Case study: 🇨🇳 debt book diplomacy

Overview

• 🇨🇳 uses debt to gain political leverage w/economically vulnerable Asia-Pacific region countries

Chain of events

• 🇨🇳 purposefully loans 100s of bns of $ to countries that they know can’t afford to pay them back

  • Beginning: infrastructure investments, road initiatives

    • Construction projects have a reputation for running over budget with underwhelming returns, making debt payments more difficult

    • Then becomes longer-term loans with long grace periods, which is appealing to weaker govt and economic countries

      • They ‘forgive the debt’ in exchange for political influence and strategic equities like stakes in the infrastructure projects

Global/🇺🇸 interest

• Development of 🇨🇳 infrastructure isn’t directly against 🇺🇸/global interest

  • Can be if the 🇺🇸 has strategic interests in a country that is then undermined by unsustainable debt (caused by 🇨🇳)

Most concerning countries

• 🇵🇰

• 🇱🇰

• Govt has already had to cede a key port or military base to repay debt

🇱🇰

• 2007 - 🇨🇳 grants 🇱🇰 funding for the $361m port, further $1.9bn for upgrades and an airport

  • 2017 - port deal signed, 🇱🇰 owed >$8bn to 🇨🇳 controlled firms

    • 🇱🇰 had to take out loans to pay off the original loan and then ended up granting 🇨🇳 an 85% stake in a 99-year lease on the port 

• Diplomats are worried this could turn Hambantota into a 🇨🇳 naval hub

🇵🇬, 🇹🇭

• 🇨🇳 yet to use the leverage

  • Esp dangerous (and good for 🇨🇳) in 🇵🇬 due to how close it is to 🇦🇺, and that it has large resource deposits

🇰🇭, 🇱🇦, 🇵🇭

• Lack of ‘individual diplomatic clout’

  • 🇨🇳 debt could give 🇨🇳 a proxy veto in ASEAN

2023 — consequences of expiry of compact of free association between 🇫🇲, 🇵🇼 and 🇲🇭

• Could threaten 🇺🇸 influence since WW2

• Could help the 🇨🇳 navy extend its claim into the Pacific