Last year Laos’ economic growth witnessed a dip from 5.5% in 2019 to a shocking 0.5% in 2020, for which undoubtedly pandemic was being blamed, but it was not solely ‘the’ reason. Other factors that contributed were poor governance, deficient foreign exchange reserves and broadening current account deficit. The country holds around $864 million as debt repayment which would sum up to more than $1 billion annually until 2024. The reasons are its aspiring projects backed by China such as becoming “The Battery of Southeast Asia” through power generation projects and a high-speed railway project (worth $6.7 billion) that would link capital Vientiane to the Chinese Border. This resulted Laos a sovereign debt of $12.6 billion (almost 65% of GDP) with an additional debt of $ 8 billion due to the collapse of hydroelectric dam, held by Electricite du Laos (EDL) a state owned cooperation under Ministry of Energy and Mines. The net external debt has rose to a whopping 85% of GDP in 2020. Due to the debt obligation EDL had to sign a 25 year concession agreement allowing a Chinese firm (China Southern Power Grid Co.) to own majority of power grid shareholding and its control that is putting the country fast on track in becoming a ‘pseudo-province of China’ and another prey of China’s so called debt-trap diplomacy.
Defining the term
The former American President John Adams once stated that ‘There are two ways to conquer and enslave a country, one by the sword; the other is by debt’1. The term ‘debt trap diplomacy’ coined by an Indian geostrategist Brahma Chellaney in 2017 claims that China is following the second path by wielding its predatory lending practices. It is claimed China through this tactic offers huge loans to strategically important developing nations under the banner of infrastructure projects and when these countries become encumbered with debt it forces them to cede their strategic assets in its possession. As the number of default countries increases China expands its dominance through extracting economic and political concession from the debtor country enabling it to further its hegemonic and geopolitical ambitions. The multi-billion project BRI (Belt and Road Initiative) which spans 80 countries (2/3rd of world’s population) is clearly seen by strategic experts as the key through which China is fulfilling this ambition. As reported by the Centre for Global Development (CDG) there are about 8-9 vulnerable countries who are finding themselves overwhelmed by Chinese debts and the numbers are increasing. Srilanka is often associated with this trap as it leased its Hambantota port to China for 99 years due to its debt obligation. The condition has worsened as the country is taking loans from China to pay off old loans, highlighting the vicious cycle in which it has find itself trapped. Though China denies all such claims and stated the purpose is to aid the developing countries to spur its own economic growth through BRI.
ASEAN and BRI
Southeast Asian countries shares historical and cultural relations with China for about two millennia. In the Chinese world view or the tributary system these region has been considered as the ‘vassal states’. However China kept itself at a safe distance from the regional body as it considered ASEAN as an instrument to ‘encircle China’.2 It was under Deng Xiaoping in the 1980s when China was emerging as economic power and harbouring ambitions for a global role, it realised the need to achieve dominance over the regions in close proximity.3 Hence in the1990s, Beijing opened itself to seek settlement of divergences and disputes among nations through peaceful means.4 In accordance with a peaceful rise along harmony and stability, China joined ASEAN dialogue in 1996 which further deepened their trade relations. Since Deng-era China followed his philosophy of hide and bide policy (Hide your strength, bide your time and never take the lead). It remained until the advent Xi Jinping’s regime when there was an apparent shift towards an assertive and strongly proactive approach to its immediate neighbourhood.5
Chinese President Xi Jinping proposed BRI in 2013, with an aim to revive the trade and overload exchange route with Central Asia and Europe, as it had in the ancient times through ‘silk road’.6As far as China’s flagship project BRI is concerned, the ASEAN countries- Malaysia, Indonesia and Laos have eagerly participated in it. During the leadership of Prime Minister Najib Razak China financed Malaysia in two pipeline projects worth $23 billion.7 But it was later halted by his successor Mahathir Mohammad in 2018 saying the country would not be able to repay its obligation. The country’s geographical location is also vital due to Malacca Strait, a chokepoint for most of the Asian trade passes. The Mahathir Government even mentioned those projects as ‘one-sided’ contract and bad deals signed by their predecessor which could have sold the country. Although the East Coast Rail Link under BRI is still in order.8
Indonesia’s debt to China rose up to $17.75 billion in 2019 with an increase in 11% from 2017 as the country had signed some infrastructure projects growing under BRI banner. Indonesia was included in the BRI to fulfil latter’s policy of ‘maritime silk route’ that connects its coastal area to the Middle East and Europe through South China Sea and Indian Ocean.9 However the Indonesian government doesn’t believe they are in a debt trap and said there might be differences with Chinese companies but they will find the solution and will continue to trade.
