China’s Debt-Trap diplomacy

Debt-trap diplomacy is a theory that describes 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 was associated with Indian academic Brahma Chellaney, who promoted the term in early 2017.

How does China’s debt trap diplomacy work?

  1. To gain rapid political and economic ascendency across the globe, China is dispensing billions of dollars in the form of concessional loans to developing countries, mostly for their large-scale infrastructure projects.
  2. These developing nations, which are primarily low- or middle-income countries, are unable to keep up with the repayments, and Beijing then gets a chance to demand concessions or advantages in exchange for debt relief.

What concessions are demanded by China?

  1. Sri Lanka, for instance, was forced to hand over control of the Hambantota port project to China for 99 years, as it owed massive debt to Beijing. This allowed China control over a key port positioned at the doorstep of its regional rival India, and a strategic foothold along a key commercial and military waterway.
  2. In exchange for relief, China constructed its first military base in Djibouti. Whereas Angola is replaying multibillion-dollar debt to China with crude oil, creating major problems for its economy.


What are these concessional loans granted by China?

  1. The ‘concessionality’ factor is achieved either by offering interest rates that are below the market rates or leniency in the grace period, and often with a combination of both.
  2. These loans generally have long grace periods.


Has India taken any loans from China?

  1. India has not entered into any loan agreement directly with China.
  2. However, it has been the top borrower of Asian Infrastructure Investment Bank (AIIB), a multilateral bank wherein China is the largest shareholder (26.6% voting rights) and India the second (7.6% voting rights) among other countries.


How is the debt trap affecting India, then?

China's Debt trap policy

Most of India’s neighbours have fallen prey to China’s debt trap, and ceded to China’s $8 tn project – One Belt One Road Initiative (OBOR) which seeks to improve connectivity among countries in Asia, Africa and Europe.

Many nations have ceded control over strategic sea ports which can affect India’s regional security.

China through OBOR can increase India’s political cost of dealing with its neighbours because Kashmir, which India considers its part is also used in OBOR by Pakistan.

Kautilya, the famous India theorist on statecraft, suggests it is important to monitor and contain the activities of the state’s “enemy” and its diplomacy through engagement and cooperation rather than war.

Brahma Chellany, India’s leading China expert, writes in The Japan Times: “Indeed, by working to establish its dominance along the major trade arteries, while instigating territorial and maritime disputes with several neighbors, China is attempting to redraw Asia’s geopolitical map.”

In The Times of Central Asia, James Dorsey informs that a leaked long-term plan for China’s massive $56-billion investment in Pakistan exposes the goals of Beijing’s One Belt, One Road initiative as a “ploy for economic domination, the creation of surveillance states, and allowing China to influence media landscapes.”

Kautilya, the famous India theorist on statecraft, suggests it is important to monitor and contain the activities of the state’s “enemy” and its diplomacy through engagement and cooperation rather than war.


Steps by India:

  1. New Delhi has been promoting Japanese investment in the Iranian port of Chabahar.
  2. Indian efforts towards joint India–Japan Asia–Africa Growth Corridor are aimed at checking China’s OBOR initiative, though it is no match to BRI.
  3. India plans to step up foreign diplomacy by highlighting poor returns and debt trap issues.
  4. New Delhi is also actively involved in Quad involving USA, Australia and Japan. It aims to deter China’s control over South China sea and collectively reduce trade imbalance with China.