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Why the panic over Chinese loans and FDI flows?

In the last decade, Jamaica has borrowed from China to finance badly needed infrastructure and there has been foreign direct investment (FDI) by Chinese companies in the bauxite and sugar industries.

These developments have ignited a controversy about whether Jamaica is losing what little economic sovereignty it has. Some have called the Chinese the new colonialists.

Mr Peter Bunting, People’s National Party (PNP) spokesman on national security, in a video entitled ‘Chinese Take Over’ claims that there is “a form of economic colonialism by Chinese businesses operating in Jamaica”.

Minister of Finance Dr Nigel Clarke has rebutted allegations about the amount and implications of Chinese capital and attributes much of the criticism as emanating from ‘xenophobia’.

Prime Minister Andrew Holness has described these allegations as “fearmongering”. The truth is that if the Chinese are the new colonialists, their approach is to give more on better, less punishing terms than those that keep borrowers in poverty.

The public debate has suffered from the absence of factual information which, by and large, has left a vacuum that has been filled by wild speculation, allegations, misinformation and, regrettably, some disinformation.

It bears noting that in regard to loans and outstanding debt, China is now the largest source of bilateral development assistance to Jamaica. Development loans from China to Jamaica have been used to finance infrastructure projects built by Chinese enterprises.

Jamaica’s total debt outstanding to China was US$626.27 million at the end of December 2018. The debt to China constitutes approximately 4.1 per cent of our national debt, with about 90 per cent of that being owed to the Government of China through the China Export-Import Bank, and which bears an interest rate of two to three per cent to be repaid in the next decade.

One concern raised is that the debt gives or will give the People’s Republic of China influence over Jamaica’s economic policy and/or leverage in economic decisions. There seems to be less concern that that role is virtually in the hands of the International Monetary Fund.

Another issue surrounds the view that Chinese companies have had the contracts for major construction projects to the chagrin of Jamaican companies and professionals. The reality is that most aid is tied that way; that is to say, the lender insists on the employment of their nationals.

In any case, the large globally operating Chinese companies do have advantages over their smaller local counterparts. Chinese companies are very price competitive and have a record of completing projects on time and within budget.

Given these natural competitive advantages, the Government of Jamaica (GOJ) must insist on maximising local participation by insisting on subcontracting, joint venturing and restricting employment of Chinese workers to the very minimum.

In addition, the GOJ must create a level playing field in terms of the concessions given to foreign companies as an incentive and ensure that those concessions are available to Jamaicans.

Such a policy is not new or unprecedented as it dates back to the “Jamaicanisation” policies of the 1960s, but it needs to be vigorously implemented and monitored.