J.

Electrical Systems 20-10s (2024): 6196-6199

A Critical Analysis of China’s Debt Trap

Abstract: - Trough the means of Debt Trap Diplomacy, China is seen to be extending loans to economically weaker countries, intended to
aid development, but due to the various conditions that come with it, it becomes difficult for the borrowing country to repay. The non
repayment of such loans are seen to be utilized for diplomatic advancement. In one it leads towards economic growth and regional
connectivity, on the other hand, it is seen to be utilised to gain influence and access to strategic resources. It raises questions about
economic sovereignty and the ethics of international finance.

Keywords: Debt Trap Diplomacy, Belt and Road Initiative, Geopolitical Strategy, National Sovereignty

Introduction:
The term Debt Trap Diplomacy was coined by an Indian Academician Brahma Chellaney in 2017(Ajnoti, 2022).
This type of diplomacy refers to offering projects/loans on terms that end up being too difficult for countries to
repay, eventually compelling them to accept political or economic concessions. It has been witnessed that
developing nations are often lured by China’s offer of cheap loans for transformative infrastructural projects,
which require a considerable investment. These developing countries, mostly low- or middle-income countries
remain incapable of carrying on with repayments. It provides opportunity to China to demand concessions or
advantages in exchange for debt relief. Concessions may include handling over control of strategically valuable
facilities such as ports, natural resources, and land.
If we talk about the global trade then we can see that China’s role is highly publicised and politically polarising
but financially China’s influence due to lack of data and lack of transparency remains obscure. China has lent
much of its financial resources in financing projects under Belt and Road Initiative (BRI)(Bondaz et al., 2015).
The initiative has formidable presence and influence which has led other western countries to accuse China of
pursuing a debt –trap diplomacy through it. Since last two decades China has become a major global lender. The
Belt and Road initiative is a trillion-dollar project aimed at connecting countries across continents for trade with
China at its centre. Beijing has characterized the project for both its global trade ambitions and for infrastructure
starved developing economies. But in reality, many vulnerable countries are finding themselves overwhelmed
by Chinese depts. China is in the midst of a rapid push to gain economic and political ascendancy across the
Asia pacific region and the world and its splashing out billion dollars across the globe through concessional
loans to developing countries for infrastructure projects. But what happens when countries often poorer than
China cannot pay back. Since the beginning of 2000, China has distributed huge amounts of loans to low- and
middle-income countries. some recent studies examine Chinese lending but certain aspects are not known by
anyone such as how loan contracts are written, what are the terms and conditions nothing is clearly known by
anyone. The texts of the contract are neither disclosed by China nor the borrower countries due to the
confidential clauses(How BRI Debt Puts China at Risk – The Diplomat, n.d.). But because of the covid 19
pandemic the terms and conditions of China’s tech companies are getting disclosed for the global public
interests.
China is offering up bad loans as a form of entrapment to gain influence and power across the world. Foreign
nations are lured by China’s offer of cheap loans for transformative infrastructure projects then when
predictably these countries are unable to keep up with their payments Beijing can demand concessions or other
advantages in exchange for debt relief this is known as debt trap diplomacy. Opaque lending practices also lead
to mistrust. Research shows that developing countries owe much larger debts to China than was earlier believed.
Critics call this “TROJAN HORSE” approach they allege many loans to build infrastructure projects using

