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Debt-trap diplomacy

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Debt-trap diplomacy describes a situation where a powerful lending country or institution seeks to saddle a borrowing nation with debt to increase its leverage over it. "Debt-trap diplomacy" was originally associated with Indian academic Brahma Chellaney, who promoted the term in early 2017.

The theory of debt-trap diplomacy is that the creditor country extends excessive credit to a debtor country with the intention of extracting economic or political concessions from the debtor country when it becomes unable to meet its debt repayment obligations.[1] The conditions of the loans are often not made public,[2] and often come with conditions that suit the lender. The borrowed money commonly pays contractors and materials sourced from the creditor country. The term has been applied to institutions like the International Monetary Fund (IMF), but especially to the People's Republic of China (PRC). This allegation against China has been disputed by institutions such as Rhodium Group and Chatham House.[3][4] However, other institutions have published studies detailing China's weaponization of debt, including two separate joint reports released in 2021 by AidData at College of William & Mary, the Center for Global Development, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics.[5] The concept of debt-trap diplomacy has been embraced by the United States government, with multiple American government documents referring to it, including the Department of State's seminal report, "The Elements of the China Challenge".[6]

Origin and background

See also: Belt and Road Initiative

The term "debt-trap diplomacy" was promoted by Brahma Chellaney to describe what he said is China's predatory lending practices, in which poor countries would be overwhelmed with unsustainable loans and forced to cede strategic leverage to China.[7] The term was first used in 2017; within 12 months it had quickly spread through the media, intelligence circles, and Western governments.[8] It has since expanded to include other parts[which?] of the world[9] and was further defined and expanded upon in the context of Chinese geostrategic interests in a 2018 report published by the Belfer Center for Science and International Affairs.[1][10]

The theory of debt-trap diplomacy is that the creditor country intentionally extends excessive credit to a debtor country, thereby inducing the debtor into a debt trap. This is done with the intention of extracting economic or political concessions from the debtor country when it becomes unable to meet its debt repayment obligations.[1] The conditions of the loans are often not made public,[2] and the borrowed money commonly pays contractors from the creditor country. Although the term has been applied to the lending practices of many countries[which?] and the International Monetary Fund (IMF),[11][12][clarification needed] it is most commonly used in relation to the People's Republic of China (PRC).[13]

The Belt and Road Initiative (BRI) is a multi-billion-dollar expansion project of China, to expand its power through lending to countries to spur their economic growth.[14] The BRI project was launched in 2013 by Chinese paramount leader Xi Jinping to improve the infrastructure of countries in Europe, Africa, and Asia in exchange for global trade opportunities and economic advantage.[14] Bilateral agreements made as part of China's BRI have particularly furthered this association, specifically with regard to Chinese infrastructure loans to developing countries and the alleged leveraging of accumulated debt to achieve Beijing's strategic aims.[15][16][17] La Trobe University's head of humanities and social sciences, Nick Bisley, said that China aimed to build political capital through Bri and that logically asset seizures wouldn't be the route they would take to achieve that end.[18]

Debt-trap diplomacy has been referred to by several other terms, including "debt-book diplomacy".[19]

By the People's Republic of China

China's overseas development policy has been called debt-trap diplomacy because once indebted economies fail to service their loans, they are said to be pressured to support China's geostrategic interests.[20] According to the inventor of the term, Brahma Chellaney, "it's clearly part of China's geostrategic vision".[21]

China has been accused of requiring secret negotiations and non-competitive pricing on projects in which bidding must be closed and contracts must go to Chinese state-owned or state-linked companies that charge significantly higher prices than would be charged on the open market.[22]

