Debt Trap Diplomacy of China, a Myth?

When Brahma Chellaney coined the term “debt-trap diplomacy”, explaining how China deliberately lends huge amounts of money to financially vulnerable nations that struggle to repay their debts later on, leading to these countries having to offer strategic assets to China in order to reduce their debt burden, and illustrated the explanation with the Chinese acquisition of the Hambantota Port in Sri Lanka in 2017, it significantly influenced the study of Chinese behavior within the international sphere.

Illustration by The Geostrata

Scholars began taking various stances on the concept, with Western scholars generally supporting its validity. However, recent studies have surfaced, challenging the notion of an active Chinese pursuit of debt-trap diplomacy. Scholars like Brautigam (2019), Jones and Hameiri (2020), and Himmer and Rod (2023) have strongly contested the idea that China engages in such practices. Nevertheless, a closer examination of these arguments uncovers some overlooked flaws. 

It must be noted that debt trap diplomacy is not simply limited to Sri Lanka. Shaikh and Chen (2021) have found that in the case of the China-Pakistan Economic Corridor (CPEC), there has been a classic case of Pakistan defaulting on China’s debt repayments at high interest rates. However, while they also argue that it is not in China’s interests to ensnare Pakistan in a debt trap, there is no doubt that the CPEC is increasingly important to China, and holding strategic assets in the corridor will be in handy for the future.

However, to narrow the scope of this article, we will solely focus on the case of the Hambantota Port, aiming to address the flaws and argue that China's interests can also extend beyond mere economics to include geopolitical ambitions, albeit not immediately apparent. 

The aim of this article is not to contend that China exclusively employs debt trap diplomacy to secure geopolitical advantages in strategic regions worldwide. Instead, through this article, we seek to challenge theorists who deny the existence of debt trap diplomacy, especially in the case of Sri Lanka and Pakistan.

LEASING OF HAMBANTOTA

Sri Lanka through the Belt and Road initiative in 2017 took a series of loans that it had acquired from Chinese loans at higher interest rates, resulting in the lease of the Hambantota port to the China Merchants Port Holdings (CM Port). Beijing had created internal allies through the Rajapaksa family.

This family has dominated Sri Lankan Politics for the past two decades. Therefore China has aided them in their election campaigns and in infrastructural development of the nation. Scholar Abeyagoonasekera articulated that the Rajapaksa brothers of Basil, Mahinda, and Gotabaya had brought changes to the democratic system to better benefit the autocratic system and help the Chinese Communist Party (CCP). Mahinda Rajapaksa has stated that China has aided Sri Lanka in infrastructure developments that have enhanced the economy. 

This all surfaces during the 2015 presidential campaign it was found that massive payments from the Chinese port production fund flowed directly to campaign aides and activities for Mr. Rajapaksa, who had agreed to Chinese phrases at each turn and turned into seen as an important ally in China’s efforts to tilt affect far from India in South Asia region.

Therefore through Mahinda Rajapaksa, China makes inwards into further influencing the political influence of the nation. In the case of Pakistan, it faces debt trap diplomacy risks, specifically from China. The CPEC consists of big investments in projects like Gwadar Port. While promising economic growth, issues rise up about Pakistan’s loan payment ability.

Gwadar's strategic region makes it mainly treasured, probably becoming collateral if Pakistan defaults. This situation exemplifies how infrastructure development can intersect with geopolitical impact, elevating questions on long-time period sovereignty and financial independence.

QUESTIONS TO TAKE INTO CONSIDERATION

It is now important for those who argue against the concept of “debt trap diplomacy” to ponder two points. First is that between 2001 and 2021, China embarked on 123 seaport projects worldwide, totalling $29.9 billion in investment. Among these projects, the Hambantota port stands out as China's largest investment in a port project.

Moreover, out of the four feasibility reports conducted by India, the United States and other companies, three of them found the port to be an infeasible project. Only the fourth report, which was conducted by Ramboll, a multinational consultancy company in Denmark, found the project feasible. Even after the Ramboll report, many concerns were found regarding the project’s viability. China still continuing to support this project is certainly very surprising as since 1982, China only chose to support projects which were more commercially viable for them. 