1, Independent Scholar
Copyright © JES 2024 on-line: journal.esrgroups.org

6196
 J. Electrical Systems 20-10s (2024): 6196-6199

Chinese contractors in strategically located developing nations are a form of debt trap diplomacy(Aina, n.d.).
China considers debt trap as a false allegation created by western media, having an aim to obstruct the joint
development of China and other developing countries they also alleged that the west is doing so in order to
maintain the western world’s traditional superior position(Rajah et al., 2019).
Hidden debt:
Research says that China has given more loans to developing countries in comparison to earlier times and
because there was underreporting of these loans hence the problem of hidden debt has come up. Hidden debt
means that deter countries and international countries has incomplete knowledge about the loans given to other
countries by China and they are also unaware of the conditions. China does not report international lending
institutions and adopt opaque lending methods to escape from traditional data gathering institutions, because
they are state owned loan distribution. Credit rating agencies such as MOODY and standard and poor’s data
providers like BLOOMBERG only mostly focuses on private creditors and because China’s lending is state
sponsored hence China does not come under the radar of these agencies. Moreover, China is not a member of
OECD and the Paris club which are an informal group of creditor nation.
Practices undertaken by China that point towards Debt Trap Diplomacy:
It has been alleged that Chinese funding is often made for non-viable projects with appropriate risk assessment.
For example, in 2014, Montenegro successfully concludes negotiations with Chinese partners to finance a
highway project despite the fact that the project was deemed economically unviable by two feasibility studies.
China has invested heavily in middle- and low-income developing countries which have history of debt
sustainability problems, lack the fiscal capacity to directly finance infrastructure and are not commercially
appealing for attracting investment. For instance, China has invested in several infrastructure projects in African
countries like Ethiopia, Nigeria etc. The Chinese government neither provide official data on its international
lending, nor does it disclose details regarding the volume or the terms of the loans it provides and how the debt
negotiations are adjudicated if the borrower cannot service its debts. China does not subscribe to any guiding
multilateral frameworks, set by the international monetary fund or the world bank, to define its approach to debt
sustainability problems, choosing instead to deal with countries on a case by case basis. Often it capitalises on
fiscal mismanagement of borrower countries, centering negotiations on equity swaps rather than on other
measures of alleviating debt. Infrastructural agreements with china often provide Chinese firms the right to
access and control land and assets as collateral. Thus, China has acquired assets in several countries, including
those under BRI projects, as a part of debt renegotiation process. These acquired projects hold strategic
importance beyond their economic use. For instance, Hambantota port in Sri Lanka can be used for increasing
Chinese presence in the Indian oceanic region. Almost all of Chinas overseas lending is extended via Chinese
state-owned entities and the recipients also tend to be state owned enterprise. Moreover, Chinese workers make
up a bulk of the labour force engaged at the infrastructural projects in foreign countries. In most cases the loans
extended by China are non-concessional and costly. This contrasts starkly with the infrastructural lending of
advanced industrial countries that provide subsidized, concessional credits to finance underdeveloped countries.
Reasons why countries have been vulnerable to Debt Trap:
Infrastructural investment is widely recognised as a crucial driver of economic and social development.
However, middle income and low-income developing counties lack the fiscal capacity to domestically finance
infrastructure projects. Countries participating in the BRI are lured by the promise of socio-economic
transformation and development. Countries find it difficult to fulfil conditionality for accessing development
assistance offered by multilateral lending agencies such as the IMF. Such conditionality’s may include structural
and governance reforms, targets for macroeconomic indicators, accounting, and auditing systems etc. Chinese
loans are not as stringent in their requirements for safeguards and reforms. Governance issues, such as lack of
adequate pre project viability analysis, corruption, reckless propensity to borrow, fiscal mismanagement etc. has
made it easier for China to push loans for even unviable projects.
Implications of Chinese Debt Trap Diplomacy:
Debtor countries and international institutions have an incomplete picture on how much countries around the
world owe to China and under which conditions. Debt distress raise possibility of defaulting increased

6197
 J. Electrical Systems 20-10s (2024): 6196-6199

vulnerability to Chinas coercive tactics, lowered accountability of governments due to non-disclosure of debt
agreements to taxpayers. Chinas own commercial interests and global reputations can also be undermined due to
failure of projects.
Financial and economic dominance may also be converted into political leverage which can be used to
influence domestic and foreign policy decision of indebted nations. According to the general Indian view of
nature of the BRI is less about economic development and more about larger political and strategic goals. China
consistently tried to run down Indian contributions to the ancient silk roads. BRI is the closest thing to a grand
strategy for not only protecting their interest abroad but expanding them and pushing a Chinese model of
development. Security risk with possibility of use of commercial assets acquired by China for military purposes,
increased political influence of China on India’s neighbours can put a strain on their diplomatic relations with
India. Several South Asian countries are benefiting hugely from Chinese generosity. Chinas infrastructure
overcapacity can actually be necessary in its immediate and extended neighbourhood where there are substantial
infrastructural
There is a clear element of power competition with the United States that runs through BRI. That ranges from
Chinas positioning of itself as a defender of globalization as because of the BRI projects in many countries are
also accompanied by a robust military relationship that the Chinese have promoted in the form of equipment
sales and delegation visits.
Chinese loan contracts have confidentiality clauses which prevents countries from disclosing loan amounts as
well as other terms and conditions. China has also entered in many informal collateral arrangements with
different countries which suppress the transparency in transactions.
Impact on India:
With the use of Debt trap diplomacy, China is establishing a Geopolitical influence in South Asia, China’s
strategic investments in India’s neighbouring countries, give it a foothold in South Asia, encircling India with
Chinese economic and military influence(Devulapalli, 2020). With these regions China strengthens its presence,
challenging Indias influence and limiting India’s regional dominance. Chinas investments create competition for
India in regional trade and connectivity projects that are larger in scope and quicker to implement. Chinese
infrastructure development also competes with Indian- led projects, often challenging India’s bids to increase
connectivity with Southeast Asia and the Indian Ocean. It also gives rise to security concerns, the Indian Ocean
is a critical trade route for India, and Chinas influence in countries like Sri Lanka, the Maldives and Djibouti,
where China has established their military base, threatens India’s control over this region, China’s presence and
influence in these areas could impact India’s maritime security and put pressure on India’s naval strategy.
Moreover, growing debt burden in India’s neighbouring countries like Pakistan can lead to the growth of
regional instability. This can impact India’s security and stability, especially along the India- Pakistan border,
and heighten tensions in the region. China’s increasing economic influence complicates India’s diplomatic
relationship with its neighbours. For instance, nations like Sri Lanka and Nepal have shown greater alignment
with China due to economic dependencies, making it harder for India to maintain diplomatic influence. India is
forced to balance or compete with China diplomatically in its neighbourhood, limiting its regional policy
flexibility.
Conclusion:
China has rapidly expanded its influence through BRI project and aggressive lending across the world. But her
lending programs lack transparency and often oriented towards achieving her geopolitical goals rather than
financial objectives alone. There is a wide gap between Chinas rhetoric and its practice, for example, its
frequent claims that BRI projects are win- win for all parties concerned. But over the years, the image that China
has tried to cultivate of the BRI being a mere economic project aimed at fulfilling a crucial development need
for infrastructure in Asia, Africa, and Europe and at increasing people to people contacts have been punctured
by several unflattering reports of the nature of these projects. In the main, these revolve around the high costs of
Chinese projects that have led many nations into debt traps, lack of transparency on their terms, alleged bribery
of host government officials, the use of Chinese labour and the use of old, polluting technologies. The objective
ultimately is to promote a Chinese model of development and politics. Chinese seek to undermine the relevance

