The term “debt-trap diplomacy” means a creditor country extends huge sums of debts to borrowing nations to increase lenders’ political leverage and to exploit geostrategic interests. It was coined by Indian columnist ‘Brahma chellaney’.
It is used frequently with china’s Belt and Road initiative {BRI}. Middle and poor economic countries are provided with a hefty amount of loans and in conditions of default, tracts of land or permission to set up of military base are granted. It helps china acquire strategic positions & extract geopolitical interests.
BELT AND ROAD INITIATIVE :
It is a global infrastructure development strategy adopted by China in 2013. It’s a part of China that aims to gain a greater leadership role in world affairs following its rising power and status. Currently, 138 countries and 30 international organizations are linked to the initiative. BRI has reached several continents from Asia to Africa & from Europe to Latin America and Oceania.
ASIA
SRI-LANKA :
Contract for development of Hambantota International port and Matala Rajapaksa was given to the Chinese company at $361 million. 85% of the amount was taken as a loan from Exim bank of china. Srilanka could not able to repay amid the balance of payment crisis and have to lease out Hambantota port to China for 99 years.
It provided china with a strategic presence in the Indian ocean and indo-pacific which comes at a time quad countries look to isolate China in the region.
PAKISTAN :
China-Pakistan Economic Corridor {CPEC}, $62 billion worth project is the heart of belt and road initiative. Construction of modern transportation, numerous energy projects, special economic zones, and the development of Gwadar port are a few aims of the project. 20% of the total project worth is taken in loans by Pakistan which amounts to $12 billion{6% of Pakistan GDP} and the rest 80% is through joint venture companies.
It will provide China with a short route to the Arabian sea which goes against India’s interest. It also cements Pakistan’s presence in contested “Pakistan occupied Kashmir” which India considers its integral part. It gives china an alternate route for its energy supplies which will counter its malacca dilemma[80% of its export and import of oil pass through the malacca strait, this dependence can be dangerous in times of naval blockade.]
It also provides china with a shorter sea route as Gwadar port is just 3000km from Xinjiang province of China which is far less than currently in use{12,000km}.
TAJIKISTAN:
In 2008, 77% of Tajikistan’s total loans consisted of loans from China. It was not able to pay loans & had to cede 1000 km square of land to China. As of 2020, 37 % of external debt which is $1.2 billion, Tajikistan owe to Exim bank of china.
It not only provided china with a presence in Central Asia but also acted as a gateway to further involvement in Central Asian politics.
MALDIVES:
The island country owes $3.5 billion in loans to China. Former president Mohammad Nasheed said that projects cost under BRI were inflated and debt on paper is far greater than $1.1 billion received.
It adds one more country to the list of the nation that does political backing of china in the indo-pacific region due to high debt. This policy of china is often termed “soft imperialism” & it leads to the loss of the ‘strategic autonomy’ of the borrower country.
MALAYSIA:
Construction of pipelines in Borneo and from malacca to johar by China under BRI. Financing of $22 billion in Malaysian projects was done by China. With the support of Malaysian prime minister “Mahathir Mohamad ” for china, the country sooner or later will be trapped in ‘debt trap diplomacy’ or checkbook diplomacy.
Presence and ‘soft control’ over Malaysia will result in indirect oversight of the Malacca strait which is crucial for the trade and energy security of China.
LAOS:
Laos in cooperation with china built a “Boten-Vientiane ” railway. The town of Boten is situated on the border with Yunnan, China. The cost of the project is $5.965 billion. It is funded, with $3.6 bn debt from Exim bank of china and the rest from a joint venture company. Currently, Lao’s debt to China is 45% of its GDP.
AFRICA
Loans from China to Africa have increased threefold in the past decade. The reason behind it is the urge of African nations to end their dependence on the world bank & the IMF. largest Chinese debt in the region is held by Angola {$25billion} followed by Ethiopia {$13.5billion}, Zambia {7.4billion}, Congo {$7.3billion}& Sudan {$6.4billion}.
