IMPORTANT REPORT: Lessons from Sri Lanka on China’s ‘debt-trap diplomacy’
For vulnerable African countries, a reliance on Chinese financing could pose a threat to sovereignty.
Recently, the Dominican Republic cut diplomacy relation with Taiwan to start official relationship with the Republic of China, a goverment with single one rule party system and a Capitalism as economic system.
The expansion of China to development countries in Africa and Latin American are growing since a decade, particularly with countries with a bad reputation as corrupt governments and very weak rules in their countries democracy system.
Considering as a very important matter to let the reader know about the China business-diplomacy system and experience with other countries, we transcript this following article from Institute for Security Studies, published last February, 2018:
“Lessons from Sri Lanka on China’s ‘debt-trap diplomacy’
Sri Lanka’s recent dealings with China offer a cautionary tale for many African countries. The way the island nation has ceded control of the strategic port of Hambantota highlights the issue of ‘debt-trap diplomacy’. It poses the question of whether developing countries are naively mortgaging their resources and strategic assets to China.
Given AfricLessons from Sri Lanka on China’s ‘debt-trap diplomacy’a’s huge reliance on China as a source of funding, there is concern that African states will suffer a similar fate to Sri Lanka – and unwittingly become pawns in China’s global strategic agenda.
It is important to recap what happened in Sri Lanka. Post-civil war Sri Lanka went on a borrowing binge to reconstruct dilapidated infrastructure. To successive Sri Lankan governments, China was a benevolent friend, offering cheap, easy and addictive money – an attractive alternative to the strict conditionality of Western financing arrangements. But the country soon ran into economic woes, and when the debt burden became untenable, the Sri Lankan government was forced to relinquish majority control over the port in 2017 in lieu of repayment.
This sparked outrage across Sri Lanka. To critics, it was confirmation of China’s imperial agenda and demonstrated the pitfalls of Chinese financing: that despite a lack of explicit political conditionality, there is certainly ‘no free lunch’, and such arrangements pose a threat to the sovereignty of vulnerable countries.
Many believe the Sri Lankan example demonstrates China’s unique form of ‘debt-trap diplomacy’ – a predatory system designed to ensnare countries into a straightjacket of debt servitude.
The scale of China’s projects in cash-strapped Djibouti, with its strategic location, are significant
Brahma Chellaney, in a 2017 article for Project Syndicate, explains that Chinese loans are collateralised by strategically important natural assets with high long-term value (even if they lack short-term commercial viability). The port of Hambantota, for example, straddles Indian Ocean trade routes linking Europe, Africa, and the Middle East to Asia.
Typically, Chinese loans assume the form of ‘cash for resources’. In return for financing and building the infrastructure that poorer countries need, China demands favourable access to their natural assets, from mineral resources to ports. The recipient nations usually suffer from low credit ratings and have difficulty obtaining funding from the international financial market.
China, however, makes financing relatively easily available – albeit with certain conditions and less ‘paperwork’ than conventional sources. China’s ‘tied aid’ for infrastructure usually benefits Chinese companies, while its loans are in many cases backed by natural resources. Through this method China achieves the twin goals of economic penetration and strategic leverage.
In light of this trend, what is the nature of China’s engagement in Africa and will African countries suffer a similar fate to Sri Lanka? The question is especially relevant in light of China’s broad geopolitical ambitions.
With the West in retreat and focusing on internal issues, China is asserting a more muscular approach across Africa. As Africa’s main trading partner since 2008, China is securing a long-term ‘foothold’, where it can do business and also ensure the security of its citizens and companies.