Chinese Debt Trap Diplomacy: The Debate and the Gaps in the Literature

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The rise of China created issues in the international area as well in the domestic arena of many countries. The Chinese ambition of becoming a super power has started infusing skepticism to many scholars and policy makers of different countries. Again, the infusion of cash from China to the economies of third world countries brings fresh breath of air to the stagnated economies. The impact of the newly infused cash and the increasing influence of China in the loan receiving countries are the bone of contention among the scholars. The scholars are divided different groups on the issue of “Chinese Debt” and its consequences. The debate started when China took control of a strategically important port of Sri Lanka when Sri Lanka failed to repay the loan of China.  This debate paper will focus on the issue of “China’s debt trap diplomacy”, where it will focus on whether China is using its economic power to influence other countries or not. So, our research question is: “Does China use debts as a tool of diplomacy to control over foreign lands, installations and sovereignty?” This paper will try to find the ideas of scholars and review them to find if “debt trap diplomacy” really exists or not. The literature review will examine the debate, the positions, the logics, the arguments, the strength, weakness and the robustness of the literatures on this issue. Before comparing, contrasting and synthesizing to see the nuanced picture of the Chinese debt situation, literatures will be considered separately on the basis of the debate camps at first.

Chinese economy is growing very fast in the last three decades which also contributed to the growth of its military and diplomacy. Now, China has become world’s largest creditor according to AidData (Reuters, 2021). China mainly credits the developing countries for the expansion of the flagship project of Xi Xingping, the “Belt and Road Initiative (BRI). China has credited the money to developing countries with secrecy with hidden clauses (Reuters, 2021). The amount that China credited to the developing countries is nearly $843 billion and the “hidden debt” is $385 billion according to AidData (Smith 2021). There were always been doubts on Chinese intention in the past about the lending, but in 2017 when Sri Lanka failed to return the money borrowed from China and agreed to lease the Hambantota port to Chinese authority for 99 years (Abi-Habib 2018), the doubt became real to many of the researchers and officials that China is crediting the developing countries to grab lands, sovereignty or strategic location for its expansion and world domination. But some researchers think that as China is becoming a superpower, it has some ambitions like BRI, that is why it credits the countries. Here starts a debate on China’s intention.

The debt trap is not new in the world and the third world countries are suffering from it (Dezner 2009). But the problem starts when China started to lend money which leads to acquire strategic assets from countries. In past some of the officials and researchers showed their concern over the Chinese money lending diplomacy. But after Chinese lease on Hambantota Port of Sri Lanka due to the inability of repaying the loans. Some countries that have taken loans from China are on the brink of bankruptcy as Sri Lanka. China might take advantages of that situation and take control of the sovereignty and strategic locations.

There are two main caps available in the debate. The first group think that China is using “debt trap diplomacy” and BRI for bad intentions. The second group think that “debt trap’ is a myth and China is just a creditor and using the money to expand its dream project BRI. A third group is skeptic of both the sides and think that it is not time to judge Chinese intentions now and the BRI project is full of uncertainties and a two-way path may prove bad for China too. 

Indian strategic analyst Brahma Chellaney (2017) wrote an article on “Chinese Debt Trap Diplomacy” how countries are going down to the Chinese debt trap and losing the sovereignty.  The “debt trap” theory has created a debate since then. In this article, Chellaney (2017) showed that China is funding the developing countries for infrastructure development and its ambitious BRI project. Supporting the claims of Chellaney, Wilsbach (2021) stated that the countries with weaker economies and in the immediate proximity of China in the Indo-Pacific are mostly under the debt. Moreover, the loans are very unsustainable because the countries are taking the loans have no ability to repay and the terms of loans are elucidated (Behuria 2018), the loans are untraceable, the terms are unknown which is deviated from the standard practice of IMF and other financial institutions (Horn, Reinhart, Trebesch 2020). In the condition of the loans, only Chinese companies can get the tenders with Chinese workers working for them. Countries soon fail to repay the loan and in return China can take some geopolitically important areas (Chellaney 2017, Wilbach 2021) which may fulfill China’s geostrategic goals like “String of Pearl” to solve its “Malacca Dilemma” (Parker, Chefitz 2018). Chellaney (2017) even argued that China use the loan to open up the domestic market of the loan receiving country for entering Chinese goods in the market and exploit the natural resources the country has. China even trying to recolonize Africa where the “debt trap diplomacy” is crippling the economies of Africa by pursuing own self-interests and skewing the balance of trade towards China (Kinyondo 2019, Schwab 2016). Though the theory is new, the debate is new but the concerns are old. Drezner (2009) predicted earlier that Chinese debts are becoming bad debts. Later US officials such as Hillary Clinton and Mike Pompeo said “Chinese debt trap” is “neocolonialism” and “predatory” with several senators showed concerns (Zengerle 2018) which supports Kinyandos article. SK Chatterjee (2020) labeled the debt trap as “Salami Slicing” and added more to the literatures that it is not just about territorial acquisition or border incursion but extend as far as sovereignty and cultural usurpation. Though struggling with debts are nothing new from third world countries, the Chinese debt and Belt and Road Initiatives threatens ability to achieve self-reliance (Greene 2019). Recently, Ibrahim (2020) narrated that in this Coronavirus pandemic Chinese debt trap will get boost. He added that military base of Djibouti, Hambantota, Maldives and Gwadar port of Pakistan, all are facing the same issue that Chinese sovereignty over them. From the discussion of the literatures above, it is clear that the China is being aggressive towards its economic and geostrategic goals where debt is an effective tool for China. Certainly, we understand the broader picture of Chinese intentions. However, the limited available literatures and data on the impact of Chinese debt make it hard to comprehend the nature of the debt. As a result, very few peer reviewed journal articles were written to support the idea of “Chinese debt trap diplomacy”.