Despite this obvious infeasibility of the port, China continued funding the construction of the port. China willingly provided huge loans and infrastructural support for the Hambantota Port, whenever Mahinda Rajapaksa requested the Chinese. It cannot be denied that China was aware of the infeasibility but still continued to fund the construction of the port. Why was that? There must be some motivation to continue the project. What were they?

Image Credits: Rightful Owner

Critics of the “debt trap diplomacy is a myth” narrative fail to take this question into consideration while trying to explain the case of the Hambantota Port. Based on the above observations, it would be erroneous to state that China has purely commercial interests in Hambantota. There has been no discourse on China’s willingness to still proceed with the project, fully aware that the project would be an economic disaster for Sri Lanka. 

NOT MERELY COMMERCIAL INTERESTS, BUT GEOPOLITICAL

The String of Pearls strategy is utilized by China to exert greater influence in the Indian Ocean that would aid in its trade and military objectives. This is due to the fact that those who influence the Indian Ocean will influence the other major water bodies. This has led to China using the BRI as a geopolitical tool to indirectly aid the String of Pearls strategy.

Hambantota present on the Southern tip of the Indian Ocean is a vital strategic point as they could survey the Indian Ocean. Beijing therefore through influencing the decisions at Hambantota could help the economic interests which are safe passage of Chinese goods and handle the Malacca Dilemma.

The United States and India could utilize its navies to block the Sea Lines of Communications that China holds in the Indian Ocean. A bulk of China’s maritime transport passes via the Indian Ocean to the Suez Canal that needs to enter the Strait of Malacca.

If Malacca is choked by the US and India, then it would be difficult for China to conduct maritime trade with the outside world harming the global economy. Through building a port at Hambantota, the People’s Liberation Army Navy would be able to deter potential threats from adversaries and protect Chinese trade vessels.

It has therefore carried out surveillance ships and patrolled the area. This has led to nations questioning whether the BRI is utilized by China to promote cooperation or are there ulterior motives.

The Chinese Navy in 2022 had sent Yuang Wang 5, a research ship in the Indian Ocean and for replenishment purposes to the Hambantota port. This has led India and other nations to call out China as they felt that it was used as a spy ship to patrol Indian facilities and the Military base of Diego Garcia operated by the US and UK.

The ship has a 222-meter-long, 25,000-metric-ton vessels that can track ballistic missiles and satellites and gather signal intelligence. This is particularly worrisome for India as they have the Nuclear facilities in Kudankulam and Kalpakkam, Southern Naval Command in Kochi, Missile testing facility in Chandipur, and lastly Indian Space Research Organisation in Sriharikota.

These facilities are of significant importance to the National Security of India and Beijing seeks to obtain valuable information that would undermine Indian presence in the area. Therefore China is trying to exert maximum utility from the Hambantota Port in the economic and military sense which undermines Sri Lankan sovereignty.

The port since 2017 has been in the influence of China Merchants Port Holdings which holds 85% of stake in the port and can take decisions that do not align with Sri Lanka. It will be difficult for Colombo with their economic troubles to be indebted to Sri Lanka as they would be pressed by China.

China's use of Yuang Wang 5 at Hambantota port raises issues for India and others, potentially threatening regional protection and Sri Lankan sovereignty because of China's financial impact on Sri Lanka.

Our objective in this article is not to claim that debt trap diplomacy is a deliberate tool wielded by China to advance its geostrategic objectives in developing nations. Instead, we highlight that studies that outright dismiss the concept of "debt trap diplomacy" as false and problematic, are incomplete.

They fail to consider the geopolitical factors that undoubtedly influence China's infrastructure investments in such projects. This underscores the necessity for further scrutiny and examination of this concept, rather than adhering to an argument solely focused on proving or disproving the theory. 

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BY ABHINAV POLUDASU AND SANJAY GURURAJAN 

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