In a May 2020 New York Times article, Maria Abi-Habib and Keith Bradsher break down the financial implications of China’s debt scattered across the globe due to its Belt and Road Initiative. While trying to create a new Silk Road, China has found itself in a precarious position. Over the last 2 decades, China has loaned out hundreds of billions of dollars to countries. Now with many of those countries facing an unprecedented economic decline, China is in a position to look very weak if they do not collect on their debts. While requests to restructure or forgive loans come pouring in from indebted countries, China too is facing its own economic hardships. COVID-19 has wreaked havoc on the world economy and China did not manage to fully sidestep it. With the Chinese people suffering themselves, how would they feel seeing foreign countries renege on their deals to pay? If China aggressively pursues repayment or calls for collateral, would it make them look like a bad loan shark shaking someone down in broad daylight?
As many of us heard this week, owing large sums of money to foreign entities is a national security risk. China has the ability to neither collect or forgive the debts and simply remind those countries of their debts. When China needs an ally or a voice, I’m sure they will turn to one of those countries and give a simple “hey, remember who you owe billions of dollars too.” The Trump administration has referred to these tactics as ‘debt trap diplomacy.’ While putting themselves in a highly diplomatic position, they’ve also put themselves in a uniquely strategic one. If many of the projects that aren’t paid for are the collateral owed, China has the ability to seize the ports, roads, and railways for themselves to be the sole owner/operators of the grand new Silk Road they imagined. While I believe the task of seizing foreign assets on foreign soil is a particularly dangerous chess move, China can use it whenever they need to make sure they can’t be checkmated.
Abi-habib, M., & Bradsher, K. (2020, May 18). Poor Countries Borrowed Billions from China. They Can’t Pay It Back. Retrieved October 05, 2020, from https://www.nytimes.com/2020/05/18/business/china-loans-coronavirus-belt-road.html
Chris,
Some people think in Machiavellian terms that this “debt trap” approach may have been China’s intention all along. Even if they didn’t go that far, it is certainly the case that many developing countries in Africa and Latin America now lack the means to pay the interest on the loans. But if China really tries to start repossessing things like port facilities, railroads, etc., there is going to be a substantial backlash. So they may not get as much diplomatic leverage out of this as they hoped. And if the US plays its cards smartly (not sure if this is possible under a Trump administration), the US could win a public diplomacy victory.
–Professor Wallerstein