On the other hand, the number of counterarguments against “Chinese debt trap” are already present. Deborah Brautigam (2020) labeled the concept “debt trap” as a meme and expressed that the Western media and governments fell into ‘negativity bias’. Vu (2021) thinks that the concept of “debt trap” fear is overestimation of Chinese capabilities. Followed by Chatham house report (2020), Lowy Institute report (2020), Singh (2021) and Brautigam (2021) labeled debt trap as ‘myth’. Li Jiang (2019) shows that the debt trap exists for third world countries since WW2. Maria Adele Carrai (2021) questions the Chinese debt trap rhetoric surrounding Hambantota Port. Even if the countries take loans from China, corruption, bad governance, inefficiency, bureaucratic red tapes weakening the capacity of utilizing the foreign investments (Shaikh and Chen 2021). China does not involve in the predatory behaviors in Africa and Caribbean Islands which is opposite of the debt trap narrative (Singh 2020). Brautigam (2018) showed that Chinese debt is not a major debt distress in Africa now. China has invested in 51 countries since 2001-2017 and have not seized any assets from them (Hurley et al. 2018). The Debt trap of Sri Lanka was its own making as the government of Sri Lanka was borrowing heavily for the infrastructures which was just inefficiency of the government and eye wash to its own people (Behuria 2018).  Shahar (2018) on the Lowy International report supported Behuria (2018) that the Hambantota Port leasing incident does not provide enough evidences of Chinese strategies rather shows lots of evidences of bad governance of the recipient sides. Jones and Hameri (2020) on the Chatham House report argued that, it is not China that is shaping the debts and BRI but the recipient countries. In their recommendations the mentioned that China and Malaysia are not helpless rather inefficient in spending the money received from China. Sri Lanka was war torn and the internal politics of power mongering of the parties spent money to the unnecessary projects which let to the mess. Li (2017) argued that the unconditional loans of China limited the scope for the traditional donors and Chinese policy of “no string attached” after sanctioning the loans explains the different narrative of the debt trap narrative. Jiang Li (2017) mentioned that the Chinese debt trap narrative has been politicized. From these literatures, we understand that the debt trap narratives do not hold water against these evidences. Again, the BRI project and the debt trap narrative is very new. China has just started becoming a donor recently in compare to the other Western Countries and sources. So, though China is following the nonintervention policy to the other countries. Sri Lanka is a case study along with Zambia and some Pacific Island states fall in the category to study. These limited amounts of data are not sufficient enough to judge the whole scenario right now. So, there is an opportunity to debate over the issue of Chinese debt.

Another group is in the middle of the debate and they think that China sanctions risky loans. The process and the conditions that China puts on the debt are questionable and it is not a very opaque (Gerstel 2018, Behuria 2018) which might support the debt trap narrative. Again Gerstel (2018) thinks that China and IMF should work together to reduce risky loans and ensure sustainability and Behuria (2018) opposing the debt trap narrative by analyzing that Sri Lanka did to their own. Ferchen and Perera (2019) think that Chinese infrastructure deals are a two-way street and as China is weak in analyzing risks, as well as with the benefits, it might hurt China too.

