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China’s Debt-trap diplomacy

Topics Covered: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

China’s Debt-trap diplomacy:


Context:

China has announced that it is providing a $90 million grant to Sri Lanka.

  • This announcement comes after Sri Lankan President sought help from a visiting Chinese delegation in disproving a perception that China-funded megaprojects are “debt traps.”

What’s the issue?

China has been using the financial tool of debt to gain influence across the world and grab considerable power in India’s neighbouring countries, thereby increasing the amount of political and security threats the nation is exposed to.

How does China’s debt trap diplomacy work?

  1. In a push to gain rapid political and economic ascendency across the globe, China dispenses 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.

How countries are being trapped?

There are several advantages or concessions that China asks for in exchange for debt relief.

  1. Sri Lanka was forced to hand over control of the Hambantota port project to China for 99 years, after it found itself under massive debt owed 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.

InstaLinks:

Prelims Link:

  1. What is China Pakistan Economic Corridor?
  2. What is Kaladan Multimodal Project?
  3. What is Belt and Road initiative?
  4. Where is Hambantota port?
  5. Where are Gwadar and Chabahar ports Located?

Mains Link:

What is China’s debt-trap diplomacy? Why is India worried? Discuss.

Sources: the Hindu.