China has been criticised for its practice of ‘debt trapping’ developing countries – a practice where they give money to poorer countries, which are then indebted to China, meaning it can apply pressure for their support in international affairs. In November 2021, MI6 chief Richard Moore warned in his first broadcast interview that China is “trying to use influence through its economic policies to try and get people on the hook”.
What is a debt trap?
Critics of China claim the superpower lends money to other countries in need of developing infrastructure, funding armed forces and paying off other debts, which end up having to relinquish control of key assets if they can’t meet their debt repayments.
China has long denied it is ‘debt trapping’ countries.
China’s loans to lower and middle-income countries have tripled over the past 10 years, reaching $170 billion (£125 billion) by the end of 2020.
However, the figure is likely to be significantly higher, and China doesn’t publish records of its foreign loans.
Many of its contracts also contain non disclosure agreements which prevent borrowers from revealing the details.
Research by AidData, an international development body in the US, has found half of China’s lending to developing countries is not reported in official debt statistics.
Some of these loans are kept off government balance sheets because they are directed to state-owned companies and banks, joint ventures, or private institutions, rather than travelling directly between governments.
Djibouti, Laos, Zambia, and Kyrgyzstan all currently have debts to China equivalent to at least 20 percent of their annual GDP.
Much of the debt owed to China relates to large infrastructure projects like roads, railways and ports, and also to the mining and energy industry, under President Xi Jinping’s Belt and Road Initiative.
One of the starkest examples of a debt trapped country is Sri Lanka, which embarked on the Hambantota port project with Chinese backing in the mid 2000s.
The billion dollar project using loans and contractors from China was mired with issues, and left the island nation saddled with considerable, spiralling debt.
China eventually agreed to take a 70 percent stake in the port on a 99-year lease – with the caveat of further Chinese investment in the country.