The Western scholars, governments and the media are focusing on “Chinese debt trap diplomacy” as they are in fear of the growth of Chinese power and influence over the regions that previously were West dominated (Jiang 2017). But it is not entirely wrong that China is sanctioning the risky loans without analyzing the sustainability (Behuria 2018) and they put vague conditions (Gertel 2018, Behuria 2018) which can be exploited lately. Though the debt trap narrative is a meme (Brautigam 2021) which does not support the major distress in Africa (Brautigam 2018), did not find anything that supported the ‘debt trap’, the easy debt is crippling Africa’s self-reliance (Kinyondo 2019, Schwab 2016). Even China is taking advantages of being a donor country to exploit the natural resources and the huge market (Kinyondo 2019, Schwab 2016). Li’s (2017) argument was right for the time being that China has noninterventional policy towards the receiving country but the Sri Lankan incident challenged the narrative. If China did not want the strategically important port of Sri Lanka, the Hambantota, they would have found a way to bypass the lease as they did in Pakistan’s CPEC (Shaikh and Chen 2021). Sri Lanka is not the only aberration, military base of Djibouti, Pakistan’s Gwadar Port all are supporting Chellaney’s (2017) “Pearl of string theory” to dominate the Indian Ocean region to solve the “Malacca Dilemma” of China because China uses Malacca Straight as the prime business root to Africa, Europe, Asia and the Middle-East (Wilsbach 2021). Vu (2017), Singh (2021), Shaikh and Chen (2021), Behuria (2018) all indicated that it is not China but the receiving countries poor governance, corruption, bad management are dragging themselves down to the debts. Understandably that is true but the question always remains there that why does China sanctions that kind of predatory loans? The case of Sri Lanka is a great example how China is countering India and increasing its influence in the Indian Ocean (Chellaney). After sanctioning the loans, Chinese companies are becoming the contractors and the Chinese workers are working the project rather the local companies and the workers (Chellaney 2017, Wilbach 2021) which means the money China is providing for the development projects will be going back to China and again the locals are not getting the money in real rather they have to pay the money again. Id China was not a predatory country, it would have not tried to restrict 11 countries to enter their own Economic Zones at South China sea.

Though annexing Hambantota port of Sri Lanka, China has not done anything like that in past and present. As mentioned earlier, China has sanctioned loans to more than 50 countries all over the world and the sum is not very small one, China did not establish sovereignty over any other installations, ports of geostrategic important locations (Hurley et al 2018). Somehow this argument is enough to weaken the ‘debt trap diplomacy’ narrative. Chatterjee’s (2020) ‘salami slicing’ is true for the South China Sea and the land borders of China but what and how would China do ‘salami slicing’ in places like Sri Lanka and China? Moreover, Chatham House Report (2020), Lowy International Report (2020), Shaikh and Chen (2021), Singh (2021), Behuria (2018) all indicated that one thing that they did not find evidence of Chinese ill intentions rather they found evidences of the bad governance that cripple the economy which led to misuse of the money received from China.

China has been a major donor for not a very long time, just a decade or more. The timeline is very small to judge the actions and intentions of a rising power. It is true that, China is pushing for its global domination by creating its hegemony over others. But most of the evidences we gathered on behalf of the ‘debt trap diplomacy’, many of them are not research papers, rather magazine article, opinions new important new reports in the Indian and Western media. Though most of the counterarguments are published in peer reviewed journals, they are also based on a few years’ observations. Most of the literatures solely focused on few regions like Sri Lanka and Pakistan. The researchers barely focused on the geopolitical importance of the countries rather they focused more on the internal political, economical and sociological aspects of the receiving countries. Jiang’s (2017) argument might be invalid if China start involving in the politics and economics of the loan receiving countries or really the number of countries like Sri Lanka increases. For, China might have maintained the ‘no string attached’ attitude as China thinks that when more countries will take loans and the receiving countries take more loans that they can not repay, then China might grab what it wants one by one. Or it is just a politicized concept from insecurities to devalue the work China is doing to be a great power. The studies of the both sides lacked enough quantitative data, including the lacking of enough cases to study weakens the results. Without rigorous quantitative or qualitative study of the phenomena, the studies remain unfinished and unconvincing.

Undoubtedly to say, for the new phenomena like ‘debt trap diplomacy’, a decade of observation is not enough yet scholar from the both sides of the debate made compelling arguments in a very short time. But I think it is still hard to say which side has the better arguments to win the debate. There are so many lacking in data and case studies as stated earlier. To the proponents of the ‘debt trap diplomacy’ theory could add the strategic important areas for China and try to show how China is involving there. They could also try to show that how China is exploiting the bad governance of the countries to seize economic control and the strategic locations.  Furthermore, they could show using data that how important geographic regions are receiving more Chinese loans and increasing Chinese presence in the area. Conversely, the opponents of the ‘debt trap diplomacy’ theory could show that Chinese investments are good for developing countries. They could use data and show how Chinese money leads to the betterment of the infrastructures and lives of the receiving countries without interfering in the policies. In future the true Chinese intention will be unveiled and both sides might get enough data and case studies to bolster their positions. If China starts working with IMF and start respecting the international standard of loans, aid and money transaction, it would be easier for China to be trusted from the West and skeptics. Only time will tell what is really happening.

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