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Debt-trap diplomacy is a theory to describe a powerful lending country or institution seeking to
saddle a borrowing nation with enormous debt so as to
increase its leverage over it. Debt-trap diplomacy has been referred to by several other terms, including
"debt-book diplomacy". The term 'debt-trap diplomacy' was introduced by
Indian academic
Brahma Chellaney in early
2017 and has been widely used in recent years to accuse China of Machiavellian lending policies. Within 12 months the term had
quickly spread through the media, intelligence circles, and western governments. It has since expanded to include other parts of the world and was further defined and expanded upon in the context of Chinese
geostrategic interests in a
2018 Harvard University report.
The
Belt and Road Initiative (BRI) is a multi-billion-dollar expansion project of China, to expand its power through lending to countries to spur their economic growth. The BRI project was launched in
2013 by
Chinese leader Xi Jinping to
improve the infrastructure of countries in
Europe, Africa, and Asia in exchange for
global trade opportunities and economic advantage.
The Belt and Road Initiative (BRI, or B&R), known in Chinese and formerly in English as
One Belt One Road (
OBOR), is a global infrastructure
development strategy adopted by the
Chinese government in 2013 to
invest in nearly 70 countries and international organizations. It is considered a centerpiece of
Communist Party of China (CPC)
general secretary and
Chinese leader Xi Jinping's
foreign policy, who originally announced the strategy as the
"Silk Road Economic Belt" during an official visit to
Kazakhstan in September 2013.
"Belt" is short for the "
Silk Road Economic Belt," referring to the proposed
overland routes for
road and
rail transportation through
landlocked Central Asia along the famed
historical trade routes of the
Western Regions; whereas "road" is short for the "
21st Century Maritime Silk Road", referring to the
Indo-Pacific sea routes through Southeast Asia to South Asia, the Middle East and Africa. Examples of Belt and Road Initiative infrastructure investments include ports, skyscrapers, railroads, roads, airports, dams, and
railroad tunnels.
The initiative was incorporated into the
Constitution of China in
2017. The
Chinese government calls the initiative "a bid to enhance regional connectivity and embrace a brighter future." The project has a
target completion date of 2049, which will coincide with the
centennial anniversary of the People's Republic of China (PRC)'s founding. Some observers and
skeptics, mainly from
non-participant countries, including the
United States, interpret it as a plan for a
sinocentric international trade network. In response the
United States, Japan and Australia had formed a
counter initiative, the
Blue Dot Network in 2019.
Australia announced on
21 April 2021 via Foreign Minister
Marise Payne that Australia would be pulling out of the "Belt and Road" initiative completely.
The
Blue Dot Network (BDN) is a
multi-stakeholder initiative formed by the United States, Japan, and Australia to provide
assessment and certification of infrastructure development projects worldwide on measures of
financial transparency, environmental sustainability, and
impact on economic development, with the
goal of mobilizing private capital to invest abroad.
It was formally announced on
4 November 2019 at the Indo-Pacific Business Forum in Bangkok, Thailand on the sidelines of the 35th
ASEAN Summit. It is led by the
U.S. International Development Finance Corporation,
Japan Bank for International Cooperation, and
Department of Foreign Affairs and Trade of Australia.
The
Blue Dot Network is expected to serve as a global evaluation and certification system for roads, ports and bridges with a focus on the Indo-Pacific region. It has been considered as a counter-initiative to China's
Belt and Road Initiative.
The
theory of debt-trap diplomacy is that the
creditor country intentionally extends excessive credit to a debtor country, thereby
inducing the debtor into a debt trap. This is done with the
intention of extracting economic or political concessions from the debtor country when it becomes
unable to meet its debt repayment obligations. The conditions of the loans are often
not made public, and
the borrowed money commonly pays contractors from the creditor country. Although the term has been applied to the lending practices of many countries and the
International Monetary Fund (IMF), it is most commonly alleged towards the
People's Republic of China (PRC). Bilateral agreements made as part of China's
Belt and Road Initiative have particularly furthered this association, specifically with regard to
Chinese infrastructure loans to developing nations and the
consequent leveraging of accumulated debt to achieve Beijing's strategic aims.
Proponents of ‘debt-trap diplomacy’ theory have claimed that
China's geostrategic interests are served when its partners struggle with debt. The
resulting economic crises supposedly would
allow Beijing to exploit and seize assets and helps its political influence. But according to a TRT article, the evidence so far contradicts the theory. Far from expanding China's global power, case studies have instead shown that
heavily indebted recipients of Chinese loans were a large liability for China. An example would be
Pakistan. China has had to slow down its flagship
CPEC initiative and provide emergency financing to fend off an economic catastrophe.
Pakistan was later
forced to approach the IMF for another bailout, which
exposed China's loans and investments to global scrutiny and
increasing Washington's leverage over Pakistan (given that the US is a majority shareholder in the IMF). This was no political gain for Beijing when Pakistan had struggled to pay back loans.
The validity of allegations against China has been criticized by multiple academic institutions including Rhodium Group, Chatham House and Princeton University, which have denied the narrative of debt-trap diplomacy in the context of Chinese investments.
Princeton University published an article
disputing the term and quoted a March 2018 report released by the
Center for Global Development, that contradicts the theory as the paper concludes that between 2001 and 2017, China had restructured or waived loans for 51 debtor nations, the majority of BRI participants, without seizing state assets.
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