Simone Lawson
Debt-trap diplomacy is a term used to describe a country extending excessive credit to another nation, often with the intention of exerting political influence or control over the debtor country when it is unable to meet its repayment obligations. The term was first coined by Indian academic Brahma Chellaney in 2017 to describe China's lending practices, particularly through its Belt and Road Initiative (BRI). Critics argue that China lures developing countries into unsustainable loans for infrastructure projects, allowing it to seize strategic assets and expand its geopolitical influence. However, others dispute this claim, arguing that China's lending practices are not predatory and that debtor countries also benefit from loan renegotiations and debt relief.
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What You'll Learn
China's Belt and Road Initiative (BRI)
Debt-trap diplomacy is a term used to describe an international financial relationship where a creditor country or institution extends debt to a borrowing nation to increase political leverage. The creditor country extends excessive credit to the debtor country with the intention of extracting concessions when the debtor country becomes unable to meet its repayment obligations.
Chinas Belt and Road Initiative (BRI) has been accused by critics of being a form of debt-trap diplomacy. The BRI is a global infrastructure initiative that aims to boost the global GDP, particularly in developing countries. However, there has been criticism over human rights violations, environmental impact, and concerns of debt-trap diplomacy resulting in neocolonialism and economic imperialism. These differing perspectives are the subject of active debate.
Some argue that China is luring poor, developing countries into agreeing to unsustainable loans to pursue infrastructure projects. When these countries experience financial difficulty, it is claimed that China can seize assets and extend its strategic or military reach. However, others dispute this claim, arguing that China has written off many of its loans and provided debt relief to borrowers. They contend that the initiative has provided markets for commodities, improved infrastructure, created employment, and stimulated industrialization, thereby benefiting host countries.
The decision-making process for BRI projects has been criticized for its lack of transparency, with strict nondisclosure agreements shielding the terms and conditions of financing from public view. This has set off alarm bells with institutions like the World Bank and the International Monetary Fund. There are also concerns about the potential negative economic, political, social, and environmental consequences of poorly conceived and managed projects.
In conclusion, while some accuse China of debt-trap diplomacy through the BRI, others argue that it is a mutually beneficial initiative that provides much-needed assistance to developing nations. The evidence for debt-trap diplomacy claims is limited, and the initiative's impact is likely to be context-specific, depending on the recipient country's domestic politics and governance.
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China's influence in Africa, South Asia, and Southeast Asia
Debt-trap diplomacy is a term used to describe an international financial relationship where a creditor country or institution extends credit to a borrowing nation to increase political leverage. The term was first coined by Indian academic Brahma Chellaney in 2017 to describe China's lending practices to smaller countries.
China's Influence in Africa
China has been accused of using debt-trap diplomacy in Africa, with some arguing that the country lends to smaller African nations with the intention of extracting economic or political concessions when the debtor country becomes unable to meet its repayment obligations. However, others dispute this claim, arguing that Chinese loans are not a major contributor to debt distress in Africa. For instance, a 2018 report by the China Africa Research Initiative found that Chinese loans were not a significant contributor to debt distress in Africa, except in three countries: Zambia, Djibouti, and Congo.
China's Influence in South Asia
China has also been accused of using debt-trap diplomacy in South Asia, particularly in Sri Lanka and Pakistan. In Sri Lanka, Chinese banks have been willing to restructure the terms of existing loans, and the country owed only 5% of its total debt service to China in 2017. In Pakistan, China has invested $50 billion in five hydropower projects, with accumulated interest of almost $5 billion per year, giving China potential undue influence in the country's affairs.
China's Influence in Southeast Asia
China has financed numerous projects in Southeast Asian countries such as Malaysia, including the East Coast Rail Line, Kuantan Port Expansion, and Forest City. While there is no evidence that China intends to seize strategic state assets or gain leverage if borrowers cannot repay debts, its large infrastructure projects in the region have made the Western world uncomfortable.
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The role of the US in debt-trap diplomacy
Debt-trap diplomacy is a term coined by Indian academic Brahma Chellaney in 2017 to describe an international financial relationship where a creditor country extends debt to a borrowing nation to increase its political leverage. The US has played a significant role in popularising the term "debt-trap diplomacy" and expressing concern about China's lending practices.
In May 2018, Rex Tillerson, the US Secretary of State, criticised China for its "opaque contracts, predatory loan practices and corrupt deals that mire nations in debt and undercut their sovereignty". He warned African governments about China's lending practices before starting an official tour of the continent. The US administration publicly endorsed the hypothesis that China engages in debt-trap diplomacy, and the term entered the official lexicon of the United States.
However, many academics, professionals, and think tanks have rejected this hypothesis, arguing that China's lending practices are not the primary cause of debt issues in borrowing nations. They contend that Chinese banks have never seized assets from debtor countries and are willing to restructure loan terms. Additionally, China has provided debt relief and written off loans for many countries.
While the evidence for debt-trap diplomacy is limited, there are concerns about the increasing debt burden of some countries towards China. For example, in 2023, it was reported that a dozen countries, including Pakistan, Kenya, Zambia, Laos, and Mongolia, were on the brink of collapse under overwhelming foreign debt, much of it owed to China. However, analysts disputed that this was part of a grand geostrategic plan by China, arguing that there is no centralised strategy behind its lending practices.
Some commentators have suggested that instead of criticising China, the US should counter by providing an alternative, such as a "New International Financial Framework" where developed countries support poorer nations.
