Columnists

Why China debt trap diplomacy talk is farcical

debt

These loans have largely been used to build infrastructure in transport, communication, manufacturing and energy sectors. FILE PHOTO \ NMG

A few years ago, no one would have thought that China’s role in the global economy would be what it is today. The architect of China’s market-led reforms, the late Chinese leader Deng Xiaoping shifted the Chinese economy from a centrally-planned to a market-oriented economy, which is credited for the rapid economic and social development the country has experienced.

China’s sustained growth has lifted more than 800 million Chinese out of poverty in the past 40 years – providing key learning lessons to developing countries.

The World Bank reports show that China’s GDP growth has averaged nearly 10 percent a year making it the fastest sustained expansion by a major economy in history. With a population of 1.4 billion, China is the second largest economy in the world and is increasingly playing an important and influential role in the global economy.

Amid its growing influence on the international stage, China launched an ambitious programme in 2013 dubbed the Belt and Road Initiative (BRI). The BRI is a massive trade and infrastructure project that aims to link China to the world’s economies.

In its quest to promote economic growth globally, China, through financial institutions such as the Bank of China and the Export-Import Bank of China has offered countries a combination of grants, interest-free loans and concessional loans, credit lines and development loans for the BRI projects.

These projects involve huge financial lending to countries to build or rebuild their infrastructure to promote sustainable growth and development – receiving global acceptance and demonstrating a vote of confidence in China’s global development agenda. Critics of this Chinese agenda have poured cold water on it, branding it "debt-trap diplomacy" or "debt colonialism" by China to colonise smaller countries to dominate the world.

The "debt colonialism" fallacy has been backed by claims that China is leveraging massive loans it holds over small countries globally to snatch assets and increase its footprint.

In supporting the BRI programme, China has issued loans to Montenegro, Djibouti, Kyrgyzstan, Papua New Guinea, Samoa, Pakistan, Maldives, Laos, Fiji, Sri Lanka, among others. In Africa, Ethiopia, Kenya, Uganda and Tanzania, among others, owe China billions of dollars.

These loans have largely been used to build infrastructure in transport, communication, manufacturing and energy sectors.

Opponents of BRI, who are against infrastructural development have indicated that countries such as Sri Lanka, Zambia, Djibouti and Pakistan are in danger of falling into China’s "debt trap". It is said that China plans to take control of key infrastructure as either a cover or a cushion for its loan repayments from the defaulting countries. .

Another misconception about the Chinese loans is that its the largest component in the debt matrix of these borrowing countries. What Chinese loans have done is to diversify these countries’ loan portfolios to avert any risk associated with overreliance on one borrower.

BENARD AYIEKO is an economist.