Some Western[23][24] Indian,[25] and African[26][27] media have criticized China's loan terms and high interest rates. For example, a 2006 loan to Tonga sought to rebuild infrastructure.[28] From 2013 to 2014, Tonga suffered a debt crisis when the Exim Bank of China, to which the loans are owed, did not forgive them.[29] The loans claimed 44 percent of Tonga's gross domestic product (GDP).[29] Western analysts have said China's practices hide hegemonic intentions and challenges to states' sovereignty.[30][31] China has also been accused of imposing unfair trade and financial deals when cash-poor countries are unable to resist Beijing's money.[32]

In August 2018, a bipartisan group of 16 US senators cited “the dangers of China’s debt-trap diplomacy”, saying: “It is imperative that the United States counters China’s attempts to hold other countries financially hostage and force ransoms that further its geostrategic goals”.[33] US Secretary of State Mike Pompeo said that China's debt-trap diplomacy is oiled with bribes, adding "China shows up with bribes to senior leaders in countries, in exchange for infrastructure projects" in an October 2018 speech.[34][35] S. K. Chatterji at Asia Times commented that China's BRI-led debt-trap diplomacy is the economic aspect of China's salami slicing strategy.[36]

A 2018 paper published by Harvard University's Belfer Center for Science and International Affairs said three strategic goals behind China's use of this technique: "filling out a 'String of Pearls' to solve its 'Malacca Dilemma' and project power across vital South Asian trading routes; undermining and fracturing the US-led regional coalition contesting Beijing’s South China Sea claims; and enabling the People’s Liberation Army Navy to push through the 'Second Island Chain' into the blue-water Pacific".[19]

Counterarguments

Deborah Bräutigam, an international political economy professor at Johns Hopkins University described the theory as more a "meme" that became quickly popular due to "human negativity bias" based on fear.[8] A 2019 research paper by Deborah Bräutigam found that most of these countries voluntarily signed on to these loans and had positive experiences working with China, and "the evidence so far, including the Sri Lankan case, shows that the drumbeat of alarm about Chinese banks' funding of infrastructure across the BRI and beyond is overblown" and "a large number of people have favorable opinions of China as an economic model and consider China an attractive partner for their development."[8] She criticised the theory for lacking evidence and the media for promoting a narrative of debt-trap diplomacy that "wrongfully misrepresents the relationship between China and the developing countries that it deals with".[37] A China Africa Research Initiative report, co-authored by Deborah Bräutigam, from August 2018 stated that "Chinese loans are not currently a major contributor to debt distress in Africa."[38]

A March 2018 report released by the Center for Global Development contradicts the theory of debt-trap diplomacy, saying that between 2001 and 2017, China had restructured or waived loans for 51 debtor nations, the majority of BRI participants without seizing state assets.[39] In 2018, W. Gyude Moore, a former Liberia public works minister and senior policy fellow Center for Global Development, stated that "[t]he language of “debt-trap diplomacy” resonates more in Western countries, especially the United States, and is rooted in anxiety about China's rise as a global power rather than in the reality of Africa."[40] He also stated that "China has been a net positive partner with most African countries.”[41]

A 2019 report by the Lowy Institute said China had not engaged in deliberate actions in the Pacific that can justify the accusations of debt-trap diplomacy, at least based on contemporaneous evidence, and stated China has not been the primary driver behind rising debt risks in the Pacific but warned the scale of its lending and the institutional weakness within Pacific states would pose risks of small states being overwhelmed by debt.[42][43] According to a 2020 article by the Lowy Institute, Sri Lanka's Hambantota International Port has been portrayed as the "case par excellence" for China's debt-trap diplomacy, but stated that a debt-trap diplomacy narrative in regards to Sir Lanka, was a "myth" and that the project was proposed by former Sri Lankan President Mahinda Rajapaksa, not Beijing.[44] The article added that Sri Lanka's debt distress was not caused from Chinese lending, but from "excessive borrowing on Western-dominated capital markets."[44]

