influence in the region. The new Mekong-US Partnership is a welcome initiative to restore some geopolitical balance in the region, but it is unlikely to provide the necessary impetus to turn those two countries in particular away from Beijing. (Courtesy FDI)

(* The author is Research Manager, Global Food and Water Crises Research Programme)

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Journalist, South Asian Analyst