For Cambodia China is its largest foreign investor. It is not only a largest economic and military benefactor for the country but a political backer too.10 China surely contributed a lot to its transformation through infrastructure development but Cambodia is far from being vulnerable as the debt is around $5 billion. The country seems to be cautious with regards to the trade dealings with China. Although the government has been under criticism for its non-transparency with respect to the aids and grants provided by China.
Philippines has a longstanding dispute with China over South China Sea but under the incumbent President Rodrigo Duterte there has been a shift towards more engagement in trade that has made China its biggest trading partner. It has been cautioned over accepting loans from China that are 1100% costlier than those from another trading partner Japan.11 But the country claims to be determined not to fall into the debt trap with any of its lenders be it China or Japan or the US.12
Aside from Laos and Cambodia, Myanmar is another country that has been heavily relying on Chinese imports accounting almost 30% of its trade but surprisingly the country has managed to avoid itself from being swallowed by the debt till now. As per World Bank’s report of 2019 the country’s outstanding debt to China was $3.34 billion with a 26% dip from 2015. The country is aware of the fact that it would lose its critical infrastructure to China if it falls into default.13 It is argued that China’s goal is to bar a united ASEAN against it for its territorial claims over South China Sea by leveraging poor countries among Southeast Asia.14
Debt-Diplomacy a myth?
The usage of this narrative has been criticized by many academicians due to the absence of any strong evidence. It is considered to be merely a creation of China’s competitors to counter its growing influence around the globe.15 Or a misuse of language that portrays the need and greed of the poor and monetarily distressed countries. It is inequitable to cite and chide China alone for this as the International Monetary Fund (IMF) primarily controlled by the US and World Bank has been executing same approach since 1980s over the small and developing countries despite acknowledging their impotence to repay debts and compelling them to support US foreign policies at the cost of their own sovereignty and human rights.16
The question of whether China’s trade and influence over small and developing countries is a debt trap or not is still under debate. Hardly on the basis of claims it would be unwise to stick to a particular argument without having any concrete evidences. What one can assert is the need for BRI policies to be more transparent and accountable if China wants to minimise such claims that has been put against its policies.
1 Brahma Chellaney (09-05-2021), Colonization by other means: China’s debt-trap diplomacy, The Japan Times
2 Nicholas Tarling, Regionalism in Southeast Asia: to foster the political will (London: Routledge, 2006)
3 Graham Allison,(2017), Destined for War: Can America and China Escape Thucydides’ Trap?
4 Michal Kolmas, China’s Approach to Regional Cooperation, Metropolitan University Prague, 2016
5 William Callahan,” China’ Asia Dream: The Belt and Road Initiative and the new regional order.
6 A. Setiawan, M. Habibah, Haderiansyah & M.A. Hayat,(2020) Policy of China’s Debt Trap Diplomacy: The influence of Media in forming community political opinions, DIA Jurnal Ilmiah Administrasi Publik
7 Beech, Hannah (20-8-2018), ‘We Cannot Afford This’: Malaysia pushes back against China’s vision, New York Times
8 The Financial Times
9 A. Setiawan, M. Habibah, Haderiansyah & M.A. Hayat,(2020) Policy of China’s Debt Trap Diplomacy: The influence of Media in forming community political opinions, DIA Jurnal Ilmiah Administrasi Publik
10 K.K. Heng. V. Var (20-05-2019), Cambodia and the issue of China’s debt trap, International Policy Digest
11 T.F. Chan (7-03-2018),China’s debt-trap diplomacy reaches Philippines, Business Insider
12 C. Wong, (21-03-2019), South China Post
13 I. Kawate, Y.Nitta,(7-02-2021) Myanmar’s debt to China decreases 26% under ousted Suu Kyi, Nikkie Asia
14 B. Chellaney, (24-01-2017) China’s debt-trap diplomacy, The Strategist
15 P. Maluki, Is China’s Development Diplomacy in Horn Of Africa Transforming into Debt-Trap Diplomacy? An Evaluation, Academia
16 https://forsea.co/, China’s Debt trap Diplomacy: Is ASEAN a Victim?
Nithya Jacob
Nithya is currently pursuing Masters in East Asian Studies from University of Delhi. She has a keen interest in Geopolitics and Foreign Policies of East Asia and Southeast Asia.