The myth of ‘debt-trap diplomacy’ and realities of Chinese development finance

Abstract

In recent decades China has emerged as a leader in international development finance, with the potential to provide sorely needed funds to address major global developmental gaps. However, not everyone is optimistic about this new source of lending. A narrative of ‘debt-trap diplomacy’ has emerged to describe Chinese lending to developing countries – most ardently advanced by the United States – contending that China seeks to ensnare smaller countries with onerous levels of debt in order to realise neocolonial aims. This article argues that the theory of debt-trap diplomacy does not accurately describe Chinese finance. First, investigating China–Africa relations, it will demonstrate that Chinese loans are not a major driver of debt distress. Second, it will demonstrate that China does not engage in predatory behaviour towards borrowing countries, using debt to facilitate takeovers of strategic assets and natural resources, or to promote military expansion. Finally, comparing Chinese and Western financial relations with Latin America and the Caribbean, it will demonstrate that, in contrast to the debt-trap narrative, China’s non-interventionist approach has opened space for developing countries, particularly those with governments facing hostility from the US and its allies.

Keywords:

• China
• dependency and anti-imperialism
• economy and finance
• Global South
• development

Acknowledgements

I would like to thank my supervisor Radhika Desai for her invaluable discussion, suggestions, and encouragement. I also thank the anonymous reviewers and editors of Third World Quarterly for their comments and suggestions which have certainly improved this paper.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 CARI employs a rigorous methodology that results in high quality data collection. For a detailed discussion of their methodology, see their research guidebook (Brautigam and Hwang 2017).

2 FOCAC is an official forum between China and African states. Since 2000, FOCAC summits have been held every three years, producing major policy and financing announcements. eSwatini is the only African state which does not participate in FOCAC, since it has not established diplomatic relations with China due to its recognition of Taiwan as a separate country.

3 During this period, the four largest sectors financed by Chinese loans to African nations were transportation at US$38.2 billion, followed by energy/power at US$30.1 billion, mining/oil at $19.2 billion and, finally, communication at US$7.0 billion.

4 China’s sole foreign military base is in Djibouti, a country in which France, Italy, Japan and the US also have foreign military bases.

5 ‘Boston University researchers at the Global Economic Governance Initiative (GEGI), now part of the GDP Center, compiled the China–Latin America Finance Database that tracks all Chinese policy lending in Latin America and the Caribbean. It is now updated and displayed on an annual basis through the Inter-American Dialogue in Washington’. This database draws on the work and deploys the methodology of Brautigam and the China–African Research Institute (Jin, Ma, and Gallagher 2018).

Additional information

Notes on contributors

Ajit Singh

Ajit Singh is a Lawyer and postgraduate student in the Department of Political Studies at the University of Manitoba, Winnipeg, Canada. He is a contributing author to Keywords in Radical Philosophy and Education: Common Concepts for Contemporary Movements (Brill, 2019).