Article by: Raina S.
Graphic by: Erica N.
Recently, China has had an exceptional interest in developing African and Asian nations worldwide through providing infrastructure loans and investments. From 2000, Chinese loans to less economically developed African countries have grown 98 times, peaking in 2013 at $17 billion. While this is seen as a method to fast-track infrastructure projects and boost economic growth for developing countries, many of the supposed beneficiaries are struggling to repay the debt. Consequently, the borrowing countries are forced to negotiate terms that are not in their best interests.
One example includes China’s 99-year lease on Sri-Lanka’s Hambantota Port, the largest in South Asia, after they consistently failed to pay loan installments. The $1.5 billion loan at 3-6% interest rates (with normal rates at 0.25-0.5%) was taken right after the end of Sri Lanka’s 26-year old bloody civil war. So now China has 70% stakehold on Sri Lanka’s Hambantota Port which lies in a militarily strategic position to gain control and enforce power over the Indian Ocean.
This results in heightened political turmoils between the two rising economic powers: India and China. Furthermore, China is currently in business with 68 less economically developed countries over similar matters, with 8 at either very high risk of losing their sovereignty or already having lost it.
Take Djibouti’s situation in 2017: while absolutely drowning in debt from Chinese loans, Djibouti allowed China to construct their first overseas military base on their soil on top of paying $20 million annually for any outstanding debt.
Or consider Pakistan’s current crisis where China has essentially bought out the country by approving a $2 billion loan for building a 1,300km highway, after “convincing” presidential candidate Imran Khan to change his position on China. And these are simply a fraction of the nations to fall into China’s debt trap.
Although, it can be argued that these are countries with governments. Surely, they have the sense to reject loans that they cannot repay, right? Well, think about it this way: the carrot or the stick?
China has lured developing third world nations by dangling a large juicy carrot in front of their eyes, promising bright economic futures, increased employment, and immense revenue generations. The reality is that these countries, with sometimes fraudulent leaders, fall into China’s trap. And once stuck inside the cage, China is in charge at the negotiations table.
But, why is China doing this? Well other than obvious desires to become an ultimate world superpower, they seem to be nostalgic for the past. All the countries in China’s game fall into a recognizable pattern: The Silk Road. Or rather, China’s current trade strategy to connect themselves to Asia, Africa, and Europe: the One-Belt, One-Road (OBOR).
The OBOR has countless economic and political benefits for China and promises financial prosperity to all participants. However, after analyzing China’s track record with the countries it has lent money to and evaluating their current situations of either nearing bankruptcy or losing their sovereignty, the question remains: ‘What’s your real motive, China?’