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China's using cheap debt to 'bend other countries to its will,' academic says

  • China uses sovereign debt to gain political leverage over developing countries, according to Brahma Chellaney from the New Delhi-based Center for Policy Research
  • Member countries of Beijing's Belt and Road program are being trapped into "debt servitude," he said

China's continents-spanning Belt and Road network threatens to "shackle" partner countries and deprive them of valuable natural assets, according to one critic.

Beijing is financing and executing massive infrastructure projects across the 68 nations participating in the ambitious scheme, which snakes along Europe, the Middle East and Asia.

Cranes stand during the sunset at a construction site at the hotel complex construct by Chinese company on October 15, 2015 in Colombo, Sri Lanka.
Buddhika Weerasinghe/Getty Images
Cranes stand during the sunset at a construction site at the hotel complex construct by Chinese company on October 15, 2015 in Colombo, Sri Lanka.

These recipient countries, many of them emerging economies in dire need of investment, obtain funding in various forms such as sovereign loans from Chinese President Xi Jinping's administration and credit from Chinese state-owned banks.

But concerns of developing countries taking on unrealistic financial obligations have sparked allegations of what's being called 'dept-trap diplomacy.' Earlier this year, Indian Prime Minister Narendra Modi's administration released a statement warning of unsustainable debt burdens being created by Belt and Road.

"Just as European imperial powers employed gunboat diplomacy, China is using sovereign debt to bend other states to its will," according to Brahma Chellaney, professor of strategic studies at the New Delhi-based Center for Policy Research, who described Beijing's policies as "creditor imperialism."

In a stinging editorial published on Project Syndicate, Chellaney — a former adviser to India's National Security Council — pointed to Sri Lanka as an example. The South Asian state, unable to pay back onerous bills to China, recently handed over its Hambantota port to state owned China Merchants Port Holdings in a $1.1 billion deal that was widely viewed as an erosion of sovereignty.

"As Hambantota shows, China is now establishing its own Hong Kong-style neocolonial arrangements," Chellaney said. "Like the opium the British exported to China, the easy loans China offers are addictive. And, because China chooses its projects according to their long-term strategic value, they may yield short-term returns that are insufficient for countries to repay their debts," he explained.

As a result, the world's second-largest economy holds political leverage over governments and can "force borrowers to swap debt for equity, thereby expanding China's global footprint by trapping a growing number of countries in debt servitude."

And it's not just Sri Lanka.

In 2016, heavily indebted Djibouti, also part of Belt and Road, agreed to lease one of its military bases to Beijing for $20 million per year, resulting in the first overseas post for China's armed forces.

"China has also used its leverage over Turkmenistan to secure natural gas by pipeline largely on
Chinese terms," Chellaney said, adding that "Kenya's crushing debt to China now threatens to turn its busy port of Mombasa – the gateway to East Africa – into another Hambantota."

Supporters of Belt and Road say fears of China's geopolitical intentions are overblown, and point to the venture's vast economic potential instead.

The program "could function much like America's post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe," Shang-Jin Wei, a Columbia University professor, wrote in an earlier Project Syndicate editorial.

If recipient countries undertake key reforms that increase policy transparency and predictability, investment risks will be greatly reduced, he noted.