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China's Debt-Trap Diplomacy

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China's Debt-Trap Diplomacy The Emergence and Fallacy of “China’s Debt-Trap Diplomacy” Narrative Xu Shaomin & Li Jiang n recent years, China has gained fruitful achievements in investment and infrastructure construction cooperation with countries along the proposed Belt and Road routes. At the same time, the West has begun Ito attack the Belt and Road Initiative (BRI) with fallacies, of which “China’s debt-trap diplomacy” is a typical example. By putting the blame for the debt crisis of some developing countries on China, it tarnishes China’s international image and creates obstacles for the BRI. Therefore, it is particularly necessary to have a thorough understanding of the cause and effect of the “China’s debt- trap diplomacy” narrative, to refute its erroneous nature and reveal the real root causes of the current debt crisis in many developing countries. Socialization and Politicization of “China’s Debt-Trap Diplomacy” Narrative With the development of the BRI, claims of “China’s debt-trap diplomacy” have widely appeared in the West. Driven by the joint hype of Western media and politicians, it has been rapidly socialized1 and politicized. Xu Shaomin is Director and Associate Research Fellow at the Institute of Public Policy, South China University of Technology; Li Jiang is Visiting Research Fellow at the Institute of Public Policy, South China University of Technology. 1 “Socialization” here refers to the process in which traditional media and social media interact rapidly and extensively in setting the agenda for each other’s coverage, so as to rapidly transform it from a “meme” to a “narrative,” and effectively eliminate and suppress any other alternative narrative through passing news back and forth from media to media, finally forming an overwhelmingly dominating “official” narrative. The socialization mode of this kind of topic can also have a profound impact on political discussions, election campaigns and government policies. See Adam Breuer and Alastair Iain Johnston, “Memes, Narratives and the Emergent US- China Security Dilemma,” Cambridge Review of International Affairs, Vol.32, No.4, 2019, pp.432–435. The Emergence and Fallacy of “China’s Debt-Trap Diplomacy” Narrative March/April 2020 69 “Debt trap” originally refers to the consequences for a government, or an individual, of borrowing at an interest rate which exceeds the rate of growth of its income, causing its current expenditure on items other than debt servicing to be increasingly reduced.2 In the 1970s, Western scholar Cheryl Payer attacked the International Monetary Fund (IMF) for controlling the economic policies of many Third World countries through ever-increasing loans, which eventually led these nations to submit to the economic dictates of developed capitalist countries. Payer described this as a typical “debt trap.”3 From the late 1970s to the 1990s, discussions on the nature, causes, impacts and solutions of the Third World debt crisis emerged one after another. Sovereign debt was no longer just regarded as a technical and economic issue, but an issue of international political economy involving politics and power games.4 The newly popularized term “China’s debt- trap diplomacy” is pointing fingers to China, accusing it of “deliberately” extending loans to developing countries with high debt risks. As a result, China would take the opportunity to acquire strategic assets or rights and interests should these countries not be able to repay, in order to achieve its strategic goals. After the financial crisis in 2008, discussions about China’s “debt trap” gradually appeared. It became an apparent trend after China launched the BRI. After 2017, the discussion on China’s “debt trap” rose sharply, and even exceeded the discussion on “debt traps” not involving China (see Figure 1). This phenomenon is especially true of the discussion on “China’s debt-trap diplomacy.” Before 2017, there were only very few reports and comments on this term, but since then it has increased rapidly and has become a hot topic in the global community. In short, “China’s debt-trap diplomacy” has been widely socialized. 2 Donald Rutherford, Routledge Dictionary of Economics (3rd Edition), London: Routledge, 2013. 3 Cheryl Payer, The Debt Trap: The IMF and the Third World, New York: Monthly Review Press, 1975. 4 Robert Gilpin, The Political Economy of International Relations, Princeton: Princeton University Press, 1987; Howard P. Lehman, Indebted Development: Strategic Bargaining and Economic Adjustment in the Third World, New York: St. Martin’s Press, 1993; Susan George, A Fate Worse Than Debt: A Radical New Analysis of the Third World Debt Crisis, London: Penguin Books, 1990. 