There is no evidence China aims to deliberately push poor countries into debt as a way of seizing their assets or gaining a greater say in their internal affairs, researchers and analysts said – countering Washington’s narrative that China was engaging in “debt-trap diplomacy”. Deborah Brautigam, a professor of international political economy at Johns Hopkins University and founding director of the China Africa Research Initiative (Cari), considers the “debt-trap” narrative a myth.
Cari has scrutinised thousands of Chinese loan documents, mostly for projects in Africa, and reports that it has not found any evidence that China seizes the assets of other countries if they fail to pay loans.
The revelation comes at a time when dozens of African countries are either in or at a high risk of debt distress. Most of the countries – including Angola, Ethiopia, Kenya and Zambia, which are among the top borrowers from China – have sought debt relief. Beijing has since provided some debt relief to more than 20 countries and, for some countries, has cancelled interest-free loans that were maturing in 2020, according to the Chinese Ministry of Commerce.
But the debt-trap narrative became more pronounced in 2017 when reports circulated that China had seized the Sri Lankan port of Hambantota when the South Asian country fell behind in servicing its debts. However, Cari researchers say that instead of the port being seized by China, Sri Lanka privatised 70 per cent of the Chinese-financed port to a Chinese firm.
But throughout US president Donald Trump’s administration, the Sri Lankan portbecame the most cited case of a Chinese “debt trap” and used as an example that Beijing had seized the strategic seaport as collateral.
Trump’s officials argued that China was luring poor nations into taking unsustainable debts to build massive projects so that when they failed to repay the loans, Beijing could seize their assets, thereby extending Beijing’s strategic or military reach. Brautigam said the narrative that China was deliberately setting debt traps created a lot of concern among civil societies in a number of countries, including in Sri Lanka, Malaysia, Kenya, Zambia, Tanzania and Nigeria. “This was reflected in opposition party politics in these countries,” she said.
In Zambia anti-Chinese sentiment became a linchpin of opposition politics. During the 2006 presidential campaigns Michael Sata warned opponents against giving away Zambia’s sovereignty. But when he was elected president five years later, he changed his tune and allowed Beijing to continue to fund key infrastructure projects in the country. Sata died in office in 2014.
“Waving the China card proved potent campaign fodder,” Brautigam told the South China Morning Post. However, she said officials in government in most of these countries had continued to negotiate new loans from Chinese financiers. She said the Cari database listed 20 confirmed new loans in Kenya, Zambia, and Nigeria signed in 2018 and 2019.
Tanzania was an outlier, Brautigam said. “They haven’t borrowed from China since [President John] Magufuli was elected on an austerity platform in 2015.” It was under Magufuli that Tanzania put on hold the US$10 billion Chinese-financed Bagamoyo port project because of concerns about the terms and ability to repay the loan.
In a recent study on asset seizures, Brautigam, Meg Rithmire, an associate professor at Harvard Business School, and Won Kidane, an associate professor of law at the Seattle University of Law, saidthe waiver of sovereign immunity allowed a sovereign state to be sued in a foreign court or submit to international arbitration. The three reviewed several Chinese loan contracts and found that most included language on the waiver of sovereign immunity concerning arbitration and enforcement. The researchers found no Chinese “asset seizures” for sovereign lending in Africa or globally.
Brautigam said that in Nigeria especially, local experts and technocrats in government provided very clear explanations of the waiver of sovereign immunity clause and why it was a standard clause in international loan contracts. It was mainly politicians outside the executive branch who chose not to look at these facts and used these charges to score political points, Brautigam said. “But it is true that these concepts central to international project finance and commercial law are quite technical and often not well understood,” she said.
David Shinn,a professor at George Washington University’s Elliott School of International Affairs, said the US narrative on debt-trap diplomacy was flawed because of its lack of nuance. “The real issue is China’s holding of 20 per cent of Africa’s debt, not debt-trap diplomacy,” Shinn said. He said there were eight to 10 countries in Africa now in debt distress where China held more than 20 per cent of their debts. “This is a cause for concern. China is also talking about possible debt-for-equity swaps,” he said.
W. Gyude Moore, a senior policy fellow at the Centre for Global Development and a former Liberian minister of public works, echoed the sentiment, saying it was important to understand why some countries borrowed from China. “In many instances, these are projects that have struggled to attract financing from commercial, bilateral and multilateral lenders. For example, on Hambantota the initial firm was Canadian,” Moore said.
He said he had seen the waiver of sovereign immunity clause in a loan document for a water filtration plant in the Philippines. “I think Chinese policy banks – sometimes with the assistance of Western consultants – began reflecting the commercial nature of these loans and it shows here with the immunity question. One can interpret it as a hedge against the risk of non-payment,” Moore said.
China has repeatedly denied it has plans to use loans as a way to seize strategic assets. “There is nothing like that [China taking over the property]. The inclusion of the sovereignty clause is a common practice in many international commercial agreements,” said Sun Saixiong, the press officer at the Chinese embassy in Nigeria, last year. “We see the issue as more of Nigeria’s internal affairs.”
However, Moore said he was not aware of a systematic effort from Beijing to counter the narrative. “Various Chinese diplomats have, on occasion, responded to the accusations in their speeches. Not certain there’s been a systematic effort to refute the claims. But I could be wrong,” he said.
Analysts expressed hope for a less confrontational response to China under US President Joe Biden. Shinn said the “tone on this issue [debt-trap diplomacy] in the Biden administration will be different and criticism will be based on facts, not misinformation”. Hence, it would be less confrontational, Shinn said.