//Coronavirus raises the chance of China debt trap in Djibouti

Coronavirus raises the chance of China debt trap in Djibouti

Infrastructure projects financed by Chinese capital are gathering steam in Djibouti, causing concern in Washington that the tiny East African nation is falling into a debt trap that will allow Beijing to reinforce its influence on the continent.

With the coronavirus spreading in the Horn of Africa, its fiscal burden may further increase. According to Johns Hopkins University, Djibouti has 1008 cases of coronavirus so far, increasing from a mere 30 a month ago.

Due to the rising number of cases in the country, the US military based in Djibouti declared a public health emergency on Apr. 23. Djibouti stands on the western end of the Gulf of Aden and at the southern gateway to the Red Sea, at the other end of which is the Suez Canal.

The nation looks out at a busy international shipping lane through which 20,000 vessels pass every year, and its geography has won Djibouti much global attention, with troops from multiple countries including the U.S., China and Japan stationed there to combat piracy.

Among them, China is eager to promote road and port construction in Djibouti, positioning it as a linchpin of its Belt and Road Initiative.

One project is the Djibouti International Free Trade Zone, a $3.5 billion project undertaken by China in cooperation with the Djiboutian government.

The entrace to the zone has a huge yellow gate and flies the Chinese flag. Spanning 48 sq. km, the project has been partly completed.

During a visit before the coronavirus outbreak, Chinese and Djiboutian construction workers were busy on sites for a high-rise and hotel.

There were many signboards written in Chinese, such as China State Construction Engineering and China State Construction Harbor Construction.

DP World signed a contract in 2004 to operate the Doraleh Container Terminal for 25 years. In January 2018, Djibouti suddenly annulled the deal, nationalized the terminal and transferred a stake of more than 20% to China Merchant Holdings.

Djibouti is also believed to have granted China Merchants Holding rights to operate the Doraleh Container Terminal in exchange for investments and loans from China.

DP World brought the case to the London Court of International Arbitration, which in January ruled that Djibouti must return the rights to DP World. But Djibouti has refused to comply, and the dispute is expected to go unresolved for a long time to come.

There is even more intrigue: The DIFTZ also hosts a Chinese military base. The Bridge and Road Initiative, publicly touted as a global Silk Road for modern-day trade, is also laying foundations for China’s military ambitions. And for a military with global aspirations, there is no better guardhouse than Djibouti.