By incurring huge debt, china is steadily making inroads into the poor continent which needs ‘donation diplomacy’ rather than debt-trap diplomacy.
Kenya:
Currently, has a Chinese debt of $9.8billion which is 21% of Kenya’s foreign debt. Highways & railways between Mombasa-Nairobi were built and the port of Mombasa was developed under BRI.
ZAMBIA:
Zambia owes 25% of its total external debt to China. According to Africa’s confidential report, ZESCO{Zambia Electricity supply corporation}was in talks to be repossessed by china.
DJIBOUTI :
To develop the strategic Djibouti port, the country incurred huge loans from china which equals 77% of the country’s total debt & 80% of its GDP. It was not able to pay the loans & had to permit China to set up its military base to compensate.
LATIN AMERICA
ECUADOR :
The country was unable to pay $6.5 billion loans taken under BRI from china and hence it agreed to sell 80%-90% of its crude oil to china till 2024.
It diversified china’s source of crude oil mostly limited to the middle east region & Russia.
EUROPE
MONTENEGRO:
A $1 billion loan was granted by Exim bank of china in 2014 to build an A-1 motorway which is 25% of the nation’s debt. Under the term of the loan, China will receive thousands of hectares of land in case of non-repayment.
GREECE :
Chinese shipping company COSCO holds a majority stake in Piraeus port in Greece. It is provided by the Greece government to develop the port which will help tackle its economic crisis.
It will improve China’s connectivity to the European Union, Balkans, and Black sea Region. It also provided china access to Piraeus port which is a strategic location between Asia and European countries.
HUNGARY :
Fudan{shanghai}campus, a Chinese university signed a contract with the Hungarian government to open an overseas campus in Budapest which will cost around $1.8billion which is much higher than the total education budget of the country. Out of $1.8 billion, $1.5 billion will be taken as a loan from China which is considered a debt trap.
OCEANIA
SAMOA:
China is the single largest creditor to the island country. Loans from China account for 40% of external debt and 19.9% of Samoa’s GDP.
PAPUA NEW GUINEA :
The country owes $2billion which is 25% of its national debt to China. Influence over the small island gives china a geostrategic presence in the indo-pacific region.
NORTH AMERICA
LA BREA: It is a town in southwestern Trinidad, which is one of the islands in the Caribbean region.
La Brea took a debt of $102 million from China for the building of the industrial park.
WAYS TO COUNTER CHINA’S DEBT-TRAP DIPLOMACY:
1. Loans from World Bank & IMF with fewer complications:
To avail loans from these financial institutions, the borrower country is forced to make structural adjustments, devaluation of the currency, etc. According to an Oxfam report, IMF conditions to provide loans have forced recipients to cut their healthcare spending.
Committee for the abolition of Illegitimate debt found that both financial institutions used loans as means of influencing their policies. It used geopolitical considerations rather than an economic condition to decide which country should receive loans.
2. Representative UNSC:
United Nations security council must be freed from the grip of the mighty five economies of the world and must provide representation from different geographical regions like Africa for all-round development of the globe and loosen their grasp on institutions like the world bank and IMF.
3. Evolution of Quad to quad-plus:
With china growing its presence in the region with CPEC in Pakistan, Military base in Djibouti, it becomes crucial to rope in more countries in the Quad to counter the dragon, like South Korea, New Zealand, etc. A quad must also push and expand its infrastructure building program: “Indo-pacific quadrilateral critical infrastructure funding scheme”.
4. Capitalism to welfarism:
Communist countries like China & Socialist like India moving towards capitalism has a far-reaching impact. It leads to the exploitation of middle and poor economic countries which pushes them into a cycle of poverty. It’s time to move from a capitalist mindset & work for “common prosperity”.
China’s debt-trap diplomacy is regarded by experts as “Soft imperialism”. Promotion of ‘ Donation diplomacy’ rather Debt trap must be the goal of the international community.
