International

China’s Debt Trap – Masterstroke Or Blunder?

In the world of geopolitics, the word diplomacy is used for tactics to persuade and assert your national interest without the use of military force. There are several kinds of diplomacy: sports diplomacy, cultural diplomacy, economic diplomacy, etc. All these are nothing but a way to further your interests in a tactful way. Diplomacy is always considered the preferred way to resolve issues, as war brings nothing but devastation to all parties. In today’s nuclear-armed environment, diplomacy gains more weight in resolving issues and furthering national interests. China under Xi Jinping came up with its debt-trap diplomacy. Debt trap diplomacy is a hawkish and egregious form of economic diplomacy. Debt trap diplomacy, by its name, suggests trapping poor countries by offering debts at extravagant rates for unsustainable economic projects.

The primary motive of China’s debt trap diplomacy is to achieve global hegemony and exploit weaker nations. To supplement its debt-trap diplomacy, China came up with the Belt and Road Initiative (BRI). BRI is a brainchild of Xi Jinping, formed in 2013 to lure weaker nations with unsustainable development projects. Xi originally announced the strategy as the “Silk Road Economic Belt” during an official visit to Kazakhstan in September 2013. Xi wished to revitalise the Silk Road and realise his dream of global dominance by transforming China into the world’s middle kingdom. On paper, BRI paints a merry, rosy picture of China assisting weak nations to build modern infrastructure and prosper. In reality, BRI is just a front to lure nations into the Chinese debt trap and capture their strategic assets. As of August 2022, 149 countries were listed as having signed up for the BRI.

Also Read, PLA – A Roaring Paper Dragon.

IMPACTS OF DEBT TRAP DIPLOMACY

Initially, several countries welcomed Chinese debts under the BRI enthusiastically. For them, China was like Alladin’s lamp, which fulfilled all their demands for funds. Even countries that failed to secure IMF bailouts or loans from international institutions due to their poor credentials got loans. China soon became the largest lender in the world. It surpassed the World Bank, the IMF, and all the creditor nations of the Organisation for Economic Cooperation and Development combined. Today, China’s international loans are more than 5% of global GDP, making China the world’s biggest official creditor. China, under its debt trap diplomacy, targets small countries plagued with political instability and a corrupt ruling elite. These are easy to lure as China doesn’t point fingers at their democracy level or human rights records, unlike western institutions.

GWADAR PORT , BALOCHISTAN.

Gwadar port.
Gwadar Port under China’s Belt and Road Initiative.

China only has to fill the pockets of a few corrupt elites and make them sign the contracts on Chinese terms. The terms and conditions are so harsh and ruthless that, fearing a backlash from the public, they make the ruling elite sign a non-disclosure agreement. As a result, the people of these countries never really get to know what their corrupt leaders are getting into. Everything remains hunky dory for a couple of years, China pouring billions of dollars into corrupt leaders’ pockets. But the honeymoon period soon ends, and these countries realise they have created a Frankenstein monster. That’s when China advances its debt trap diplomacy and makes the country dance to its tune, grabbing its strategic assets in the process. Pakistan’s Gwadar port and Sri Lanka’s Hambantota are classic textbook examples of debt-trap diplomacy.

HAMBANTOTA PORT, SRI-LANKA.

Hambantota port.
Hambantota Port under China’s Belt and Road Initiative.

Similarly, China grabbed 1,158 sq km of strategic territory from Tajikistan in 2011 in exchange for debt forgiveness, making it the earliest prey of China’s debt trap diplomacy. The same policy is followed in small island nations. Chinese loans were converted into the acquisition of entire islets through exclusive development rights. China took over a couple of islets in the Indian Ocean archipelago of the Maldives and one island in the South Pacific nation of the Solomon Islands. Recently, a country that fell prey to the Chinese debt trap is Laos. Due to the non-payment of huge loans, China, through a debt-to-equity swap agreement, grabbed a majority stake in Laos’s national electric grid. So now China, controlling the national electricity grid, could send Laos into a stone age by cutting its electricity at will.

NATIONS WITH HIGH “HIDDEN NATIONAL DEBT” TO CHINA.

Nations under chinese debt.

