December 5, 2022

China: The Prophet of Profits

Eyeing the opportunity, China demands acquisition of a strategic asset of the country to write off the debt in part. China has taken control of strategic port City of Hambantota in Sri Lanka, Gwadar port of Pakistan, Lekki Deep Sea port in Nigeria, Port of Sudan, Mombasa Port in Kenya, Entebbe airport of Uganda and many more.

“There are two ways to conquer and enslave a country: One is by the sword; the other is by debt” 

    John Adams (2nd U.S. President)

By Maj. Gen. C. P. Singh

Parvane ko nahi pata ki jis shamaa se wo lipat raha hai, wahi usko jalaa kar raakh kar degi.” Have you heard of this famous Bollywood line   about fatal attraction of the moth to a flame? Similar is the case of developing or poor countries that are attracted by soft loans from Peoples Republic of China (PRC) with the hope of developing their country’s infrastructure and provide better life to their citizens. Unfortunately, they are not aware of this fatal attraction and the debt trap, they are unknowingly getting into. It’s often too late when they realise their mistake. More and more countries are facing financial crisis after being trapped by the Dragon.

China is the only country in the world having expansionist policy to control other countries. However, their intention to dominate other countries by luring them in debt has come to the fore only in the present Xi Jinping regime. Recently, more and more countries are getting trapped in the debt of China and almost on the verge of being declared bankrupt. China’s growing global footprint and aggression is shaping the world forum and now, Chinese power redefines geopolitics and geo-economics of the globe. All this is happening in the immediate neighbourhood of India, is not a happy development for us.  

Rise of China as economic power

In the 21st century, China is playing a pivotal role in the world economy and contributes nearly 20 per cent to global Gross Domestic Product (GDP), being just second highest after United States of America (USA). China is the world’s largest exporter, the reason for this being its quality products at a low cost and a relatively shorter shipment time. Beijing is also the world’s largest non-commercial lender, more than the International Monetary Fund (IMF) and the World Bank (WB). China’s share of bilateral debt owed by the world’s poorest countries to members of the G20 has risen from 45 per cent to 63 per cent last year.

A report released in 2020 suggests that China has distributed US$5.6 trillion in loans to various countries in the name of development. China has financed bigger projects and taken on higher levels of credit risk with stronger repayment safeguards, in place. Along with this, 65 per cent of all the loans distributed under bilateral relations in the world have been distributed by China alone. According to PRC, they do this for welfare of humanity, as a responsible country of the global community.

Debt trap

Debt-trap diplomacy’ is a term which describes a creditor country or institution extending debt to a borrowing nation partially, or solely to increase the lender’s political leverage. The creditor country is said to extend excessive credit to a debtor country with the intention of extracting economic or political concessions when the debtor country becomes unable to meet its repayment obligations. Presently, 42 countries have public debt exposure to China in excess of 10 per cent of GDP. Poor nations like the Republic of Djibouti, Laos, Zambia, Nigeria and Kyrgyzstan have debts to China amounting to 20 per cent of their GDP.

Presently, 42 countries have public debt exposure to China in excess of 10 per cent of GDP. Poor nations like the Republic of Djibouti, Laos, Zambia, Nigeria and Kyrgyzstan have debts to China amounting to 20 per cent of their GDP.

China is using its economic heft by providing huge and easy loans to developing and underdeveloped countries for development and upgrade of infrastructure. The companies and manpower working on these projects are majorly Chinese which indirectly gives access to the country’s natural resources and disturbs the local economy of the region by flooding cheap Chinese goods in the market. This leads to the economy of the country being crippled and makes it difficult for the borrowing government to pay off their debt. Eyeing the opportunity, China demands acquisition of a strategic asset of the country to write off the debt in part. China has taken control of strategic port City of Hambantota in Sri Lanka, Gwadar port of Pakistan, Lekki Deep Sea port in Nigeria, Port of Sudan, Mombasa Port in Kenya, Entebbe airport of Uganda and many more. China indirectly enters the politics of that country and then dominates its sovereignty. China, however, vehemently refutes all such ideas of a ‘debt trap’ being neither factual nor logical and calls it a false narrative, created by western countries and their media. 

Some of the examples of Dragon’s debt trap are elucidated hereafter:

Sri Lanka

Sri Lanka is facing the worst financial crisis with shortage of fuel, food and medicines. It has also defaulted on repayment and debt servicing of entire external debt of US$51 billion, in April 2022. Sri Lanka has to repay about US$4 billion worth of debt this year, including a US$1 billion international sovereign bond. China is Sri Lanka’s biggest bilateral lender accounting for 10 per cent of its foreign debt.

