a wooden figure holding a chinese flag

Chinese Debt Trap Diplomacy: Realistic or Myth

“That is a sleeping dragon. Let him sleep! If he wakes, he will shake the world.” Napoleon Bonaparte


Redemption and progress of China

China has seen her fair share of civil unrest, famine and military defeat before WWII. The government was finally consolidated under a stringent communist regime in 1949. In a totalitarian government, china dwindled economically as international trade was cut off as China was opposed to Free Trade Agreement.

Mao Zedong’s demise in 1976 marked the end of the cultural revolution, emerald by economic reforms new China’s de facto, Deng Xiaoping. China adopted state capitalism under One-party rule with enormous privatization and free foreign trade. These modern approaches pulled out more than 60% of its population from poverty.

a wooden figure holding a chinese flag

China currently accounts for more than 18% of global trade and second biggest economy in the world. With over,200 billion dollars spent on the military, China is the second most powerful country only after the US. However, the rise of the sleeping dragon in economic and military domains often reveals geopolitical intricacies. The covert agenda and foreign policies of China are widely critiqued by western counterparts. One of such issues is the Belt and Road Initiative (BRI) and its ensuing outrageous investment in developing countries. China’s exorbitant influx of investment in both economically famish and politically frail countries, which lead to default in their debt repayment, conjectured experts’ debate on “Debt-Trap Diplomacy.”

Western with accusation

american and chinese flags and usa dollars

The Belt and Road Initiative is a Chinese framework for bilateral relationships for infrastructure development in beneficiary countries. Experts were concerned with Chinese ways of implementing this initiative with obscure and no string attached guidelines. The Chinese state-owned investment banks were key players in this venture. . Less developed nations already owe an outstanding debt to the IMF and the World Bank and entering negotiations with China would add to their dilemma of financial deficit (Shah, 2018).

The endless loans were sanctioned to poorer countries with the certainty of debt default. As a debt relief, those countries relinquish the strategic location and resources to China. Hence paving, the perfect way to consolidation of Chinese hegemony.

However, China denies the western allegation with statement that BRI is shared opportunity for developing under-developed countries excluded by other major financial institutions. According to Cheong’s (2019) article, China’s foreign minister Wang Yi declared that the Belt and Road Initiative is not a debt trap because it benefits the local population and it has become the largest platform for international cooperation that improves people’s lives and reaps out win-win outcomes. Moreover, the Chinese officials claim that the Belt and Road initiative is not a zero-sum strategy because it provides benefits for both parties, facilitates interconnectedness across the globe, encourages peace, and helps in establishing amity between nations (Saki, 2018). There are more than 166 sea ports across 62 countries were china has directly worked.

Debt abyss in developing countries

Let’s look at the example of Sri Lanka and Djibouti to take substantive outlook on BRI.

strong lock locked padlock

Sri Lanka and BRI

The concept of BRI as a debt trap policy of China arose directly from Sri Lanka’s loss of control over Hambantota Port a North Indian commentator. The west and their allies account that China lent money to Sri Lanka to build a port at Hambantota on Sri Lanka’s southern coast, with the certainty of Colombo’s economic distress, and that this allowed Beijing to overtake the port in exchange for debt relief, permitting its use by the Chinese navy. Hence obtaining ‘Strategic ambition’ over the Indian ocean.

On deeper analysis, there are few misconceptions about this one-sided story. The Construction of the port is proposed by Sri Lankan Government, not China. Moreover, there was no debt for the asset swap agreement with China and also the port was not allowed to use as a Chinese naval Post. Sri Lanka leased the port at a bargain price of $1.1 billion with China to pay off external debt.

Djibouti and BRI

Djibouti is a northeastern African country with a Strategic location for transit to the Suez canal and serves as an entry point for all export and import occurring in the Horn of Africa. It serves as an outlet to the Sea for landlocked Ethiopia Ethiopia. With the dream of becoming Singapore of the African continent, Djibouti seeks to take financial risks for development. In 2006, it signed a concession agreement of 30 years with Dubai’s WP World, which was terminated in 2018 on the ground of a contractual breach. WP World didn’t want to invest beyond Doraleh Container Terminal.

So, the Djibouti government awarded the contract to the Chinese who were also keen to invest at the competitive bid. This led to conflict between Djibouti and WP World. The case of Djibouti is high risk and high reward. For a country that is inspired to be like Dubai and Singapore, a substantial amount of resources should be diverted to infrastructure development. It is indeed such a small country with high external debt that is always risky, but in ground reality, there is no such reason for the Chinese threat.

Sustainability of Investment

street in small tropical village

The developing countries must know the size of morsel they want to ingest. The money is always alluring. The borrower countries under BRI should be vigilant about the economic health of their nations. For sustainable development under BRI, countries must be fully aware of the implication of the debt trap. Moreover, BRI countries must enforce rigorous regulations to keep a check and balance of funds spent on the projects to prevent financial deficits.

Final Thoughts

Looking at the intricacies of this geopolitical affairs, we as an expert on our field finds it hard to pin point the hero or villian. As Deborah Brautigam said in her article, A critical look at Chinese ‘debt-trap diplomacy’: the rise of a meme,”The story of Chinese lending is far more complicated, interesting and potentially developmental than it is currently portrayed”

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