Another early example of China’s debt trap diplomacy is the African country of Angola. Angola is a resource-rich country plagued with political instability that just came out of a bloody civil war. This made it an ideal prey item for China. In the name of post-conflict recovery projects, China started building infrastructure in Angola. China also became the country’s top oil importer, and this marked the beginning of Angola’s future economic dependence on China. Swift Chinese loans and China’s role as the biggest buyer of Angola’s oil made political elites tilt towards China. This resulted in making China-friendly laws and tampering with existing labour laws to favour Chinese companies. Chinese firms started recruiting the local Angolan labour force to participate in infrastructure development projects. With political elites and the law in their favour, these workers were subjected to subpar working conditions and systemic abuse.

Also Read, Is China preparing for another massacre?

Since the fall in oil prices in 2015, Angola’s economy has struggled to recover. According to World Bank data, the oil industry, which contributed almost 95% of exports and one-third of GDP, has seen a sharp reduction. The worldwide pandemic that began in 2020 only made Angola’s pattern of slow development worse. The economic downturn has made China’s prospective use of “debt-trap diplomacy” toward Angola more apparent. Angola is now one of the most significant African countries to borrow money from China. Between 2000 and 2019, Angola owed China 42.6 billion USD, which was repaid through oil exports. Thus, a decrease in oil exports inevitably puts Angola’s capacity to service its debt at risk.

Also ReadWhat are the biggest lies peddled by the Communist Party of China?

BACKLASH TO DEBT TRAP DIPLOMACY

You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.

– Abraham Lincoln.

China undoubtedly gained initial success in its debt trap diplomacy, as countries were unaware of its nefarious plans. But as they say, you can’t fool all the people all the time. Now countries have started questioning China’s fool’s gold projects. Many countries that have initially participated in BRI have now started halting or cutting down on these projects.

  • Sierra Leone, an African country, has scrapped a China-funded $318-million airport project outside the capital, Freetown. This made Sierra Leone the first African country to give a Chinese project a major jolt.
  • Malaysia cancelled over $11.58 billion worth of BRI projects.
  • Kazakhstan cancelled about $1.5 billion in projects, and Bolivia cancelled more than $1 billion in projects.
  • Bangladesh cancelled an expansion of a major highway that was meant to be built by China Harbour Engineering Company. In fact, recently, Bangladesh’s finance minister, AHM Mustafa Kamal, has warned that developing countries must think twice about taking more loans through China’s Belt and Road Initiative.

Also Read, Xi Jinping – Man of Menace?

BANGLADESH FOREIGN MINISTER’S WARNING AGAINST CHINESE LOANS.

  • Nepal witnessed a public protest against China’s BRI projects in the country. Protesters at the rally chanted slogans: “Revoke the anti-national BRI agreement,” and “Put an end to Chinese expansionism.” Protests against Chinese projects have occurred in a number of other countries, including Australia, Myanmar, the Philippines, Kenya, Balochistan, etc.
Nepal public protest against China.
Nepalese people protest against China’s BRI projects.

Apart from developing nations, even developed countries have started countering China’s debt-trap diplomacy. The United States announced a rival G7 initiative known as “Build Back a Better World” (B3W). It will provide financial support for developing nations to build infrastructure. B3W is going to increase choice in the infrastructure financing market, which could lead to some high-profile BRI defections.

The Blue Dot Network (BDN) is another initiative launched to counter China’s debt trap offensive against low and middle-income countries. It is a multi-stakeholder initiative formed by the United States, Japan, and Australia. It provides assessment and certification of infrastructure development projects worldwide on measures of financial transparency, environmental sustainability, and impact on economic development. This initiative provides a transparent and holistic analysis of infrastructure projects that makes poor countries aware of the economic viability of projects proposed by China. This would help developing nations to judiciously choose infrastructure projects offered by China and to avoid getting encircled by a vicious debt trap. So, it’s fair to say that the same plan China devised to gain global hegemony at the cost of weak nations has backfired. This not only damaged the goodwill it had but also made the world aware of an imminent Chinese threat to the world order.

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Anmol Kaushik

Hi, I'm Anmol Kaushik, I'm currently pursuing Law (3rd year) at Vivekananda Institute of Professional Studies (GGSIPU). I'm a defence enthusiast and a keen geopolitical observer.

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