Will China rescue Turkey’s economy?

Turkey is increasingly becoming dependent on China to avoid an economic crisis, with potential pitfalls for Ankara in the future, according to analyst George Marshall Lerner.

China extended a swap last week for Turkish lira for Chinese renminbi valued at $400 million, a boost for Turkey’s economy which has been hit hard by the COVID-19 pandemic and Turkey has all but run out of crucial foreign reserves needed to pay down its growing debts.

Lerner said that Beijing is eyeing this opportunity to ensure Turkey becomes a vital part of China’s Belt and Road Initiative (BRI), its global infrastructure development and investment strategy.

A Chinese logistics company recently bought 48 percent of Kumport Terminal for $940 million; located on the northwest coast of the Marmara Sea, Kumport is Turkey’s third largest container terminal and is a strategic link to Europe, Lerner wrote in the Diplomat magazine on Friday.

In November 2019 Turkey also welcomed the first freight train from Xi’an via the Chinese-built and funded Marmaray Tunnel, Lerner said. “Using this tunnel, any train can make a non-stop transit from China to Europe for the first time,” he said.

“Gao Tian, the China-Germany Railway project manager, argues that projects like these foreshadow how Turkey will be the very centre of the BRI rail and infrastructure project connecting East and West,” he added. “The vision involves developing Turkey from a simple transit hub for LNG [liquid natural gas], freight goods, and other products into an active, global hub of international trade, the “Middle Corridor” of China’s Silk Road Economic Belt.”

Additional projects include Turkey’s Thermal Power Plant project, worth nearly $1.7 billion.

However, Lerner warned that Chinese investment may not offset the scale of Turkey’s looming currency crisis or the long-term corporate debt problem, which has soared to more than $300 billion.

He said that the the emerging influence of China into the economy of fellow NATO member Turkey is likely to be deeply unsettling for the United States, and that Ankara should be wary of developing a huge trade imbalance with Turkey.

“Last year, Tajikistan - heavily indebted to China - paid a Chinese company building a power plant with a gold mine; a few years earlier it swapped Beijing some land for debt, according to Eurasianet,” he said. “Turkey’s widening trade imbalances with China may be a warning for deals to come.”