Critics believe that Sri Lanka is the poster boy for China’s infamous debt trap diplomacy. China’s debt trap should not be seen in economic terms alone, and therefore, it is now being dubbed as a “strategic trap” or as some like to call it, the “modern-day colonialism.” While China refused to help Sri Lanka as it would set a wrong precedent for other countries that have taken loan from China, unable to pay the Chinese debt, they are compelled to give the strategic port City of Hambantota to China, with 71 per cent stakes, on 99 years lease.

Pakistan

China and Pakistan have been close friends since the formation of the Pakistan. China invested US$64.97 billion in Pakistan between 2015 and 2021 for developing infrastructure and trade routes in Pakistan. China has completely paralysed the Pakistani economy by flooding markets with its goods and has brought leading local industries like textile to its knees, begging for survival. Gwadar port, the deepest sea port in the world located in the Arabian Sea, is almost sold out to China as it holds a stake of 91 per cent. Gwadar port will be a strategic asset because China is the world’s biggest importer of oil. 

Experts have estimated that Pakistan would require nearly 40 years to pay back its debt to China. Scholars suggest that the debt could give China undue influence in Pakistan’s affairs.Pakistan has become almost a vassal state of China. 

While China refused to help Sri Lanka as it would set a wrong precedent for other countries that have taken loan from China, unable to pay the Chinese debt, they are compelled to give the strategic port City of Hambantota to China, with 71 per cent stakes, on 99 years lease.

African countries

China has almost invested US$94.5 billion in Africa for development of infrastructure and facilities. In 2020, the African countries with the largest Chinese debt were Angola, Ethiopia, Zambia, Congo and Sudan.  China sees Africa as the key player in their trade aspirations and is constructing ports, railways and roadways for different African Governments. African economies have already collapsed and China has taken control of major ports like Lekki Deep Sea port in Nigeria, Port of Sudan, Mombasa Port in Kenya, Entebbe airport of Uganda and many more.

Kenya, Uganda and Zambia’s story repeats itself across Africa, Asia and Latin America. According to the Financial Times, China has provided heavy loans to governments and state-owned firms in Africa to secure commodity supplies and fund its global network of infrastructure projects.

The future trappings

The Dragon debt trap may enhance further in the future to trap countries like Nepal, Afghanistan and Maldives in South Asia. All these countries are in heavy Chinese debt and cozying up to the Dragon. India’s real concern is growing Chinese presence among its neighbours. Economic instability in the South Asian Association for Regional Cooperation (SAARC) nations doesn’t augur well for developing nation like India. 

Post Ukraine conflict, having isolated from the world trade by Western sanctions, Russia may look increasingly towards China to help them out.   Overdependence of Russia upon China will make Russia lose its strategic independence as a global power. Economically weak Russia, crippled by sanctions will slowly be sucked into same debt trap as developing countries, albeit from a different route. Moscow, that is more beholden to Beijing, would be more problematic for India, in case, Sino-Indian border conflict flares up again. That will bring the biggest fears of India come true.

Implications for INDIA

The reality is that majority of smaller nations are increasingly getting lured by Chinese loans for infrastructure development. Faced with no other viable alternative, they are getting trapped into the Dragon’s debt trap. Like a Marwari money lender, they are consequently faced with economic crisis and surrender of assets like seaports, mines and airfields. Subsequently, their sovereignty is also governed from Beijing.  

With its Western allies, now India can hope to shape an alternative to Chinese predatory practices and push back against Beijing’s economic agenda. The QUAD can play an active role in reversing the spread of this menace. The current narrative by the Indian Prime Minister Narendra Modi of self-sustainability (Atmanirbhar Bharat) is the right approach for any country, who wants to safeguard its sovereignty, in future. 

India, one of the foremost critics of the Belt and Road Initiative (BRI), can now take some lead in shaping the global discourse on the Chinese model of connectivity and development cooperation. With its Western allies, now India can hope to shape an alternative to Chinese predatory practices and push back against Beijing’s economic agenda. The QUAD can play an active role in reversing the spread of this menace.

Pakistan, Sri Lanka and Maldives in its neighbourhood, almost falling into the ‘Dragon Debt Trap’ is not a good sign for India. It’s time for us to act fast and cease the opportunity and protect our strategic backyard from China’s misadventures, before Nepal and Bangladesh also fall into it. It is only imperative for India to love thy neighbour and help/ assist these countries during their crisis while also securing its own strategic and economic interests. But India also has its financial constraints. The current narrative by the Indian Prime Minister Narendra Modi of self-sustainability (Atmanirbhar Bharat) is the right approach for any country, who wants to safeguard its sovereignty, in future. 

China is emerging as the Neo-Colonizer of the 21st Century. India has flagged the lurking threat, it’s now up-to the world to take note of it and stand united against it.

-Maj Gen C P Singh (Retd.) is an Indian Army veteran. A commentator and prolific writer on strategic issues, he can be contacted at www.majgencpsingh.com. The views expressed are of the writer and do not necessarily reflect the views of https://strategicaffairsindia.in

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