Debt Diplomacy: Is China seizing nations or assisting development

Ashly writes Debt-trap diplomacy is intensively connected with the policy that China has implemented in its foreign policy as suggested by some scholars. China intentionally excessively lends funds to countries that are economically depressed. In this policy, China massively lent funds for infrastructural project without any immediate funds. This debt policy is however widely criticised by many, for its unethical diplomacy.

Background

China started lending funds to foreign countries since 1949 and the figures have massively escalated.²These loans are now part of a massive infrastructural project launched by China in 2013, the “Belt and Road Initiative”, which would aim at fostering connectivity throughout the continent.  China has become one of the leading lenders worldwide. While Chinese loans have helped finance large scale investments, constant rising debt levels have been seen in these countries. However recent reports reveal that the Chinese banks have never ensnared any asset and moreover they have lost money and are currently restructuring loans.³

The Case of Hambantota Port in Sri Lanka

The Hambantota port plays a pivotal role geopolitically, commercially and strategically in regional dynamics. This port was constructed through the initiative of the Sri Lankan government and the EXIM bank of China under the Road and Belt Initiative which President Xi Jinping calls the “project of the century”.⁴ This port was created to relieve congestion faced by the port of Colombo, Sri Lanka’s primary port. Nevertheless, it would also lead a crucial role in infrastructural as well as economic development.

Despite lofty anticipations, the port had started incurring losses. Sri Lanka’s economy was distressed and faced difficulties to repay the loan. To manage its debt burden, the Sri Lankan government signed an agreement with the Chinese government leasing the port to China for 99 years.⁵ However, this decision was controversial and led to Chinese accusation of debt-trap diplomacy.

Implications on India’s Security

As mentioned earlier, the Hambantota port plays a significant geopolitical role. India’s constrained relation with China growing influence in South Asia poses a challenge to India’s role in regional power dynamics. This also implies significant military threats as it could be used for potential military purposes.

 Recent studies also indicate Chinese research vessels being spotted in this port. Amid speculations India had been raising concerns and Sri Lanka has finally imposed a one-year ban on these research vessels. Sri Lankan government reaffirmed India that it would not let any threats related to India’s national security interests.⁶

Conclusion

Currently, the debt-trap diplomacy is still a mystery that is yet to unfold. While some instances of China’s action led to suspicion and doubt, others might show a genuine international aid for development. Understanding and coming into a conclusive statement for debt trap diplomacy of China is complex. Hence it is important to understand whether it is a trap or a path to development.

Endnotes:

1. Himmer, Michal, and Zdeněk Rod. 2022. “Chinese Debt Trap Diplomacy: Reality or Myth?” Journal of the Indian Ocean Region18 (3): 250–72. https://doi.org/10.1080/19480881.2023.2195280.
2. Horn, Sebastian, Carmen M. Reinhart, Christoph Trebesch, and National Bureau of Economic Research. 2019. “CHINA’S OVERSEAS LENDING.” 26050. NBER WORKING PAPER SERIES. https://www.nber.org/system/files/working_papers/w26050/revisions/w26050.rev0.pdf
3. Acker, Kevin, Deborah Bräutigam, and Yufan Huang. 2020. “Debt Relief With Chinese Characteristics.” Social Science Research Network, January. https://doi.org/10.2139/ssrn.3745021.
4. Chellaney, Brahma. 2017. “China’s Creditor Imperialism.” Project Syndicate. December 23, 2017. https://www.project-syndicate.org/commentary/china-sri-lanka-hambantota-port-debt-by-brahma-chellaney-2017-12.
5. Seneviratne, Kalinga, and Kalinga Seneviratne. 2024. “A Chinese Debt Trap? Sri Lanka’s Hambantota Port Set to Debunk Narrative With Its Success.” South China Morning Post, May 4, 2024. https://www.scmp.com/weekasia/economics/article/3261398/chinese-debt-trap-sri-lankas-hambantota-port-set-debunk-narrative-its-success.
6. Gupta, Shishir. 2024. “Colombo Bans Chinese Research Ships From Entering Sri Lankan Ports for a Year.” Hindustan Times, January 1, 2024. https://www.hindustantimes.com/world-news/colombo-bans-chinese-research-ships-from-entering-sri-lankan-ports-for-a-year-101704077211367.html.

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