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Debt trap diplomacy” debunked… again

Necian

Research by Acker, Brautigam, and Huang showed that, contrary to the popular narrative of debt trap, “Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country”. The article found that:

The notion of “debt-trap diplomacy” casts China as a conniving creditor and countries such as Sri Lanka as its credulous victims. On a closer look, however, the situation is far more complex. China’s march outward, like its domestic development, is probing and experimental, a learning process marked by frequent adjustment.

The other side of the debt-trap myth involves debtor countries. Places such as Sri Lanka—or, for that matter, Kenya, Zambia, or Malaysia—are no stranger to geopolitical games. And they’re irked by American views that they’ve been so easily swindled.

This study follows a study published last year by Lee Jones and Shahar Hameiri, who found that:

In Sri Lanka and Malaysia, the two most widely cited ‘victims’ of China’s ‘debt-trap diplomacy’, the most controversial BRI projects were initiated by the recipient governments, which pursued their own domestic agendas. Their debt problems arose mainly from the misconduct of local elites and Western-dominated financial markets.


The theory that China can entrap other countries through debt in order to gain strategic assets does not have solid evidence. Yet this criticism of China’s overseas infrastructure investment and its Belt and Road Initiative is repeated widely by political leaders and commentators, including by the governments of the US, Australia, and Japan. The term “debt trap diplomacy” was first coined by a think tank in India in 2017.

For the “debt trap” to work, China would need to enter project contracts with the expectation that the country would fail to pay off debt. This means China would have to persuade or mislead the recipient country to select projects that are not economically sustainable.

However, the recipient country government probably has better information than China on whether a project is economically sustainable. The more likely scenario would be for a corrupt recipient country government to mislead China into financing a project. And China may be more willing to work with corrupt political elites. The Hambantota port, for example, is in the political district of the then-President of Sri Lanka, Mahindra Rajapaksa.

While corruption is a problem with the recipient country, China’s willingness to work with countries prone to corruption that other lenders tend to avoid can exacerbate the problem of corruption. But it’s unlikely that China would intentionally seek out loss-making ventures in the expectation that it can seize strategic assets in the end. And indeed, evidence shows that it hasn’t happened.

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