China’s debt-trap diplomacy reaches the Philippines, which is likely to accept Chinese loans 1,100% more expensive than other options

The Philippines is close to accepting loans from China that are 1,100% more expensive than ones from Japan.
The country’s chief economist said it will accept the loan as it needs “more friends,” as relations between the two countries warm after years of territorial disputes in the South China Sea.

The loan is part of a so-called debt-trap diplomacy in which China engages in infrastructure projects in poorer countries, a pattern it has followed to establish its global Belt and Road initiative.

The Philippines is close to accepting Chinese loans that are up to 1,100% more expensive than those from Japan, in another instance of China’s debt-trap diplomacy.

The loans from China, which will be used to fast-track infrastructure projects including a dam, railway project, and irrigation system, come with an interest rate of 2% to 3%. But loans available from Japan have interests rates between 0.25 and 0.75%, up to 12 times cheaper than those from China.

“We cannot get all the loans from … Japan. Between 2 and 3 % interest rate is still much better than commercial [loans],” Ernesto M. Pernia, the Philippines’ chief economist, announced in February.

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