China’s economic activity and population increased heavily in the past decade. China tackled this situation by investing in infrastructure, following the infrastructure-led growth model, of developing and economically vulnerable countries. It begins by providing these countries loans so that they can build infrastructure in their countries. This investment was welcomed by recipient countries but was criticized by western states – claiming it to be a trap and expansionist design of China and a broader geopolitical agenda. While China has repeatedly denied these claims, but the debate in the power corridors is against it, for example, the United States and Australia have continuously accused China of using ‘Debt trap diplomacy’. Some of the countries have put up some efforts to counter the so-called debt trap policy.
What is a debt trap?
The debt trap is a strategy to ensnare economically weak countries by providing them with much-needed loans that they can not repay. This increases the leverage of the donner state when the recipient defaults. Hence, the donner can seize the strategic asset of the defaulting state. The western states and economic institutions claim that China is trapping countries in this manner.
Five years back, China announced its flagship project – Belt and Road initiative, BRI. The project aims at developing connectivity among continents; to achieve this, China started investing heavily in the countries joining BRI. This raised concerns for the Pacific nations. They claim Chinese investment is to enhance its influence in the pacific region.
To counter this debt trap in the pacific region Australia has established a BRI competitor – the $2bn Australian Infrastructure Financing Facility for the Pacific (AIFFP).  In the United States, this debt trap policy has been criticized at the highest levels frequently. The western states and Bretton Wood institutions have been warning the recipient – of Chinese loans -about the trap.
The typical example presented by ‘debt trap policy’ propagators is of the Hambantota port of Sri Lanka. China had taken the said port because Sri Lanka could not service the loan. Therefore, it had to give the strategic port to China – a pearl in the string of pearl policy of China- accused by India.
Similarly, the world is concerned about huge Chinese investments in the African continent. It has invested heavily in the infrastructure of African countries – Kenya, Ethiopia and Djibouti. China is the largest trading partner of Africa since 2008.It is propagated that these states will face the same fate in Sri Lanka. It is assumed that Kenya might cede control of its Mombasa port to China if it could not repay the loans.
A study by the Centre for Global Development report found eight BRI recipient countries—Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan—are at a high risk of debt distress due to BRI loans. As China’s investment in Pakistan – China Pakistan Economic Corridor CPEC- have been tried to put under suspicion. IMF has raised many concerns and warned Pakistan not to go to cliff-edge. It was China that came to the front to respond to these allegations.
Interestingly, all these concerns and warnings are not to save economies of developing countries but to cut the influence – of China- that comes with unpayable loans.
On the other hand, China has repeatedly denied all the accusations. It says it brings a win-win situation for both the lender and the borrower. Their perspective is that the ‘debt trap theory’ is a myth. Its BRI project is to externalize the massive debt and industrial overcapacity problem by raising the demand for Chinese products. Therefore, it is for solving the economic problem of China not for some geopolitical interest.
A state of superpower like China cannot overtake the asset of any state. As for the Sri Lankan port, the project was proposed by the former Sri Lankan President Mahinda Rajapaksa. The project became a white elephant because of corruption and mismanagement by the government authorities of Sri Lanka.  After burdensome negotiations, a Chinese state-owned enterprise leased the port for 1.1 billion dollars. This doesn’t amount for the debt- for- asset swap. Any deal that is sealed between two states is sealed with the consent of both the states not with blueprints of the Chinese plan.
To appease the concern and address the international and domestic issues regarding BRI, it has publicly recognized the need to reform BRI lending terms. It is an effort by China to safeguard its global image and also its mega connectivity project.
In a nutshell, the BRI project has made global powers restless. It has made them insecure and has pushed them to take some measures to counter it. Opposing powers, along with international institutions have warned the recipient states to beware of Chinese investment and be vigilant in accepting any of these projects and loans. China, contrarily, has repeatedly defended its position and tired to clarify international critiques. But time will tell what the future holds.