The Rhodium Group has stated China's leverage in debt renegotiation is often exaggerated and was realistically limited in power, and that the findings of their study frequently showed an outcome in favor of the borrower rather than the supposedly predatory Chinese lender.[45][46][47] A May 2019 article in the Sydney Morning Herald said the term was being questioned by new research; an analysis of 40 Chinese debt re-negotiations by the Rhodium Group found "asset seizures are a very rare occurrence" and that debt write-off is the most common outcome.[48] The article also reported the views of Australian National University senior lecturer Darren Lim, who referring to the Rhodium Group study, said much of the leverage shifts to the borrower rather than the lender after the loan has been made. Lim said despite the debt-trap diplomacy claim never being credible, it was pushed by the Trump administration.[48]

By the IMF and World Bank

See also: Economic diplomacy and Dollar diplomacy

The IMF has been accused of being a predatory lender, keeping emerging economies in debt.[49][50][51][52] On the other hand, the IMF has criticised Chinese Belt and Road loans as being predatory lending.[53] In April 2019, the Chinese Ministry of Finance released a new Debt Sustainability Framework,[54] which has been described as being "virtually identical" to the that of the World Bank and IMF.[55]

Both the World Bank and IMF have demanded Structural Adjustment Programmes as a condition to provide loans, often to governments who see these loans as a last resort.[56] Furthermore, they have been criticised of increasing poverty by pressuring for privatizations[57][58][59] and of having ulterior motives of gaining leverage over central banks.[60] According to economist Michael Hudson, World Bank loans were supposed to increase lenders dependence on the US, in "a natural continuation of European colonialism".[61] The Committee for the Abolition of Illegitimate Debt has stated that "the [World Bank] and the IMF have systematically made loans to States as a means of influencing their policies."[62] The IMF has used geopolitical considerations rather than solely economic conditions to decide which countries received loans.[63]

In 2020, Oxfam reported that the IMF was "using its power" through COVID-19 pandemic relief loans to pose austerity on poor countries.[64] IMF conditions have forced recipients to cut healthcare spending, hampering their response to the COVID-19 pandemic.[65]

In 2021, Trinidad and Tobago's government defended their decision to take a multi-million dollar loan from China, rather than from the IMF by stating that unlike IMF, Beijing weren't demanding any 'stringent conditionality's' for its loans. Minister of Finance Colm Imbert was quoted to state in a news conference,

The Chinese loan has a very attractive interest rate of two per cent. The IMF is 1.05 per cent, so there isn’t much to choose between them. If you’re making a judgement call…one loan, no structural adjustment, you don’t have to retrench people, you don’t have to de-value your currency, etc. etc….and then another…you have to do all kinds of terrible things…that’s a no-brainer, obviously you’d go with the one that doesn’t have any structural adjustment conditionalities associated with it, especially since the interest rates are very close, just one per cent apart.

— Colm Imbert

[66][67]

Africa

Further information: Africa–China relations
Chinese loans to Africa[68]
Year Billions of US$
2005
2
2006
5
2007
6
2008
4
2009
6
2010
7
2011
10
2012
13
2013
18
2014
15
2015
13
2016
30

Since 2000, African countries have rapidly increased their borrowing from China,[69] totaling US$94.5 billion up to 2014, as they seek to end their dependence on the IMF and World Bank, who demand market liberalisation in exchange for loans.[70] China is a major stakeholder in the economies of many African countries with a significant influence on many aspects of the continent's affairs.[69] According to research conducted as part of the Jubilee Debt Campaign in October 2018,[71] African countries owed China US$10 billion in 2010, increasing to over $30 billion by 2016.[71] China's lending to African countries is part of a large-scale overseas investment boom, forming part of its quest to secure access to raw materials and become an economic superpower.[72]

As of 2020, the countries in Africa with the largest Chinese debt are Angola ($25 billion), Ethiopia ($13.5 billion), Zambia ($7.4 billion), the Republic of Congo ($7.3 billion), and Sudan ($6.4 billion).[73] In total the Chinese have loaned US$143 billion to African governments and state owned enterprises between 2000 and 2017.[74][75]

