China’s Debt Trap: Countries at Risk and Their Situation
China’s Debt Trap: Countries at Risk and Their Situation
Blog Article
Global economic analysts’ concerns about China’s “debt trap” have grown in recent years. By ensuring development, China essentially places a heavy weight on the leaders of other nations. Kenya, Pakistan, Sri Lanka, and Malaysia are among the African nations that have previously become caught up in this debt trap. China provides significant financial assistance to developing nations worldwide. China deploys vital state assets like ports, airports, and railroads to finance infrastructure projects in those nations and then seizes these assets when those nations are unable to pay back their loans. What is China doing to these countries, though? Let’s see in the report for today.
The initiative for the Belt and Road
Xi Jinping, the president of China, introduced the Belt and Road Initiative (BRI) in 2013. China has made significant economic and infrastructure investments under this project. It won’t be restricted to China alone. China is seeking to revive the historic Silk Road. Chinese efforts are therefore being made to establish connections with Asia, Africa, and Europe. They want to establish a commerce route that is comparable to the Silk Road in ancient China. China has managed this endeavor with roughly 140 countries. China helps all of those nations build roads, railroads, ports, and other vital infrastructure by providing funding, planning, and labor. Most of the enormous sums of money that nations get for building infrastructure are loans. And this is the root of all the issues. Despite this, these initiatives have contributed significantly to the infrastructure development of numerous nations. Nonetheless, China is gaining a strategic edge in those nations since the majority of them are unable to make their loan payments on time.
Which nations have become enmeshed in China’s financial trap?
Numerous nations in South Asia, Africa, and Southeast Asia have become enmeshed in China’s debt trap:
- Sri Lanka
Sri Lanka is among the nations at risk of receiving financial aid from China. In 2017, after declaring itself unable to pay back the 1.4 billion loan from China, Sri Lanka was compelled to lease its Hambantota port to China for 99 years. China consequently took command of the island nation’s key resource.
- Pakistan
China and Pakistan have maintained cordial ties throughout history. According to the world community, China assisted Pakistan in developing nuclear weapons. China has also contributed to Pakistan’s debt predicament. The China-Pakistan Economic Corridor project is one example. China gave Pakistan a 60 billion investment through this project. Pakistan suffered the highest inflation in its history in 2022, following the overthrow of Imran Khan’s government. This causes the nation’s foreign debt load to rise even further. But with Pakistan’s financial strain mounting, many analysts think China has some sway over the country. As a result, Pakistan is struggling to make its debt payments.
- Maldives
With its debt to China surpassing $1.3 billion in 2018, the Maldives is likewise at risk of being impacted by Chinese debt. Due to the Maldives’ failure to return the debt on schedule, China gained strategic dominance over the country when the Maldivian government borrowed money from China for infrastructural projects.
- Malaysia
The massive debt of China’s Belt and Road Initiative was a source of concern for Malaysia in 2018. Lack of funding caused the nation’s $20 billion railway project to be shelved. Malaysia and other nations are caught in a debt cycle with China, even though development was later reviewed.
- Kenya
Kenya’s Standard Gauge Railway project required a $3.2 billion loan from China. The extra liabilities associated with this project are making it difficult for Kenya to pay back its debt. Thus, China is a strategic partner in Kenya.
The debt trap: how does it work?
China typically offers massive infrastructure projects and low-interest loans that are said to be long-term and beneficial to the development of the nation. The conditions of these loans, however, include using Chinese workers and contractors, and they are given by Chinese state-owned banks. Consequently, China keeps the majority of the project funding.
When debt repayment becomes onerous, China takes control of vital assets like ports and railroads. By employing this tactic, China can solidify its standing as a major political player as well as a debtor.
China’s Larger Global Agenda
China wants to use the Belt and Road Initiative (BRI) to increase its global power and influence and advance economically. By doing this, It hopes to seize control of vital agricultural, mineral, and energy resources as well as key sites like seaports and airports. Furthermore, China’s “Made in China 2025” plan aims to reach the top of the world rankings.
Criticism and global response
Internationally, and particularly among Western nations, China’s debt trap policy has drawn criticism. They consider it to be a type of financial colonialism that renders these nations reliant on China. China has made no offer to loosen or renegotiate its debt conditions, despite the danger to political stability and the overwhelming debt load.
Debt Trap and Influence on the World Economy
Many developing nations throughout the world are facing additional difficulties as a result of China’s debt trap plan, a contentious and concerning topic. Despite its benefits for infrastructural development, it has made the country more politically and economically dependent on China, which could be harmful to them in the long run. International awareness of such debt management tactics should be raised, and these nations’ political and economic independence should be safeguarded. Over the next few decades, China’s worldwide economic strategy may alter the geopolitical environment.
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