70 China International Studies The Emergence and Fallacy of “China’s Debt-Trap Diplomacy” Narrative hold of both natural assets and the very sovereignty of the country. Thus, China had practiced “creditor imperialism.”7 Influenced by his articles, the international community began to discuss the so-called “debt-trap diplomacy” of China after 2018, and explored whether China had really set up “debt traps” in Southeast Asia, South Asia, Latin America, Africa and South Pacific island countries.8 Although the notion of “China’s debt-trap Diplomacy” is a fallacy in nature, it caters to the anxiety of some countries about China’s rise. Since 2018, the United States has been the main force behind concocting the “debt- trap diplomacy” narrative, and has been stirring up a series of controversies against China in the sphere of international public opinion. The Summary of the 2018 National Defense Strategy and the Indo-Pacific Strategy Report published by the Trump administration have clearly defined “China’s debt- trap diplomacy” as “predatory economics.” It has also cooked up the assertion that China had intimidated and coerced its neighbors to achieve its strategic interests regionally and globally.9 In June 2018, the White House Office of Trade and Manufacturing Policy released a report, which claimed that China used a predatory “debt trap” model of economic development and finance that proffers substantial financing to developing countries in exchange for a lien on their natural resources and for access to their markets.10 US politicians, including Vice President Mike Pence, Secretary of State Mike Pompeo and his predecessor Rex Tillerson, Secretary of Defense Mark Esper and his predecessor James Mattis, and former National Security Advisor John Bolton, also overstated “China’s debt-trap diplomacy” on different occasions. They made irresponsible remarks, declaring that China’s investment in African, 7 Brahma Chellaney, “China’s Creditor Imperialism,” The Japan Times, December 21, 2017, https://www. japantimes.co.jp/opinion/2017/12/21/commentary/world-commentary/chinas-creditor-imperialism. 8 Kari Lindberg and Tripti Lahiri, “From Asia to Africa, China’s ‘Debt-Trap Diplomacy’ Was under Siege in 2018,” Quartz, December 28, 2018, https://qz.com/1497584/how-chinas-debt-trap-diplomacy-came- under-siege-in-2018; John Pomfret, “China’s Debt Traps around the World Are a Trademark of Its Imperialist Ambitions,” The Washington Post,August 27, 2018, https://www.washingtonpost.com/news/global-opinions/ wp/2018/08/27/chinas-debt-traps-around-the-world-are-a-trademark-of-its-imperialist-ambitions. 9 US Department of Defense, Summary of the 2018 National Defense Strategy of the United States of America, 2018; US Department of Defense, Indo-Pacific Strategy Report, 2019. 10 The White House Office of Trade and Manufacturing Policy, How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World, June 2018, p.1. 72 China International Studies The Emergence and Fallacy of “China’s Debt-Trap Diplomacy” Narrative Latin American and South Pacific island countries was a “debt trap” aimed at using “debt diplomacy” to expand political and military influence. In a letter to Treasury Secretary Steven Mnuchin and State Secretary Mike Pompeo in August 2018, 16 US senators asked the government to take measures to counter the so-called “debt-trap diplomacy” of China.11 In May 2019, Rep. Brad Sherman, Chairman of the House Subcommittee on Asia, the Pacific, and Nonproliferation, brazenly announced the preparation for a “China Debt Trap Act,” while publicly urging related countries to “ignore” China’s loan offers.12 These remarks and actions confirm that the term “China’s debt-trap diplomacy” has been aggressively politicized by the United States. The socialization and politicization of “China’s debt-trap diplomacy” narrative has undermined the promotion of the BRI. According to statistics, the value of newly announced big-ticket deals in the ten ASEAN countries, i.e. investment commitments and construction contracts worth more than US$100 million, dropped around 50 per cent in 2018, down to its lowest in four years. In the second half of 2018, newly contracted Chinese megaprojects in the region slowed considerably, with only 12 recorded projects worth $3.9 billion, down from 33 projects worth $22 billion in the corresponding period of 2017. The slowdown in new projects was mainly the consequence of Southeast Asian countries having stepped up their scrutiny regarding China’s large infrastructure investments.13 Likewise, in Europe, Latin America and South Asia, the media in various countries, such as Montenegro, Guyana and the Maldives, frequently complain about the “debt risks” brought about by Chinese investments, which often leads them to hold relatively negative views of the BRI.14 11 “Grassley, Senators
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