Infrastructure

Africa currently has an infrastructure funding gap where it needs to secure more infrastructure funding to support its growing economy.[76][77] According to a 2018 Population Reference Bureau study, Africa will be home to 58 percent of the projected 2.6 billion increase in global population between 2018 and 2050.[78] Gyude Moore, a former Liberia public works minister and senior policy fellow Center for Global Development, said that Africa is not creating jobs anywhere near the pace needed to accommodate those future numbers. He stressed that the African continent lagged behind all other regions of the world on every measure of infrastructure coverage, leading to "tepid industrial growth and a drop in Africa's share of global manufacturing. He pointed that investment from China was one of the few ways that Africa could get financing for its infrastructure needs.[79]

According to the China Africa Research Initiative, Chinese financiers have lent US$153 billion to African public sector borrowers between 2000 and 2019. And at least 80 percent of those loans had been used to finance economic and social infrastructure projects in which mainly consisted of transport, power, telecoms, and water infrastructure.[80][1]

A 2007 report published by International Rivers said that several infrastructure projects funded by Chinese loans had a positive impact on the economies of African countries via developments in infrastructure such as the Merowe Dam.[81][2]

In the 2015 and 2017 records of the World Bank, several African countries have large debts with China and other creditor nations.[82] Interest rates of about 55% in the private sector prompted some African countries to go to China for loans, which charges around 17%.[82] The debts of African countries to China paid for the investment in sectors needing critical development and growth.[83]

Despite the criticisms that Chinese firms are heavily using Chinese labor, most Chinese funded infrastructure projects in Africa are in reality completed predominantly by African workers. A 2017 McKinsey report on Sino-African economic relations found that Africans comprised 89 percent of labor on the projects surveyed and job training and local content are regularly included in contract negotiations between China Export Import Bank and African countries.[84]

Economic risks

In 2018, The Guardian reported that some countries in the BRI project have started rethinking the project and 8 countries were at risk of being unable to repay the loans.[85] According to Jonathan Hillman, director of the Reconnecting Asia Project at the Center for Strategic and International Studies, there is more to these projects than financial strategy; "It's also a vehicle for China to write new rules, establish institutions that reflect Chinese interests, and reshape 'soft' infrastructure".[85]

The negative effects of Chinese loans to African economies include fear of losing local companies to Chinese companies with strong buying power.[14] Trade between African countries and China has also affected ties between African countries and other continents, especially Europe and North America. According to Deborah Brautigam, Chinese loans are prone to misuse, and have promoted the levels of corruption and fights for power in African countries.[14]

Over four-fifths of China's investments are spent on infrastructure projects in underdeveloped and developing countries.[85] Forecasts of the IMF show the economic growth-rate of China will[when?] fall to around 6.2%, which is around 0.4% less than in 2018.[86] Reason for the decline are the increasing number of trade disputes between China and the US, and the sudden increase in debt in the past decade, which was used for infrastructure programs.[87]

Scholar Johanna Malm stated that Chinese loans have been an alternative to IMF loans, but differing in that IMF loans are lower cost, financed by limited government income, while Chinese loans are more expensive, but secured by profitable high-revenue projects.[88]

Kenya

Further information: China–Kenya relations
See also: Goldenberg scandal

Between 2006 and 2017, Kenya took out loans of at least US$9.8 billion (Sh1043.77 billion) from China.[89] Chinese debt accounts for 21% of Kenya's foreign debt, and 72% of Kenya's bilateral debt.[90][91] China lent Kenya extensive funds to build highways and a railway between Mombasa and Nairobi,[92][93] totaling over US$6.5 billion as of 2020.[1] In late December 2018, Kenya reportedly came close to default on Chinese loans to develop its largest and most lucrative port, the Port of Mombasa. A default could have forced Kenya to relinquish control of the port to China.[94][95] Kenyan media has debated whether Chinese loans are worth the risk, drawing analogies with the experience of § Sri Lanka; some commentators[who?] have said these loans could jeopardize Kenyan sovereignty.[92][96]

