China’s Debt Trap Diplomacy And BRI Project: How China Is Leveraging Debt As A Strategic Weapon For Smaller Nations

The financial China leverages, is seen in the context of China's Belt and Road Initiative, often raising concerns of debt trap diplomacy.

China's extensive practice of extending financial aid to developing nations through its ambitious "Belt and Road" infrastructure projects has gained considerable attention.

A report by AidData, shed light upon China's infusing of a staggering $240 billion as bailouts to 22 developing countries between 2008 and 2021, highlighting the significant financial clout exerted by China through these international bailouts. What is worth mentioning that the sum in question exceeds 20% of the lending undertaken by the International Monetary Fund (IMF) over the past decade. The vast majority of this lending spree, around 80%, occurred during the years spanning 2016 to 2021, with a focus on middle-income nations such as Argentina, Mongolia, and Pakistan, the study said.

China's lending activities have often been tied to the concept of "debt trap diplomacy," primarily associated with its signature Belt and Road Initiative (BRI) -- a signature initiative by Chinese President Xi Jinping.

152 nations participate in China's BRI, which has drawn both praise and skepticism. While it's recognized that China's loans to developing nations are offered at interest rates comparable to those of international lenders like the Asian Development Bank (ADB) or the World Bank, the distinctive feature is the nature of these loans, which are often directed at financially unviable projects.

Multiple studies and analyses have raised concerns that China may strategically wield debt as a tool to infiltrate financially depressed nations and secure leverage upon them. The aftermath of such lending has faced scrutiny, particularly as several projects have failed to yield expected financial dividends, prompting claims that Chinese authorities do not conduct the same level of due diligence as international lenders. Notably, countries grappling with high Chinese debt include Pakistan, Kenya, Zambia, Laos, Mongolia, Djibouti, Maldives, and Angola.

A Reuters report had claimed, "China has lent hundreds of billions of dollars to build infrastructure in developing countries, but lending has tailed off since 2016 as many projects have failed to pay the expected financial dividends."

A conspicuous example illustrating this dynamic is Sri Lanka's handover of the Hambantota port to China on a 99-year lease. This case exemplifies how debt can be leveraged as a strategic weapon, even compelling governments to cede control of their countries' key assets to the debtor.

China's escalating overseas bailouts signify an emergent global financial influence with geopolitical implications, raising questions about the sustainability of these lifelines and their impact on the global order.