Dancing with the dragon

Dancing-with-the-dragon

Understanding China’s debt-trap diplomacy

Imagine a world map that indicates the amount of money China lends to other countries. Now imagine, a set of countries marked as dark red, denoting this amount of debt being above 10% of their total GDP. Now when you look at the map you will notice that almost all of Africa and all of South America has been coloured dark red. This map is the result of China’s growing tendency to consolidate its global clout through lending money or something popularly known as debt-trap diplomacy. 

Extending loans to underdeveloped countries is not a bad thing at all. Smaller countries can use this credit to build necessary local infrastructure and work towards creating a better future for their countrymen. But, the real problems start when you can’t pay back the said loan. It is then that you have to make political, economic, and sometimes territorial compromises to somehow repay the loan, especially if the creditor is China.

The Chinese vanishing act

Pakistan has for long been a sworn ally of the Chinese. As an all-weather ally, China too has literally drowned Pakistan in cash for their large infrastructure projects including the much hyped China–Pakistan Economic Corridor (CPEC). China offered Pakistan Billions of dollars of expensive credit and then simply rerouted the money back to China. How did they do that? The Chinese ensured that all the juicy contracts related to the project were awarded to Chinese entities through a largely opaque and one-sided tendering process. So on paper they did pay Pakistan a lot of money, which has since then found its way back to China via these companies. 

What’s left is a Pakistani economy in shambles and a debt crisis that sees them knock on the door of the IMF every other week. The same is true for Maldives, which has been negotiating the repayment of a loan of around USD 1.4 Billion with China. The entire GDP of Maldives is only pegged at around USD 6 Billion. The Hambantota Port loan debacle in Sri Lanka is something that had brought this entire phenomenon to light. Initially built with Chinese money, the port is now under China’s control for a period of 99 years.

China trying to be the saviour of small countries in lesser developed parts of the world, is not always aimed at the welfare of the borrower. Case in point is The Democratic Republic of the Congo, whose cobalt reserves account for nearly half of the world’s known reserves. Congo owes China a whopping USD 7.1 Billion, which is more than 77% of the country’s total debt. No surprises for guessing, but Chinese mining companies now have a stranglehold on Congo’s cobalt mining industry. As a result, Chinese companies now supply 80% of the world’s battery-ready high-grade cobalt.

A predictable playbook

The Chinese debt-trap playbook is pretty much the same everywhere. Identify an economically weak country. Loan it the kind of amounts that it won’t be able to repay. Reroute the loaned money back to China through Chinese infrastructure companies. And once the country defaults, negotiate different types of deals that suit the Chinese global agenda

Yes, there are experts who believe that China’s debt-trap diplomacy as a phenomenon is overrated. But it is also worth noting that the lending practices used by China are nowhere near the standards set by multilateral development banks like World Bank and Asian Development Bank. China has come a long way as a model for high speed development and helping millions of people come out of poverty. But its rising power and influence aren’t on the lines of a responsible global citizen that believes in taking everyone along. Instead, its partnerships with smaller nations are nothing less than a dance with the dragon. Everything seems fine until the music stops.

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