Debt-Trap Diplomacy of China

In 2013, China introduced its new monetary infrastructure to the world, naming it as a modern-day Silk Road, invigorating the historic mercantilism routes between Europe and Asia. In 2018 a harsh name was given thereto – “the debt-trap diplomacy”. The Chinese Government has typically been the defendant of putting different nations in debt traps on the pretext of supporting development projects as a part of its formidable cross-continental setup, erst called Belt and Road Initiative (BRI). Last year the plan marked its seventh anniversary.

During the COVID-19 pandemic, China has already given COVID-19 test kits, coveralls, masks, and alternative protecting gears to Nepal, Sri Lanka, Bangladesh, Afghanistan, and Maldives, additionally to Pakistan. If China offers loans and puts India’s neighbors in South Asia in debt traps – it might cause a security threat for India.

Significance of the debt-trap diplomacy to China

Whenever there’s an increase in the world economic decline, BRI offers a brand new model of development to China to keep up its economic growth. BRI, which was once named jointly Belt One Road, intends on building networks of roadways, railways, maritime ports, power grids, oil and gas pipelines associated infrastructure projects. This helps in growing the Chinese economy. Strategically speaking, this paves how to China to utilize its economic clout to make an influence on the nations, it offers to help.

Salient Features

The vital feature of the setup as showcased by China is that BRI would make the movement of products between different nations easier and more affordable, thereby promoting international trade. This project is commonly represented as a 21st-century silk road, created of a “belt” of overland corridors and a maritime “road” of shipping lanes. China is attempting to form the globe believe that the BRI project can prove helpful to developing nations in enhancing mutual trade, economic relations, and property as they provide cheap loans for transformative infrastructure projects. These developing nations, which are primarily low- or middle-income countries, are unable to stay up with the repayments, and Beijing then gets an opportunity to demand concessions or benefits in exchange for debt relief.

Developments under it

China is a major stakeholder in the economies of many African and Asian countries. They also have a significant influence on those countries’ affairs. There have been some major developments in the countries. A few of them are mentioned below.

Kenya

Beijing had lent huge amounts for the development of Kenya’s railway network, which the African nation is not in a position to repay. China had lent 550 billion Kenyan shillings for the construction of Kenya’s Standard Gauge Railway project. Kenya’s crushing debt to China now threatens to turn its busy port of Mombasa.

Sri Lanka

When the US ended military aid in 2007 over Sri Lanka’s human-rights concerns, China provided Sri Lanka one billion dollars to become the island’s biggest donor, giving tens of millions of dollars worth of military equipment.

Djibouti

Djibouti is pursuing a dream to transform itself into a commercial trade hub. This effort is being financed largely by China, which is playing a growing role in the tiny country. China helped the country in many sectors ranging from major infrastructure to the establishment of its first overseas military base in the country.

Tajikistan and Kyrgyzstan

China firmly supports Tajikistan and Kyrgyzstan’s efforts to preserve national security and stability, and also helps them in economic development. Their indebtedness has now risen enough for the World Bank to categorize the country as at a “high” risk of being unable to service its obligations.

The Laos

The main cause of concern is the small poor country’s big rich plans for a US$6.7 billion high-speed railway that China is promoting as part of BRI. The project’s cost represents a quarter of Laos’ current GDP.

Indonesia

Since 2003, China has been invested in various infrastructure projects in Indonesia. It has built bridges, roads, railways, and power plants. In March 2019 Indonesia and China made an investment plan worth US$91.1 billion for 28 national projects under the framework of the BRI.

The Maldives

The Chinese government and the Chinese state companies lent a huge amount of money to fund the construction of 11,000 apartments in high-rise blocks, to extend the electricity grid, expand airport servicing, and the construction of a Friendship bridge, funded mostly by a $126m Chinese government grant and a $68m loan from Export-Import Bank of China.

Pakistan

The China-Pakistan Economic Corridor (CPEC) is said to be the first project of BRI. China lends US$62 billion worth of loans to Pakistan, part of the CPEC, a long-term, a strategic economic partnership that was supposed to increase trade and investment between the two countries. There have reports on emerging military dimensions of the investments, which it termed a debt-trap and stated are under poor governance and transparency. The debt burden has increased to unbearable levels and so has the repayment pressure on Pakistan.

Critical Analysis

According to China, the BRI is beneficial for its desire to become a global trade leader and developing countries’ desire to fund transportation infrastructure. To fulfill the space created by a shrinking American presence in global institutions, China started this funding.  These loans are given to low- and middle-income countries on terms that are significantly more generous than market loans. They offer interest rates that are below the market rates and with long grace periods.

Although India has not entered into any loan agreement directly with China, it has been the top borrower of Asian Infrastructure Investment, where China is the largest shareholder. This allows China veto power over decisions requiring super-majority. Loans provided to India may additionally pave the approach for Chinese companies to enter and gain expertise within the promising Indian market.

Conclusion

There are several advantages that China asks for in exchange for debt relief. Sri Lanka, for instance, was forced to hand over control of the Hambantota port project to China for 99 years, due to their massive debt owed to Beijing. This allowed China control over a key port positioned at the doorstep of India, along with a key commercial and military waterway. Similarly, in exchange for relief, China constructed its first military base in Djibouti, while Angola is replaying multibillion-dollar debt to China with crude oil, creating major problems for its economy. Whereas few countries like Indonesia and Malaysia realized the “debt-trap” plan of China and hence are trying to amend it.

Time will tell whether China will come out of its ‘monopolist’ policy and make elaborate efforts to push BRI through global forums. But whatever the case may be, according to the Centre for Global Development, a non-profit research organization, eight nations will find themselves vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan.

Aishwarya Says: I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

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