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The impact on debtor nations' domestic and foreign policies
Debt-trap diplomacy refers to a strategy where a creditor country extends excessive credit to a borrowing nation with the intention of extracting economic or political concessions when the debtor country becomes unable to meet its repayment obligations. The term was first coined by Indian academic Brahma Chellaney in 2017 to describe China's lending and leveraging of the debt burden of smaller countries for geopolitical ends.
The impact of debt-trap diplomacy on debtor nations can be significant, affecting both their domestic and foreign policies. Here are some key ways in which debtor nations can be impacted:
- Loss of Control Over Strategic Assets: When debtor nations struggle to repay their loans, they may be forced to concede control over critical infrastructure or resources. For example, Sri Lanka leased its Hambantota Port to a Chinese company for 99 years after failing to repay Chinese loans, granting China strategic control over a key maritime asset. This loss of control over strategic assets can have significant implications for a nation's sovereignty and geopolitical standing.
- Increased Creditor Influence: Debt-trap diplomacy can lead to the creditor country gaining increased political influence over the debtor nation. The creditor country may use the debt as leverage to exert pressure and push for policies that align with its interests. This can compromise the debtor nation's ability to make independent decisions and pursue its own national interests.
- Economic Vulnerability: Heavy debt burdens can make debtor nations economically vulnerable, exposing them to economic pressures from the creditor country. The creditor may use this leverage to extract concessions, such as preferential trade agreements or access to markets and resources. This can distort the debtor nation's economic development and hinder its ability to negotiate favourable terms with other countries.
- Domestic Political Consequences: The inability to repay debts and the resulting concessions can have significant domestic political implications for debtor nations. This may include public backlash, social unrest, and a loss of confidence in the government. In some cases, it could even lead to regime change or shifts in political alliances.
- Constraints on Foreign Policy: Debt-trap diplomacy can limit a debtor nation's foreign policy options. The debtor nation may find itself constrained by the creditor's interests, making it difficult to pursue independent foreign policy initiatives. This can affect their relationships with other countries and their ability to negotiate or form alliances.
- Regional Geopolitical Imbalances: Debt-trap diplomacy can lead to regional geopolitical imbalances, particularly when the creditor country is a rising power. For example, China's debt-trap diplomacy in South Asia and Southeast Asia has increased its influence in these regions, challenging the interests of other powers such as India. This can lead to shifting power dynamics and potential conflicts.
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The question of China's intentions and the reality of debt-trap diplomacy
Debt-trap diplomacy (DTD) is a relatively new Chinese policy tool connected to the Belt and Road Initiative (BRI). DTD is the idea that China intentionally lends excessive amounts of money to low-income indebted states that cannot later repay Chinese debt. The borrowing state thus relinquishes some of its strategic assets to decrease its debt burden towards China (debt-for-equity swap).
The popular account of DTD is that China lends money to countries to build major infrastructure projects, with advanced knowledge that the loan would induce debt distress in the country. Beijing can then demand ownership of the infrastructure in exchange for debt relief. However, critics argue that this narrative does not hold up to scrutiny, and that there is no intention on the part of Beijing to actively induce debt distress in recipient countries. They argue that China's loans usually make up too little of a percentage of the countries' external debt for there to be any influence.
In 2018, a former Liberian public works minister and senior policy fellow at the Center for Global Development, W. Gyude Moore, stated that the language of 'debt-trap diplomacy' is more prevalent in Western countries, especially the United States, and is rooted in anxiety about China's rise as a global power rather than in the reality of Africa. He also stated that "China has been a net positive partner with most African countries." This view is supported by academic David M. Lampton, who writes that in American political discourse it is easier to allege a strategy like "debt-trap diplomacy" than it is to accept that domestic politics drive excesses in China.
In 2023, London School of Economics Professor Keyu Jin wrote that the claim that China leads borrowers into a debt trap is misleading, as the majority of BRI countries' debt is owed to international organizations or private Western institutions, rather than to China. Jin also noted that China has written off many of its loans and provided debt relief to borrowers. This is supported by a report from the Center for Global Development, which found that between 2001 and 2017, China restructured or waived loan payments for 51 debtor nations without seizing state assets. Additionally, a 2023 brief from the Boston University Global Development Policy Center analyzed eight examples of "supposed debt trap diplomacy cases" by China and concluded that they found no empirical evidence to prove that China intended to lend with the aim of seizing a strategic state asset or gaining leverage over borrowers.
In conclusion, while there is a popular narrative that China engages in debt-trap diplomacy, this claim has been disputed by many academics and researchers who argue that there is no empirical evidence to support it. They argue that China's lending practices are not behind the debt troubles faced by borrowing nations, and that there is no intentional strategy to burden countries with debt for geopolitical gain.
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Frequently asked questions
Debt-trap diplomacy is a term used to describe an international financial relationship where a creditor country extends excessive credit to a borrowing nation, with the intention of increasing the lender's political leverage.
The lending country provides loans with challenging terms, making it difficult for the borrowing nation to repay the debt. This can lead to the borrower conceding control over strategic assets or influence over domestic and foreign policies to the lender.
The borrowing country often finds itself in a situation where it cannot repay its debts, leading to a dependency on the lender. This can result in the borrower conceding control over critical infrastructure or resources to the lender.
Debt-trap diplomacy can have significant economic, political, and social consequences for the borrowing country. It can also lead to increased geopolitical influence for the lending country, potentially challenging the sovereignty of the borrower.
China has been accused of pursuing debt-trap diplomacy, particularly through its Belt and Road Initiative (BRI). However, there are conflicting views, with some arguing that China is providing financial aid to developing countries, while others claim that China is intentionally trapping borrowers in debt to gain strategic leverage.
