Compiled by Anish
The rise of China in terms of its economy and power throughout the years has caused other nations to view China as a potential threat to disrupting the global order in the future. The Belt and Road Initiative is a form of a bilateral negotiation between China and another country wherein China becomes the creditor by giving out loans for infrastructure projects, whereas the country receiving credit has to pay their debts to avoid China from demanding advantages or concessions in exchange for debt relief. It is also known as debt trap diplomacy because it takes advantage of poorer nations by offering endless loans for them even though China is initially aware of their lack of capacity in paying all of the loans in a short period. China’s debt trap diplomacy called the “Belt and Road Initiative” is a way for them to procure political and economic superiority by exploiting the poorer countries, which in turn could help them attain influence and control all over the world.
A prime example of the Chinese Debt trap
Sri Lanka had borrowed billions of dollars from China for the development of its domestic infrastructure. For the Hambantota Port project, Sri Lanka borrowed US$301 million at an interest rate of 6.3% while the loan interest rate from the World Bank and The Asian Development Bank (ADB) is only around 0.25-3%. In January 2015, Mahinda Rajapaksa’s government as the initiator of the Hambantota Port development lost the general election. At the end of 2016, according to the Central Bank of Sri Lanka and the IMF, Sri Lanka had a foreign debt of US $ 46.4 billion or 57% of GDP, where around 10% of this debt was owed to China. To pay for the maturing international government bonds, the Sri Lankan government decided to privatize most of the shares in Hambantota Port. Two Chinese companies had submitted bids for Hambantota Port, namely the CHEC and CM ports. Of the two bidders, Sri Lanka chose CM Port. Now CM Port owns 70% of the shares and made prepayments of US $ 1.12 billion. India is also concerned with the geopolitical risks associated with Sri Lanka handing over the port to a Chinese company.
Other examples of the Chinese Debt Trap
Tajikistan handed a disputed border to China to repay their debts, and last April 2018 they also handed over their gold mine as remuneration for the funds that aim to build a powerplant (Furukawa, 2018). Other countries such as Djibouti, Laos, Kyrgyzstan, and Montenegro have used a form of debt relief wherein they resort to the option of giving off natural resources such as oil to make up for their unpaid debt.
BRI under a negative spotlight
A lot of Southeast Asian and some Western countries have turned against the Belt and Road Initiative. Malaysia, Bhutan, and Maldives are three examples of countries that perceive the Belt and Road Initiative in a negative light. Possible reasons why they do not trust China is because of the region’s long-standing rivalry with China over the border and economic issues. In Malaysia, Prime Minister Mahathir Mohamad openly states his sentiment on the Belt and Road Initiative wherein he cancelled two projects in Malaysia which are the $20 billion railroad and the $2.3 billion natural gas pipeline because he is convinced of his country’s inability to pay back the loans. Meanwhile, western countries such as Poland, Bosnia and Herzegovina are also not willing to engage with China’s Belt and Road initiative for reasons which they believe that negotiating with China will only cause them huge investments that would turn into debt, also the negative trade balance with China may grow.
Conclusions
The Chinese Belt and Road initiative can be concluded to be a ploy by China to assert its political dominance on poorer and less developed countries to gain undue advantage over them and make them their pawns and help them in the pursuit of becoming the most powerful country in the global realm.
