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28 August 2024

Unmasking the Narrative: Is China’s Debt Trap Diplomacy Fact or Fiction?

Devyansh Dullar

Debt Trap Diplomacy (DTD) refers to a scenario in International Relations where countries with a powerful economic position and enormous finances provide loans to relatively less endowed developing countries for inefficient or vanity projects. Subsequently, this traps the less endowed country in huge debts and holds leverage over them if they are unable to repay that debt (Onyango, 2021). DTD has gained considerable notoriety in international politics as a tool of Chinese foreign policy under its Belt and Road Initiative (BRI) to arm-twist nations into giving forced sovereign concessions. This narrative is in part forwarded by the USA and other Western Countries as they see Chinese loans as a challenge to the current world order dominated by Western financial institutions and rules. For instance, in November 2023, US President Joe Biden hosted the America Partnership for Economic Prosperity Leaders’ Summit, and he declared that the US would provide “a real alternative to Chinese DTD with high-quality infrastructure development” (Eric Martin and Justin Sink, 2023). Meanwhile, the Philippines and Italy, the only G-7 members to participate in BRI, have recently withdrawn from the initiative out of fear of a Chinese debt trap (Times Now, 2023).

As DTD has become an international issue, this essay aims to analyse the underlying assumptions being made to dub Chinese loans “debt traps” or “predatory”. Further, the essay will use empirical examples to argue that the DTD is fiction. The mere gaining of favourable terms for investment in exchange for financial assistance cannot be dubbed DTD. The essay will analyse two case countries that were chosen based on their participation in BRI and the high share of foreign debt owed to China. These are Pakistan and Sri Lanka (Buchholz, 2023). To ascertain if the Chinese DTD is fact or fiction, the loans made by China will be analysed using criteria that are loosely based on conditions used by Michael Himmer & Zdenek Rod (Himmer and Rod, 2023, p. 254). But unlike their four criteria, this essay will narrowly define them into the following three questions: 1) Is there a clear “intent” present in Chinese debt conditions that point to an eventual debt-for-equity exchange? 2) If a debt-for-equity swap has taken place, what conditionalities govern it? 3) Has China restructured the debt of its borrower country regardless of its economic health?

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