China, a gigantic… well, a giant in so many aspects, is the world’s leader in electric car batteries production, greening, renewable energies, but also the global leader in emissions. It is also the leader in the number of unicorn start-ups, artificial intelligence, industrial economy scale, but also in loan sharking.
It is not only loan sharking itself, but it is also loan sharking the world’s poorest countries by spreading its impact throughout the world. By providing quick money to needy governments at extremely high interest rates, it takes these economies prisoner since almost none of them was, is or will be able to pay back the debt.
With its Belt and Road Initiative, China is trying to implement novel ways of gaining geopolitical power. It is building capital constructions such as roads, bridges, seaports, power plants in economically disadvantaged countries in Asia, Europe, and Africa. Eight countries are identified as being at most risk at the moment: Djibouti, the Maldives, Montenegro, Laos, Mongolia, Tajikistan, Pakistan, and Kyrgyzstan. With providing loans, China makes sure that Chinese companies are implementing the projects, by that leaving all the money in China, but leaving all the debt to poor countries.
The most famous example of China’s debt-trap diplomacy is the Hambantota port in Sri Lanka. The port was ceded to China on a 99-year lease after the government failed to pay the debt it owed to their good Samaritan for building the port. A few days ago, Sri Lanka asked for Hambantota to be given back to them, but with no success so far.
There are, however, experts that claim that the urban legend of China debt-trapping is a consequence of the fear of ‘Yellow Peril’, prejudice and racial discrimination of the Chinese, especially now that they are becoming another of the world’s superpowers. The Hambantota case is also brought into question. The allegations of debt-trap diplomacy in the Pacific region have also been denied.
However, a group of researchers revealed that China is involved with a number of hidden debts that are not reported to IMF, BIS or the World Bank. If it is the good Samaritan, why would it hide the loans it provides? What are China’s motives then?
1 thought on “Debt-trap diplomacy: China’s loan sharking”
Great blog! I agree that the most famous example of China’s debt-trap diplomacy is the Hambantota port in Sri Lanka.