Praised by Chinese President Xi Jinping as “a rising tide” that “lifts all ships”, China’s Belt and Road Initiative (BRI) is a series of land, sea, air and digital economic corridors connecting Asia, Africa and Europe. Since its launch in 2013, the initiative has captured the attention of world leaders and policy experts alike. As part of their strategy to build a modern-day ‘silk road’ across the world, China has promised to invest a whopping $1 trillion into infrastructure projects, especially in the developing world. With 139 nations now formally affiliated with the initiative, the BRI has allowed China to extend its reach to more than 60% of the world’s population. 

However, over the past few years, there have been growing concerns among diplomats and scholars that this tide of Chinese influence may turn into a tsunami that will leave nothing but destruction in its wake. These fears were first popularized by Indian geostrategist Brahma Chellaney, who used the term ‘debt trap diplomacy’ to describe China’s lending practices under the Belt and Road Initiative. The Chinese debt trap theory essentially argues that the nation is using its “One Belt, One Road” initiative to lure developing countries into its sphere of influence. China is accused of pursuing this strategy by loaning exorbitant amounts of money to their governments, trapping them in debt that they can never repay. 

Despite the fact that the theory has been widely disputed and even dismissed as a myth by many academics, it has gained significant popularity in the international media, especially within countries that are recipients of these BRI loans. A 2019 report surveying Southeast Asian experts – ranging from political scientists to media pundits – found that 70% of the respondents demanded that their governments proceed with caution when negotiating BRI proposals with China. Combining this figure with the growing number of anti-China protests in countries like the Philippines that are home to Chinese investments in large-scale infrastructure projects, it becomes evident that the debt trap theory cannot be easily dismissed as a Western conspiracy. 

Swimming in Risky Waters

Proponents of the concept of ‘debt trap diplomacy’ often make three central arguments when discussing China’s investments under the BRI project. The first concern raised by these experts is that China is pouring money into countries that are regarded as extremely high-risk due to their poor credit ratings. A recent article published in the Harvard Business Review found that 12 of the developing countries that are part of the BRI owe at least 20% of their nominal GDP to China. 

It is important to note, however, that even though China has been loaning money to countries at high risk of debt distress, it has not been lending at a level that is unsustainable – in fact, these nations are at a higher risk of defaulting on the debt that they owe to private creditors and Western financial institutions. Moreover, China has engaged in debt relief programs and even renegotiated loans in favour of the developing countries that it currently invests in, as part of the BRI project. 

(Loan) Shark in Sheep’s Clothing?

While these debt figures alone may not be sufficient to justify accusing China of using BRI loans to gain a strategic advantage over these nations, such concerns are only amplified by the second claim – which is that China has had a history of engaging in debt-trap diplomacy. The specific example cited by most experts is the case of the Hambantota Port in Sri Lanka, which many claim was seized by the Chinese Navy in exchange for debt relief when the Sri Lankan government was unable to repay the debt they owed to China. It was later revealed that Sri Lanka’s debt distress had more to do with its excessive borrowing from Western capital markets than the amount it had loaned from China for the construction of the port. This meant that the money earned through the trade was mostly used to pay off Colombo’s US sovereign bonds. Additionally, Sri Lankan officials clarified that the sale of the port was first suggested by their own government and that it was not open to use by the Chinese Navy.

Murky Business

Even if the first two claims remain up for debate, the third – which highlights the opacity of China’s lending practices under the Belt and Road Initiative – continues to stand its ground in the case for the Chinese debt trap theory. Regardless of whether China’s investments in developing countries are risky, the fact that nearly 50% of its loans to the developing world go unreported is enough cause for concern. Unlike other development projects of this scale, the BRI does not have any overarching institutionalization or even a centralized database to keep track of all financial transactions that are made as part of the initiative. It can be argued, however, that this lack of transparency surrounding Chinese investments abroad is a result of its fragmented financing regime instead of a top-down strategy of secrecy. Nevertheless, the environment of mistrust surrounding the dubious dealings of the Belt and Road Initiative has created room for competing projects such as US President Biden’s ‘Build Back A Better World’ (B3W) that offers a transparent and sustainable alternative to the developing countries associated with the BRI. 

Despite its many flaws, the Belt and Road Initiative is one of the only large-scale development projects in the past decade that has invested in third-world countries which have historically been denied the socio-economic benefits of globalization. The Initiative has been built through diverse bilateral engagements that have enabled China to share the fruits of its economic growth with its BRI partners. However, the lack of transparency surrounding Chinese loans has smeared the international reputation of the project, generating pushback from many recipient countries. In order for Beijing to legitimize its own initiative in opposition to the B3W, it will have to immediately introduce reforms that ensure that China’s lending practices comply with international standards. Through these reforms, the BRI’s ‘rising tide’ can reach the shores of the developing world without wiping out what’s left of its finances. 

Sagara Ann Johny is a third-year student at Ashoka University studying Economics, Finance and International Relations.