The “Debt Trap” is not Detrimental to the BRI

Recently, the “debt trap” or “debt diplomacy” claim has been used as a tool for criticizing China’s Belt and Road Initiative (BRI) by some government officials, scholars, and journalists in the Western countries. For instance, the serious economic and geopolitical consequences of the debt risks of the countries receiving a large number of BRI investments were highly stated in the hotly debated report titled “Power Play: Addressing China’s Belt and Road Initiative” published by the Washington based think tank the Center for a New American Security in October 2018. The authors of this report also suggested that the Trump administration actively propagate information supportive of the BRI counternarrative by revealing the threat to national sovereignty posed by Chinese infrastructure financing. Similar criticisms also appeared in US Vice-President Mike Pence’s speech at the Hudson Institute on October 4.

The so called “debt trap” means that China attempts to achieve its political goals through financing the strategic projects in the countries along the BRI route and increasing the debt burden to these countries. By implementing such programs, China hopes to advance its strategic interests, including expanding its diplomatic influence, securing natural resources, promoting the international use of its currency, and gaining a relative advantage over other powers.

While this article would not deny the debt issue in the implementation of the BRI projects, it argues that China is not the chief culprit of the growing debt of the BRI states. In fact, rising debt, internally and externally, is a common problem the countries of the world face together, the developing and less developed countries in particular. The debt of the host country would be increased due to the construction of projects funded by any foreign country — China and the Western countries included. Given this, it is unfair to only say that the projects invested by Chinese firms led to heavy debt for the BRI countries.

Moreover, although there is a large volume of foreign debt brought by Chinese projects, the share of it in the total debt of the typical host country is at a low level. Take Pakistan for example: the whole repayment of debt caused by Chinese projects would be USD 5 billion in 2022, less than 5 percent of its total foreign debt (more than USD 100 billion) in the same period. On October 15, Chinese Foreign Ministry spokesman Lu Kang said that the debt caused by the China-Pakistan Economic Corridor (CPEC) is a small proportion of the total debt of Pakistan, and is thereby not the reason of the financial difficulties in Pakistan. More importantly, it needs to be emphasized that not all the BRI projects are faced with debt risks. Most of the BRI projects, especially the medium- and small-scale ones, have been operated successfully and thus creating more job opportunities for the local communities. According to Chinese President Xi Jinping’s speech at the forum of the fifth anniversary of the BRI on August 27, the BRI brought more than 200,000 jobs for the local residents in the past five years.

China has also avoided influencing the politics in the countries along the BRI route and competing with other great powers in the region by carrying out the BRI projects. First of all, no evidence shows that China has realized its critical political objectives through the BRI projects, such as building alliances or exclusive bloc targeting the third country. Actually, Chinese projects have never had any political conditions attached, while the Western countries usually link aid to politics. That’s why the Asian and African countries prefer Chinese investments and have welcomed the BRI. According to the news briefing held by the State Council Information Office on August 27, China has reached 118 agreements on cooperation under BRI with 103 states and international organizations. It is evident that the BRI has been largely accepted by the BRI countries, though there will be some problems in the implementation process.

Second, China has stated that the BRI is open to any state and has tried to expand cooperation with many countries. President Xi said that the BRI is an open and inclusive process rather than a “Chinese club” on August 27. He also expressed that states that are willing to participate in the BRI are welcome. Recently, it was reported that Saudi Arabia has joined the CPEC project with an investment of USD 10 billion at Gwadar Port. China has also pursued cooperation with Japan, a strong peer competitor of China in the areas of foreign trade and investment, under the BRI. During Chinese Premier Li Keqiang’s Japan trip in May, both sides achieved consensus on third country cooperation. According to Asahi Shimbun, China and Japan are more likely to jointly invest in the light railway project in Thailand. This is the first step in the move towards cooperation under the BRI between the two powerful economies. In this sense, China has sought cooperation rather than competition with other states on carrying out the BRI projects.

What’s more, it is unlikely that China can reach its political or strategic purposes through the multilateral projects, especially those which the competitors are participating in. China’s alleged ambition of reshaping the regional or international order by initiating the BRI, as described in the Western media, has been challenged by both the great powers such as the United States and Japan, and the BRI countries. By criticizing the BRI and offering alternative options, the US and Japan, together with India and Australia, have attempted to deter China from dominating the region. While some of the BRI countries have been keen on inviting other states to join in the BRI, some have also sought to downsize their BRI projects so as to offset the risks of reliance on Chinese investment.

Last but not least, realizing the negative consequences of the debt issue, both China and the BRI countries have worked together to jointly solve it. On the one hand, both sides have tried to devalue the political significance of the BRI projects and operate them in a commercial way, so as to confine the adverse effects to the economic sphere and avoid harm to their political ties. On the other hand, they have also promised to smoothly promote the BRI projects and reduce their loans from China by inviting the participation of third countries or implementing their projects step by step. Thanks to these useful measures, the debt issue is currently being appropriately handled and thus will not hinder the implementation of the BRI projects.

To conclude, the debt issue is definitely a major obstacle to some big BRI projects, but it can’t screw up BRI. In order to address this problem properly, China has strengthened cooperation and policy coordination with the BRI states and made some progress on it. Given this, the adverse impacts of the debt issue on the BRI would be further decreased in the near future.