6198
 J. Electrical Systems 20-10s (2024): 6196-6199

and legitimacy of democracy. The narrative is of China working together with a country rather than attempting
to impose its values on it like the west apparently does.
Countries should conduct proper risk assessment and measure economic viability of infrastructure projects prior
to signing agreements. China should cooperate with multilateral institutions to provide an estimate of debt levels
of countries involved in BRI. Also, it should follow internationally acceptable practices for sustainable debt
resolution. China can become a member of the Paris Club to help countries find sustainable solutions to raising
debts. The Paris club is an informal group of official creditors whose role is to find coordinated and sustainable
solutions to the payment difficulties experienced by debtor countries. As debtor countries undertake reforms to
stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide appropriate debt
treatment. The international community should expand alternatives to Chinese infrastructure financing to fulfil
infrastructural deficiencies in low- and middle-income countries.
BIBLIOGRAPHY:
[1] Aina, A. (n.d.). The Confounding Success of Debt-Trap Diplomacy in the 21st Century. 1.
[2] Ajnoti, R. (2022, October 11). The Complete Story of Debt-Trap Diplomacy. The Geopolitics.
https://thegeopolitics.com/the-complete-story-of-debt-trap-diplomacy/
[3] Bondaz, A., Cohen, D., Godement, F., Kratz, A., & Pantucci, R. (2015). “One Belt, One Road”: China’s Great Leap
Outward. European Council on Foreign Relations. https://www.jstor.org/stable/resrep21517
[4] Brautigam, D. (2011). Chinese Development Aid in Africa: What, where, why, and how much? In J. Golley & L. Song
(Eds.), Rising China: Global Challenges and Opportunities (Vol. 2011, pp. 203–222). ANU Press.
https://www.jstor.org/stable/j.ctt24hbk1.20
[5] Chellaney, B. (2017, January 23). China’s Debt-Trap Diplomacy | by Brahma Chellaney. Project Syndicate.
https://www.project-syndicate.org/commentary/china-one-belt-one-road-loans-debt-by-brahma-chellaney-2017-01
[6] China’s Debt Diplomacy – Foreign Policy. (n.d.). https://foreignpolicy.com/2019/04/25/chinas-debt-diplomacy/
[7] Devulapalli, N. K., Sriharsha. (2020, June 30). Mapped: How China has raised its clout in India’s neighbourhood.
Mint. https://www.livemint.com/news/india/mapped-how-china-has-raised-its-clout-in-india-s-neighbourhood-
11593498026189.html
[8] How BRI Debt Puts China at Risk – The Diplomat. (n.d.) https://thediplomat.com/2021/10/how-bri-debt-puts-china-at-
risk/
[9] Jain, R. (2018). China’s Economic Expansion in South Asia: Strengths, Challenges and Opportunities. Indian Journal
of Asian Affairs, 31(1/2), 21–36.
[10] Mapping Substance in India’s Counter-strategies to China’s Emergent Belt and Road Initiative on JSTOR.
(n.d.).https://www.jstor.org/stable/26608824?searchText=china%20debt%20trap%20diplomacy&searchUri=%2Factio
n%2FdoBasicSearch%3FQuery%3Dchina%2Bdebt%2Btrap%2Bdiplomacy%26so%3Drel&ab_segments=0%2Fbasic_
search_gsv2%2Fcontrol&refreqid=fastly-default%3Ab951dea99fb8df2432d722f9977401c4
[11] Rajah, R., Dayant, A., & Pryke, J. (2019). Ocean of debt?: Belt and Road and debt diplomacy in the Pacific. Lowy
Institute for International Policy. https://www.jstor.org/stable/resrep19796
[12] The Complete Story of Debt-Trap Diplomacy—The Geopolitics. (n.d.). Retrieved October 7, 2024, from
https://thegeopolitics.com/the-complete-story-of-debt-trap-diplomacy/
[13] The perils of China’s “debt-trap diplomacy.” (n.d.)https://www.economist.com/asia/2018/09/06/the-perils-of-chinas-
debt-trap-diplomacy
[14] Were, A. (2018). Debt Trap?: Chinese Loans and Africaʼs Development Options. South African Institute of
International Affairs. https://www.jstor.org/stable/resrep25988

6199