Myth Of Debt Trap Diplomacy

Last week, China marked the 10th anniversary of Belt and Road Initiative (BRI) in Beijing amidst a grand function. At a banquet hosted to welcome the guests participating in the third Belt and Road Forum (BRF) for International Cooperation, Chinese President Xi Jinping said: “Belt and Road cooperation, robust and fruitful in its first decade, is now full of dynamism and vitality. We must embark with drive and enthusiasm on the new journey toward another golden decade.” As the Chinese leader called for drawing up a blueprint for high-quality Belt and Road cooperation, Nepal, China’s immediate neighour, has not yet implemented a single BRI project though it joined the mega connectivity initiative six years back.

By June 2023, more than 200 BRI cooperation agreements with over 150 countries and 30-plus international organisations have been signed, resulting in the construction of a number of big and small-scale projects. Similarly, over 3,000 BRI cooperation projects worth close to one trillion U.S. dollars have been launched in the past decade. The available data shows that the BRI countries have witnessed a steady rise in the trade and investment among them. From 2013 to 2022, the cumulative value of imports and exports between China and BRI partner countries reached 19.1 trillion U.S. dollars, with an average annual growth rate of 6.4 per cent. Of total $380 billion investment, China poured $240 billion. At the BRF, Xi also announced to inject an additional $100 billion to give momentum to the BRI projects, stating that the BRI has contributed to global connectivity, built platforms for international economic cooperation and boosted the world economic growth in the past 10 years.

Promising opportunity

Given the BRI’s role in the development of roads, railways, airports, bridges, pipelines and ports in different countries, one can assert that it can offer a promising opportunity to Nepal to build vital infrastructure and industries, and boost trade, tourism and service sector. It is in the dire need of foreign investment, aid and grants to overcome poverty, inequality and exclusion in its own terms and priorities. However, the Himalayan nation is unable to reap the benefit from the Chinese global development initiative. False narratives, geopolitical tussle, chronic instability and reluctance of top political leadership have largely been attributed to the slow or no progress in the selection and execution of BRI projects in Nepal. 

There is a section of people who naively buy the Western narrative that the BRI saddles the poor nations with enormous debts. This theory of ‘debt trap diplomacy’ has swayed the top right-wing political parties and their leaders, intellectuals, diplomats and media persons. They cite Sri Lanka’s economic meltdown as its glaring example. Some days back, Nepal’s former ambassador to India Dr. Lok Raj Baral, in an article in a national vernacular daily, insisted BRI loan with high interest rate was behind Sri Lanka’s bankruptcy, hence Nepal should not accept it. Dr. Baral has ignored the facts and demonstrated his ignorance of the real factors leading to the collapse of Sri Lankan economy. According to Sri Lanka’s Department of External Resources, it owes only 10 per cent of its external debt to China while over 81 per cent debt belongs to the US, European financial institutions, Japan and India. How can ‘interest’ of 10 per cent loans plunge economy into crisis?

In fact, neoliberal policy, inflation, corruption and COVID-19 have led to economic crisis in Sri Lanka. The BBC launched an investigation into the accusations of ‘Chinese debt trap’ and reluctantly concluded that the narrative was false. “We’ve found quite a lot of evidence here in Sri Lanka which contradicts this narrative,” BBC host Ben Chu acknowledged, adding that, “The Hambantota port, well, that was instigated by the Sri Lankans, not by the Chinese. And it can’t currently be used by Chinese military naval vessels.” BBC interviewed the director of Port City Colombo’s Economic Commission, Saliya Wickramasuriya, who clarified that infrastructure development had boomed under Chinese investment and the Chinese government was not involved in setting the rules and regulations and the Sri Lankan government was in control. 

No ‘asset seizures'

In 2021, two professors - Deborah Brautigam of Johns Hopkins University’s School of Advanced International Studies and Meg Rithmire of the Harvard Business School, jointly published an article in The Atlantic magazine and concluded that the debt-trap narrative was “a lie, and a powerful one.” “Our research shows that Chinese banks are willing to restructure the terms of existing loans and have never actually seized an asset from any country, much less the port of Hambantota.” Brautigam published her findings in a 2020 article for Johns Hopkins’ China Africa Research Initiative 'Debt Relief with Chinese Characteristics'. It investigated Chinese loans in Sri Lanka, Zimbabwe, Iraq, Ethiopia, Angola, and the Republic of Congo, and “found no ‘asset seizures'. The research discovered that China cancelled more than $3.4 billion and restructured or refinanced roughly $15 billion of debt in Africa between 2000 and 2019. “Moreover, despite critics’ worries that China could seize its borrower’s assets, we do not see it attempting to take advantage of countries in debt distress,” it stated. 

Our political, bureaucratic and intellectual circles should take their cues from the findings of the US mainstream academics and must not be misled by fabricated information about the BRI. It is wise to learn from its decade-long history - its shortcomings seen in the process of implementation and positive impacts on the receiving countries - so as to better negotiate with the BRI lending agencies. It has become imperative to form common position on the BRI and efforts should be made to secure soft or concessional loans to build mega infrastructures. It is not only loans but also the aid or grants that form the components of BRI. In order to win the confidence of Nepalis, the Chinese side could also build a signature project under its grants in the first stage of implementation. But politicisation or demonisation of BRI can only deprive Nepal of huge economic opportunity available at its doorstep. 

(The author is Deputy Executive Editor of this daily.)