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China’s Debt-Trap Diplomacy


July 3, 2018 6:30 AM

Chinese President Xi Jinping at the 19th National Congress of the Communist Party in Beijing, October 18, 2017. (China Daily/via Reuters)

To understand China’s geopolitical ambitions, look to Sri Lanka. Mahinda Rajapaksa was elected president in 2005 after making ambitious campaign promises to rebuild his country’s infrastructure. When he came to office, he struck a deal to develop the Hambantota port — located in the south of the island — with a Chinese state-owned enterprise called China Harbor. The contract with China Harbor was expensive; Sri Lanka is not exactly awash in cash. So its government had to borrow money to put up its share of the cost. Sri Lanka first borrowed $307 million from the Chinese Export-Import bank, then $700 million (this time with a higher interest rate), and, finally, $1 billion. By the time Rajapaksa was out of office, the port was a commercial failure and the country owed more than $3 billion to China. After negotiations, Sri Lanka ceded sovereignty over the port to China. A port of geostrategic significance for its spot on the Indian Ocean will be China’s for the next 99 years.

The story, as reported by the New York Times, is one Americans should familiarize themselves with — for China’s “Belt and Road Initiative” (BRI) is bound to produce several more like it in the coming years. Sold as a magnanimous undertaking to bestow infrastructure on impoverished countries in Central, South, and Southeast Asia, the BRI in reality is a signifier of China’s ongoing strategy to consolidate its power in the region and strengthen its geopolitical hand.

The land-based “belt” refers to a series of infrastructure projects across Eurasia, following the path of the ancient Silk Road. These would connect China to European and Middle Eastern markets, and provide access to Central Asia’s abundant resources. The maritime “road,” meanwhile, comprises railway and maritime infrastructure projects in Southeast Asia, around the rim of the Indian Ocean, and along the East African coast. These would give China easy entry to the Mediterranean Sea, Indian Ocean, and Persian Gulf.

Public data from the Chinese Global Investment Tracker, compiled by the American Enterprise Institute and the Heritage Foundation, suggest that approximately $340 billion in combined investment and construction has gone into BRI projects since 2013. Analysts sometimes overstate the amount of money China has spent on the BRI, but even conservative estimates predict spending is set to increase at an accelerating clip.

Participating countries — Pakistan, Laos, Thailand, Mongolia, Kazakhstan, Kenya — often don’t have the means to build the infrastructure China is offering. But as Will Doig notes in his new book High-Speed Empire, local politicians often have opportunistic motivations for approving BRI projects. They can point to progress on the infrastructure they promised their constituents while securing kickbacks for themselves. In the process, these officials wind up bargaining away their own countries in exchange for infrastructure that serves the interests of China more than those of local citizens. A railway in Laos, for example, was estimated to cost half the country’s GDP and took a path through a little-traveled region that made little sense for the country’s industries. It did, however, make sense for China, which has long sought a continuous rail line to Singapore and lent Laos capital to cover the cost.

The heart of the BRI is debt-trap diplomacy: China oversells the benefits of these infrastructure projects, offers credit for them on onerous terms (via its own export-import bank, or the supposedly multilateral Asian Infrastructure Investment Bank, which China de facto controls), and, when the bill comes due and its debtors aren’t able to pay, demands control over the infrastructure and influence in the region to compensate.

The attempt to turn these countries into satellite states via the strategic construction of infrastructure is pure geopolitics. China has eyed a westward turn for years, and its desire to advance in Southeast Asia is no secret. The BRI has not come without snags: The China–Pakistan Economic Corridor has hurt Sino–Indian relations, while political upheaval in Southeast Asia is connected to China’s increased visibility and influence.

Regardless, the U.S. should be clear-eyed about the BRI, seeing it for what it is rather than what China sells it to be. We continue to believe that a multilateral approach is the most effective way to counteract Chinese regional ambitions, contrary to the Trump administration’s inclinations toward bilateralism. Economic reengagement in the region should come via the Trans-Pacific Partnership, which would allow us to shore up ties with many BRI-participating countries. Meanwhile, through diplomatic channels, the U.S. should discourage specific infrastructure projects that have no discernible benefit to the host countries. Above all, we should not tolerate the construction of dual-use infrastructure that one day could be home to People’s Liberation Army deployments. Last week, defense secretary James Mattis criticized China for its archaic approach to diplomacy, “where all other nations have to pay tribute or acquiescence to the more powerful nation.” He has that right — but the U.S. needs a strategy to match his rhetoric


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