South Africa

Further information: China–South Africa relations

South Africa is estimated to owe the equivalent of 4% of its annual GDP to China.[97] South Africa has received multiple tranches of Chinese loans, some of which have raised concerns around their opaque conditions[98] and alleged links to corruption in South Africa. This includes a controversial US$2.5 billion loan from the Chinese Development Bank to state-owned South African electrical utility Eskom that was arranged during the Jacob Zuma government.[99] Another US$2.5 billion loan from a private Chinese company Huarong Energy to Eskom was found by the Zondo Commission of Inquiry into state corruption to be improper,[100] prompting Eskom chairperson Jabu Mabuza to state Eskom would not be repaying the loan due to irregularities and corruption involved in the issuing of it.[101]

An additional R370 billion (US$25.8 billion) loan from the China Development Bank during the presidency of Cyril Ramaphosa was given to promote a 2018 economic stimulus package. The South African government initially described the loan as a "gift";[102] the details of the loan were not made public, causing significant public controversy.[103][104] The government justified the loan by stating the interest rate was not exorbitant[105] and that it could not be disclosed due to confidentiality clauses.[106] The loan was criticized by the opposition Democratic Alliance political party for possibly pushing the country into a "debt trap".[106][103]

Rest of Africa

  • Nigeria: US$3.1 billion of the country's total US$27.6 billion foreign debt is owned by China. Nigerian financial publication Nairametrics warned of falling into a Chinese debt trap given Nigeria's notable problems with corruption.[107]
  • Zambia: Based on statistics presented in The Economist in 2018, China likely holds a quarter to a third of Zambia's external debt; which are comparable to other creditors such as the US and the World Bank.[108] In 2018, Zambian lawmakers debated whether Chinese loans put Zambian sovereignty at risk.[109] In the same year, the British specialist publication, Africa Confidential report made claims that Zesco—Zambia's state-owned national power company—has been in talks regarding repossession by a Chinese company. The Zambian government has refuted those allegations for Zesco's privatization.[110]
  • Djibouti: Loans to develop a strategic port.[111] Chinese loans total 77% of the country's total debt.[108] Djibouti owes over 80 percent of its GDP to China and in 2017, became host to China's first overseas military base.[112]
  • Republic of the Congo: an estimated $2.5 billion is owed to Chinese lenders. The exact number is unknown even to the Congolese government.[108]
  • Egypt: China is financing the country's new capital.[113] In an interview, Gen. Ahmed Abdeen, who heads the Egyptian state-owned enterprise overseeing the new capital, criticized American reluctance to invest in Egypt, saying; "Stop talking to us about human rights. Come and do business with us. The Chinese are coming—they are seeking win-win situations. Welcome to the Chinese."[113]

Latin America

See also: China–Latin America relations, China–Venezuela relations, China–Ecuador relations, and Latin American debt crisis

An article in CNBC said Chinese investment in Latin America has been burgeoning and that the project has been heavily criticized amid allegations of debt-trap diplomacy and neocolonialism.[114] These concerns have been pronounced, especially in Venezuela and Ecuador.[115] A 2019 study compiled by Boston University's Global Development Policy Center stated that Chinese lending has not driven Latin American countries, except possibly for Venezuela, over IMF debt sustainability thresholds.[3]

  • Argentina: Argentina has been denied access and oversight of a Chinese satellite tracking station on its territory.[112]
  • Ecuador: In March 2019, Ecuador agreed to borrow US$4.2 billion from the IMF, at a cost of 6% of its yearly GDP, while still being indebted US$6 billion to the World Bank and Inter-American Development Bank.[49] Ecuador has agreed to sell 80-to-90 percent of its crude oil to China through 2024 in exchange for US$6.5 billion in Chinese loans.[112]
  • Venezuela: an article published by Carnegie-Tsinghua Center for Global Policy said China's loans in Venezuela are not debt-trap diplomacy nor "creditor imperialism", but simply "lose-lose" financial mistakes in which both parties stand to lose.[9] An article in Quartz summarized the Carnegie article; "counter to the dominant narrative about Chinese debt ensnaring other countries, the country that needs to fear excessive and unsustainable Chinese lending the most is China".[116]

