Claims of “debt trap" diplomacy don’t stand up to scrutiny

China Plus Published: 2018-10-11 21:56:40
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Note: The following is an edited translation of a commentary from the Chinese-language "Commentaries on International Affairs."

In the widely-reported speech United States Vice President Mike Pence made last week attacking China, he accused China’s government of setting "debt traps" for developing countries in the form of hundreds of billions of dollars worth of infrastructure loans to governments in Asia, Africa, Europe, and Latin America. The accusation is that China lends another developing country more money than it could ever afford to pay back. The money is then used to build infrastructure in that country, which China takes ownership of when the country inevitably defaults on its loan payments. Sri Lanka, Pakistan, the Philippines, and Djibouti have allegedly fallen victim to China’s "debt trap" diplomacy. But in reality, what these countries actually have in common is that they are partners in China’s Belt and Road Initiative. 

Sri Lanka is the Western media’s most frequently cited example of a "debt trap". Vice President Pence claims that Sri Lanka took on massive debt to state-owned companies in China so they could “build a port of questionable commercial value. Two years ago, that country could no longer afford its payments, so Beijing pressured Sri Lanka to deliver the new port directly into Chinese hands."

But the management agreement between China and Sri Lanka for the Hambantota Port is a commercial one that seeks to turn the port into an Indian Ocean logistics center, and to promote the economic integration of Sri Lanka in the region. It is estimated that by 2020, revenue from the port will account for 40 percent of the revenue of Sri Lanka’s government, and that it will create 10,000 direct and more than 60,000 indirect jobs. So it’s hardly fitting to characterize the project as some sort of white elephant. 

Chinese trucks carrying first trade goods are pictured parked at the Gwadar port, some 700 kms west of Karachi on November 13, 2016. [Photo: VCG]

Chinese trucks carrying first trade goods are pictured parked at the Gwadar port, some 700 kms west of Karachi on November 13, 2016. [Photo: VCG]

Furthermore, according to data from Sri Lanka’s central bank, loans from China last year accounted for only about 10 percent of Sri Lanka's external debt, of which 61.5 percent was for preferential loans below the international market interest rate. This is why Sri Lanka's Prime Minister Ranil Wickremesinghe publicly stated that Sri Lanka did not fall into some sort of "debt trap". 

Vice President Pence also put forward the claim that the port “may soon become a forward military base for China's growing blue-water navy.” Given that the United States has more than 800 military bases in more than 70 countries around the world, it comes as no surprise that their first instinct is to project on China the kind of military expansionism in which they themselves have so often engaged. 

Another popular target of accusations about “debt trap” diplomacy is Pakistan, namely the China-Pakistan Economic Corridor, a flagship Belt and Road project. But data recently presented to parliament by Pakistan’s Finance Minister Asad Umar showed that loans from China accounted for only 12 percent of that county’s foreign debt. Of the 22 projects under construction as part of the economic corridor, 18 are being built through direct investment or assistance provided by China. Only four of them are funded by concessional loans from China, and they have interest rates far lower than the rate offered by Western countries. 

The China-Pakistan Economic Corridor contributes, so far, 1-2 percentage points per year to Pakistan’s economic growth, generating around 70,000 jobs for local people. This is part of the reason why Pakistan’s government has criticized accusations that the country has fallen into a "debt trap", dismissing nay sayers as either lacking understanding or acting with an ulterior motive. The ulterior motive in this case is to provoke enmity between China and developing countries so as to stifle the Belt and Road Initiative. 

Philippine Foreign Minister Alan Peter Cayetano has said that China accounted for only 1 percent of the total foreign debt of the Philippines, so his country could hardly be considered caught in a "debt trap" by loans from China. 

In his speech, Vice President Pence declared that the United States will be "giving foreign nations a just and transparent alternative to China's debt-trap diplomacy." But how much credibility can this claim carry, when just last month President Trump stood at the podium at the United Nations General Assembly and said he would continue to pursue his “America First” policy, and that America would “reject the ideology of globalism” and “embrace the doctrine of patriotism.” It’s no wonder that Omar Guedi, the governor of the Djibouti Silk Road International Bank, felt the need to point out that although the United States entered Djibouti earlier than China, until now the United States has almost done nothing to help his country. 

As of September this year, China had signed 149 intergovernmental cooperation documents with 105 countries and 29 international organizations along the Belt and Road routes. From 2013 to 2017, the total import and export volume between China and Belt and Road countries reached 33.2 trillion yuan, and has increased by about 4 percent a year. And China has pursued these partnerships with the same spirit that is enshrined in the principles for China-Africa cooperation laid out by President Xi Jinping at the recent Forum on China-Africa Cooperation: China doesn't interfere with African countries' search for development paths suited to their national realities; China doesn't interfere with Africa's internal affairs; China doesn't impose its will on others; China doesn't attach any political conditions to aid to Africa; and China doesn't seek political self-interest in its investment in or financing to Africa. 

This kind of mutually beneficial approach is why more and more countries are choosing to partner with China. Because despite the claims of “debt trap” diplomacy, the benefits of these partnerships speak for themselves. 

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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.