Written by: Muhtashim Ahmed Uzzal 
(General Member, DUMUNA)

Debt Trap Diplomacy occurs when a creditor country offers excessive credit to a debtor country with the goal of exacting economic or political concessions from the debtor country when it becomes unable to meet its debt-repayment obligations. The details of the loans are frequently hidden, and the borrowed funds are frequently used to pay contractors in the creditor  countries. The word is most usually associated with Chinese government-backed loans. Debt-trap diplomacy is sometimes referred to as “debtbook diplomacy”.

Devloping Countries are choosing chinese loans for the reason that China does not make its foreign loan records public, and the majority of its contracts include non-disclosure agreements that prevent borrowers from disclosing their contents.

Such confidentiality, it claims, is standard procedure for international loan negotiations.

“In international commercial loans, confidentiality agreements are fairly prevalent,” explains Professor Lee Jones of Queen Mary University of London.

“Much of China’s development finance is, at its core, a commercial enterprise.”

The Paris Club, which is made up of most of the world’s main industrialised nations, allows them to share information on their lending activities.

China has chosen not to join this grouping, although the quick growth in China’s reported loans relative to others can be readily shown using World Bank data.

Justification on behalf of Chinese Dept Trap: 

China entices weaker countries to take out loan after loan to build expensive infrastructure that they can’t afford and that will provide few advantages, all with the purpose of Beijing eventually seizing control of these assets from its distressed borrowers. Fears of such seizures have grown as countries around the world take on debt to tackle the coronavirus outbreak and shore up faltering economies.

In this sense, China’s internationalization—as exemplified by schemes like the Belt and Road Initiative—is not only a means of gaining geopolitical clout, but also, in some accounts, a weapon. Like a hapless gambler who borrows from the Mafia, once a country is burdened by Chinese debts, it becomes Beijing’s puppet and is in danger of being destabilized.

The prime example of this is the Sri Lankan port of Hambantota. As the story goes, Beijing pushed Sri Lanka into borrowing money from Chinese banks to pay for the project, which had no prospect of commercial success. Onerous terms and feeble revenues eventually pushed Sri Lanka into default, at which point Beijing demanded the port as collateral, forcing the Sri Lankan government to surrender control to a Chinese firm.

Justification Against Chinese Dept Trap: 

By encouraging global demand for Chinese commodities, services, and money, the BRI (Belt Road Initiative) was created to externalize China’s tremendous debt and industrial overcapacity concerns. As a result, approved projects follow commercial reasoning rather than geopolitical logic. The six “corridors” listed in BRI strategy documents do not correspond to outbound investment. Non-BRI investment is expanding faster than BRI investment, indicating that Chinese investment remains primarily focused in East Asian and industrialized nations.

Deborah Bräutigam, a professor at Johns Hopkins University’s School of Advanced International Studies (SAIS), described debt-trap diplomacy as a “meme” which became popular due to “human negativity bias” based on anxiety about the rise of China.

According to a 2019 report by the Lowy Institute, China had not engaged in deliberate actions in the Pacific that justified accusations of debt-trap diplomacy (based on contemporaneous evidence), and China had not been the primary driver of rising debt risks in the Pacific; however, the report expressed concern about the scale of China’s lending and the institutional weakness of Pacific states, which posed the risk of small states being overwhelmed by debt.

According to the Sri Lankan Department of external resources, foreign Debt Summary (as of end April 2021)

By the end of April 2021, total outstanding external debt of the Government was $35.1billion.

From the charts Japan owe 10%,world bank owe 09%, China owe 10%. Sri Lanka is on the verge of bankruptcy due to its massive external debt. As a result, it’s evident that no Chinese debt trap diplomacy was used in this case.

And when it’s time to talk about Hambarkota Port, Karunasena Kodituwakku, the Sri Lankan ambassador to China, said that the Chinese government did not ask the Sri Lankan government to hand over the port; the Sri Lankan government initially asked China to lease the port. Other Sri Lankan representatives have noted that it made sense for Sri Lanka to welcome Chinese investment in the port because most of its commercial shipping was from that country.”

Debt to GDP Ratio by Country 2022 :

1. Japan (National Debt: ¥1,028 trillion ($9.087 trillion USD))
2. Greece (National Debt: €332.6 billion ($379 billion US))
3. Portugal (National Debt: €232 billion ($264 billion US))
4. Italy (National Debt: €2.17 trillion ($2.48 trillion US))
5. Bhutan (National Debt: $2.33 billion (USD))
6. Cyprus (National Debt: €18.95 billion ($21.64 billion USD))
7. Belgium (National Debt: €399.5 billion ($456.18 billion USD))
8. United States of America (National Debt: $19.23 trillion (USD))
9. Spain (National Debt: €1.09 trillion ($1.24 USD))
10. Singapore (National Debt: $350 billion ($254 billion US))

In conclusion, it turns out that the majority of high-debt countries are industrialized nations that have not borrowed money from China. It’s also evident from the Sri Lankan situation that it’s not a debt trap. Most countries become defaulters as a result of their government’s incompetent decisions. It is up to the country that has borrowed money from others to put that money to good use. As a result, the current situation just demonstrates that China is not engaging in debt trap diplomacy. It is simply attempting to put its BRI projects into action in order to boost its economy and commerce in the most efficient manner possible throughout the world.

References –

1. https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/

2. https://en.wikipedia.org/wiki/Debt-trap_diplomacy

3. https://www.statista.com/chart/19642/external-loan-debt-to-china-by-country/

4.  https://www.bbc.com/news/59585507

5. https://www.theatlantic.com/international/archive/2021/02/china-debt-trap-diplomacy/617953/

6.  https://www.lowyinstitute.org/the-interpreter/debunking-myth-china-s-debt-trap-diplomacy

7. http://www.erd.gov.lk/index.php?lang=en

8. https://worldpopulationreview.com/countries/countries-by-national-debt