Asia

Sri Lanka

Further information: China–Sri Lanka relations
Further information: Hambantota International Port
Loans from China to build the Hambantota Port in Sri Lanka have been said as an example of debt-trap diplomacy

Critics of Chinese foreign policy say that the loan given to the Sri Lankan government by the Exim Bank of China to build Magampura Mahinda Rajapaksa Port[117] and Mattala Rajapaksa International Airport is an example of debt-trap diplomacy, a characterization that is disputed.[118] The state-owned Chinese firms China Harbour Engineering Company and Sinohydro Corporation were hired to build Magampura Port for US$361 million, which was 85% funded by Exim Bank of China at an annual interest rate of 6.3%.[119] It was leased to the Chinese state-owned China Merchants Port Holdings Company Limited on a 99-year lease in 2017, and lease payments were used for strengthening Sri Lanka's foreign reserves.[120][118] This caused concern in the United States, Japan,[31] and India that the port might be used as a Chinese naval base[121] to contain China's geopolitical rivals. Other concerns included the possibility that the Chinese government might “repossess” the projects financed by Chinese loans.

Deborah Bräutigam, a professor at the School of Advanced International Studies (SAIS) at Johns Hopkins University, has disputed the usage of the term "debt-trap diplomacy" to describe Chinese foreign monetary policies and has stated that such an allegation is a "misrepresentation of Chinese lending practices".[122][123] With regards to Sri Lanka in particular, Bräutigam has noted that Chinese banks have thus far been more willing to restructure the terms of existing loans and have never seized a state asset, much less the port of Hambantota.[122] Bräutigam notes that it was the Canadian International Development Agency that financed the Canadian engineering and construction firm SNC-Lavalin to carry out a feasibility study for the port; the study was concluded in 2003 and confirmed that construction for a port at Hambantota was feasible.[123] A second feasibility report, concluded in 2006 by the Danish engineering firm Ramboll, had made similar recommendations.[123] According to Bräutigam, in order to justify its existence, the port in Hambantota only had to secure only a fraction of the cargo that went through Singapore.[123] At the time that President Sirisena took office in 2015, Sri Lanka owed more to Japan, the World Bank, and the Asian Development Bank than to China;[123] of the $4.5 billion in debt service Sri Lanka had to pay in 2017, only 5 percent of this was due to Hambantota.[123] Bräutigam was informed by multiple Sri Lanka Central Bank governors that the Hambantota, and Chinese finance in general, were not the major sources of the country's financial distress, and Bräutigam also reports that Sri Lanka also did not default on any loans to China.[123] Colombo had originally arranged a bailout from the IMF, but decided to raise the required funds by leasing out the underperforming Hambantota Port to an experienced company just as the Canadian feasibility report had recommended.[123]

Karunasena Kodituwakku, the Sri Lankan ambassador to China, rejected accusations of debt trap diplomacy and emphasized that the Chinese government did not ask the Sri Lankan government to hand over the handling of the port; he stated that it was instead the Sri Lankan government who initially sought out China to lease the port. Other Sri Lankan representatives have noted that "it made sense for Sri Lanka to welcome Chinese investment in the port, given that the vast majority of commercial shipping arriving into it was from China."[124][125]

Chatham House published a research paper in 2020 concluding that Sri Lanka's debt distress was unconnected to Chinese lending, but resulted instead more from "domestic policy decisions" facilitated by Western lending and monetary policy, rather than by the policies from the Chinese government.[126] The paper was also skeptical of the claim that China could use Hambantota as a naval base and called the claim as being "clearly erroneous".[126] The paper noted that Sri Lankan politicians and diplomats have repeatedly insisted that the topic was never brought up with Beijing, and so far there has been no evidence of any Chinese military activity at or near Hambantota since the commencement of the port's lease.[126]

