CHINESE DEBT TRAP POLICY

WRITTEN BY: MUHAMMAD ASLAH

INTRODUCTION

China or the People’s Republic of China is a country in East Asia. The country is ruled by unitary Marxist-Leninist party. The capital of China is Beijing. In earlier times, China was just a country that has no plans for economic development. It was a country that was operating in a closed economy. Its economy was centrally controlled. The country was isolated from the global economy. Nevertheless, forty years back in 1979, China liberalized its economy by welcoming foreign trade and investments. This has enhanced China to develop its economy and infrastructure. It made China’s Gross Domestic Product (GDP) keep growing. In 2018, it’s GDP growth rate was 9.5%. The World Bank often described China as “the fastest sustained expansion by a major economy in history” . Today, China has become the world’s largest economy after the United States. Several companies now manufacture their products from China and exports to other countries. The implementation of innovations as a priority and enforcement of several policies has strengthened China to develop its economy and be competent in par with the U.S.

CHINESE FOREIGN AID

In earlier periods, the Chinese economy was a closed economy. It does not like to welcome foreign companies to trade and invest in China. But now, China is no more a closed economy. It welcomes foreign traders and investors. Several famous companies in this world have its manufacturing base in China. It is evident from the smartphones we use to every household items. China now is a country which has a huge cash potentiality. Chinese governments in order to help foreign countries to develop its infrastructure made a series of changes in the foreign policy and brought in the Chinese Foreign Aid. It is a policy of China to give financial aid or assistance to other countries for their development. China now lends money to several countries . According to Winston Churchill, Chinese foreign aid is described as “a riddle, wrapped in a mystery, inside an enigma”. The information about foreign aid is kept as a secret by the Chinese Government. But some reports related to foreign aids are publicly available. According to AidData, a research lab of the College of William and Marry, Chinese funds were lent to more than 4,300 projects across 140 countries and territories. Most of these lendings were based on loan agreements and private investments.

CHINESE FOREIGN AID: IS IT A DEBT TRAP POLICY?

With the increase of Chinese assistance to foreign countries, China is now helping other countries to grow economically and develop its infrastructural architect. These aids need to be repaid as most of them are based on loan agreements. The advantage of Chinese aid is that it has no limit. But eminent scholars and other academicians doubt the aid or assistance to foreign countries as a debt trap policy. Since the ever existence of the US as a superpower, the task of helping foreign countries was solely for the purpose of developing the economy and infrastructure of recipient countries. It was given by US in grants. China now uses the same tactic but in terms of loans. The problem with such financial assistance is that those countries which owes China need to repay the loan or amount lended to that country. It ultimately benefits China as China is getting back the amount it has lended. African countries tops the list in Chinese foreign aids. The problem with such countries is that most of them are underdeveloped. They will not have enough cash potentialities to repay the loan. The critics of Chinese foreign aid often labelled it as Debt-Trap Diplomacy. They argue that when the countries cannot repay the loans or aids lended by China, China will have plans to use the opportunity and have a influence in that country’s political and infrastructural developments. It ultimately benefits China. It also paves a way for China to become global super power and lender. We can see its clear picture from the recent news of China as occupying the Kenya’s most profitable Mombasa Port due to the country’s indebtedness to repay the loan amount taken to develop Railway Network. Before China’s invasion in Mombasa Port, China also occupied the Port of Hambantota from Sri Lanka due to repayment of money lended to Sri Lanka on a 99 year lease agreement. As countries shows delay in repayment of debt amount due to China, the chances of occupying that country are higher.

CONCLUSION

China is a country that is emerging as a major super power in this world. It is now competing with the United States. China even has the potentiality of creating new technology and platforms that are in par with Facebook, Twitter such as Weibo, Renren, etc. The foreign aid policy of China need to be taken in consideration at international forums. However, whether the fact that Chinese Foreign Aid is a debt-trap or not, it has two sides- one as helping foreign countries to develop and other as occupying when countries fails to repay the debt amount.