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Colonization by other means: China’s debt-trap diplomacy

14 2 6
09.05.2021

American statesman John Adams, who served as U.S. president from 1797 to 1801, famously said, “There are two ways to conquer and enslave a country: One is by the sword; the other is by debt.” China, choosing the second path, has embraced colonial-era practices and rapidly emerged as the world’s biggest official creditor.

With its international loans surpassing more than 5% of the global GDP, China has now eclipsed traditional lenders, including the World Bank, the International Monetary Fund and all the creditor nations of the Organization for Economic Cooperation and Development (OECD) put together. By extending huge loans with strings attached to financially vulnerable states, it has not only boosted its leverage over them but also ensnared some in sovereignty-eroding debt traps.

The latest to fall prey to China’s debt-trap diplomacy is small Laos, which recently signed a 25-year concession agreement allowing a majority Chinese-owned company to control its national power grid, including electricity exports to neighboring countries. This shows that, despite the China-originating COVID-19 pandemic, Beijing continues to weaponize debt as part of its strategy to expand its economic, political and military presence abroad.

Instead of first evaluating a borrower country’s creditworthiness, including whether new loans could saddle it with an onerous debt crisis, China is happy to lend, because the heavier the debt burden on the borrower, the greater China’s own leverage becomes.

A new international study has shed light on China’s muscular and exploitative lending practices by examining 100 of its loan contracts with 24 countries, many of which participate in its Belt and Road Initiative (BRI), an imperial project that seeks to make real the mythical Middle Kingdom. The study found that these agreements incorporate provisions that go beyond standard international lending contracts, thus arming China with considerable leverage.

In fact, such is the lopsided nature of the Chinese-dictated contracts that, while curtailing the options of the borrowing nations, they give China’s state-owned banks untrammeled........

© The Japan Times


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