The lease itself was delayed for several months because of concerns that the port could be used for military purposes and opposition from trade unions and political parties, which called it a sellout of Sri Lankan national assets to China.[127][128] Sri Lanka's other debt obligations so far have not been similarly addressed; for example, Japanese-funded infrastructure projects in Sri Lanka were scrapped in late 2020 and the underlying agreements scrapped, doing some damage to Sri Lanka's international reputation.[129] Sri Lanka has also indicated that it is reconsidering the lease of the Hambantota port to China and is revisiting the agreement.[130]

Pakistan

Further information: China–Pakistan relations and China–Pakistan Economic Corridor

Since 1950, Pakistan has received $42.7 billion in World Bank assistance, of which $33.4 billion is in loans and $9.3 billion is in grants; this has allowed the World Bank to exert local and national decision-making power in Pakistan, for example via the offering of public contracts and the appointment of State Bank governors.[131]

According to data from the State Bank of Pakistan, Pakistan's debt to the People's Republic of China was $7.2 billion in 2017, which had increased to $19 billion by April 2018 and $30 billion by 2020, mostly due to loans to fund the China–Pakistan Economic Corridor (CPEC) project.[132][133] In December 2018, the New York Times reported on emerging military dimensions of the investments, which it termed a debt trap, and reported that the utilizations of the investments are poorly governed and lack transparency.[134] Experts have estimated that at the present time, Pakistan would require nearly 40 years to pay back this debt obligation to China.[135] A number of scholars have stated that the CPEC "subordinates Pakistan's interests to China's" and argue that the CPEC, and Pakistan's resultant debt obligations to and economic dependence on China, could become a threat to Pakistan's sovereignty.[136][137]

Additionally, in 2017 China and Pakistan entered into an agreement to build 5 hydropower projects, with China investing $50 billion in these.[138] According to Hassan Abbas, a Pakistani-American scholar and academic in the field of South Asian and Middle Eastern studies, project delays are likely to cause costs to escalate to $98 billion.[138] With an accumulated interest of almost $5 billion per year, Pakistan would have to pay almost $200 billion over 20 years to China and scholars suggest that the debt could give China undue influence in Pakistan's affairs.[138] To date, at least one of these projects has been scrapped by Pakistan due to objections to the terms of agreement.[139]

Malaysia

Further information: China–Malaysia relations and 1Malaysia Development Berhad scandal

China financed $22 billion worth of projects in Malaysia during the leadership of Prime Minister Najib Razak.[22] On 31 May 2014, Razak made a state visit to China, during which he was welcomed by China's Premier Li Keqiang. China and Malaysia pledged to increase bilateral trade to US$160 billion by 2017, and to increase economic and financial co-operation, especially in the production of halal food, water processing, railway construction, and ports.[140]

After his inauguration in 2018, Prime Minister Mahathir Mohamad cancelled projects worth approximately $2.795 billion with China Petroleum Pipeline Bureau for oil and gas pipelines, saying Malaysia would not be able to repay its obligations.[22] Ninety percent of the cost of several of the pipelines in Borneo and from Malacca to Johor had been paid but only 13% of the construction had been completed.[141] Mohamad also stated some of the funding from the Exim Bank of China had been misappropriated as part of the 1MDB scandal.[141]

Mohamad and his Finance Minister Lim Guan Eng criticized the projects,[141] saying they were expensive, unnecessary, not useful, uncompetitive because open bidding was not allowed, secretive, conducted with no public oversight, and favored Chinese state-owned firms and those affiliated with Razak's United Malays National Organisation (UMNO) party at inflated prices.[22] Locals in Malacca City also complained the port was unneeded and that the small company that was awarded the contract had ties to the previously-ruling UMNO political party.[22]

When confronted with China's String of Pearls strategy in the Indian Ocean and China's motives in Malaysia and the Strait of Malacca, Malaysian Deputy Minister of Defense Liew Chin Tong said:

You look at a map and you can see the places where China is plotting ports and investments, from Myanmar to Pakistan to Sri Lanka, on toward Djibouti. What's crucial to all that? Our little Malaysia, and the Malacca Strait. I say publicly that we do not want to see warships in the Strait of Malacca or the South China Sea."[22]

The loans and their terms were later renegotiated and Mahathir Mohamad pledged support for the BRI and became one of the key opening speakers of the BRI Summit in Beijing in 2019.[142][143]

Maldives

Further information: China–Maldives relations

In December 2019, the Speaker of the Maldives' parliament, the People's Majlis, and former President Mohamed Nasheed said Maldives owed China $3.5 billion in loans, which included $1.5 billion in government-to-government loans, private loans, and sovereign guarantees. He said the Chinese debt trap was an economic and human-rights issue, and an issue of sovereignty and freedom of the island nation.[144][145] Nasheed has also said that the project costs were inflated and the debt on paper is far greater than the $1.1 billion actually received.[146]

Philippines

Further information: China–Philippines relations

Under World Bank president Robert McNamara, the World Bank provided over US$2.6 billion in loans to the Philippines to strengthen American business interests and support martial law under Ferdinand Marcos.[62][147]

Indonesia

Further information: China–Indonesia relations

Between 1969 and 2017, the World Bank committed approximately US$58.7 billion to Indonesia in exchange for liberalizing trade and foreign direct investment.[148][149] World Bank reform recommendations have been blamed[by whom?] for deforestation and land disputes.[148]

Tajikistan

Further information: China–Tajikistan relations

By 2008, the People's Republic of China surpassed Tajikstan's other creditors in terms of outstanding loans; by the following year, 77% of Tajikstan's total loan portfolio was composed of Chinese loans.[150]

In 2011, Tajikistan's parliament agreed to cede approximately 1,000 km2 (390 sq mi) of land to China in exchange for a waiver of an outstanding debt amounting to hundreds of millions of dollars.[151]

As of 2018, Tajikstan's debts to foreign creditors ("external debt") is estimated to be $2.9 billion,[152][151] of which $1.2 billion is owed to the Exim (Export-Import) Bank of China.[151] That year, reports indicated that Xinjiang-based TBEA was granted a gold mine concession in remuneration for the TBEA's costs incurred for building a 400-megawatt power plant in Dushanbe.[151]

As of the end of 2020, Tajikstan's total external debt neared $3.1 billion; of this, $1.12 billion (approximately 37% of the total) is owed to the Exim Bank of China.[150]

Other countries

The People's Republic of China has made loans to Kyrgyzstan, Laos, Mongolia, and to Montenegro (to build a national highway), as part of the BRI.[111][153]

China also made a US$115 million loan to Tonga to redevelop its infrastructure,[154] and US$2 billion in loans to Papua New Guinea totaling almost a quarter of that country's national debt.[154] China has numerous work projects ongoing in Trinidad and Tobago. These include a $500 million Chinese-built drydock and $102 million industrial park in La Brea, Trinidad and Tobago.[155]

In April 2021, the prime minister of Montenegro asked the EU to help the country to repay the US$1 billion loan granted by the Exim Bank of China in 2014 to fund the A-1 motorway, accounting for roughly 25% of the Montenegro's external debt. Under the terms of the loan, in case of non-payment, the loaner (China) will be granted thousands of hectares of lands. The project was twice deemed to be unfeasible and not economically viable by two feasibility studies made by the European Bank of Reconstruction and Development and the European Investment Bank, which served as the rationale for the EU's refusal to fund it.[156] Currently estimated to cost US$23.8 million per kilometer, it is one of the costliest highways worldwide.[157]

See also

References

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