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While we hear a lot about China’s debt trap in the media, more and more developing countries now have a strong interest in South-South cooperation with China and look to China for financing support.
Sri Lanka’s Ambassador to China Palitha Kohona told the public on multiple occasions that it is not China offering to lend money to Sri Lanka, but the country welcomes Chinese investment and financing, and blaming the debt problem on Chinese loans is inaccurate. It begs the question: what’s the truth?
Is debt equal to debt trap? Carrying out normal credit activities is essential to economic growth, but its availability is uneven across countries, especially for developing countries. As Kenyan President Uhuru Kenyatta said, “the debt problem in essence does not concern the occurrence of debt, but the use of it. Currently only 60% of the population in Kenya have access to electricity, and that’s why I want a loan!” Ambassador Kohona also stressed that “it is groundless to call the Hambantota Port project a ‘debt trap’ project, since it is hard to get back all the costs for such a large-scale project within two or three years, and the port-related business is developing rapidly”. A number of latest studies in Europe and the United States show that there is no evidence of the so-called debt trap. There is not a single case in which China takes advantage of others’ difficulties in paying back debts to grab assets or resources from other countries.
Who is the biggest creditor? According to the World Bank’s International Debt Statistics, by the end of 2020, commercial and multilateral creditors account for 40% and 34% respectively for the public external debt of 82 low-income and lower middle-income countries. Bilateral official creditors take up 26% and China less than 10%. The researches by Deborah Brautigam, a professor at Johns Hopkins University, by Harry Verhoeven from the Centre on Global Energy Policy at Columbia University, and Nicolas Lippolis from the department of politics and international relations at the University of Oxford, show that being far lower than that of the West in Africa’s total external debt, China is not the driver of the continent’s debt build-up in recent years. Statistics demonstrate that 80% of Sri Lanka’s foreign debt is owed to multilateral institutions such as the World Bank and the Wall Street investors. Its debt to China is only 10% of its total foreign debt, a level on a par with that to Japan. Evidently, the claim that China’s loans led to Sri Lanka’s debt problem is far from true.
Why do developing countries value financing cooperation with China? Financing of infrastructure projects is important for addressing a country’s development bottleneck, upgrading industries and promoting sustainable development. However, such projects are generally characterized by a long lead time, large funding and a long payback period. And developing nations often find it more difficult to access financing. As the largest developing country, China has worked with other developing countries to help meet their financing needs and improve their ability for sustainable development.
In doing so, China sticks to the principle of no intervention in their pursuit of development paths suited to their national realities, and no interference in their internal affairs. China does not impose its will on others, attach political strings to investment and financing cooperation, or seek any political gains. This is why developing countries think highly of their cooperation with China.
How about the effect of China’s foreign financing cooperation? By taking into account Africa’s needs, China has over the years funded the building of more than 10,000 kilometers of railways, nearly 100,000 kilometers of highways, 1,000 bridges and 100 ports in addition to countless big power facilities, hospitals and schools in the continent. All this has greatly contributed to local development and benefited local people. According to the 2022 African Youth Survey commissioned by the Ichkowitz Family Foundation of South Africa, the African youth believe that China has done a lot in promoting local infrastructure and employment.
Though blessed with rich hydropower resources, West Africa’s Water Tower Guinea is unable to fulfill the dream of hydropower generation due to shortage of funds. With the support of Chinese loans, Kaleta and other hydropower plants have been put into operation, providing solid support for the development of mining industry and the well being of local people. The Port of Hambantota is another case in point. In a spirit of win-win cooperation, China and Sri Lanka entered into a joint venture based on current business practices. In 2021, the port handled a total of 2 million tons of goods, with over 1 million tons of bulk cargoes and over 500,000 vehicles handled by the roll-on/roll-off ships, greatly boosting the development of the port. It’s clear that China’s loans are sustainable financing and can be used to support developing countries in their pursuit of industrialization and modernization.
How can China help deal with the debt problem? Development holds the key to addressing the debt problem of developing countries. A concerted global effort is needed to balance the supply of and demand for development financing. To this end, Chinese President Xi Jinping proposed the Global Development Initiative in which he laid out eight priority areas, with a view of gathering greater global support for development. In addition, China is committed to helping developing countries ease their debt burden.
In the wake of the COVID-19 pandemic, China implemented the debt relief initiative of the G20 and signed debt relief agreements or reached consensus with 19 African countries. China now is the country offering the most debt relief among G20 members. China also explored market-based and commercial cooperation models with South Africa, Kenya, Nigeria and others to seek new solutions to their longstanding debt problems. In view of the current difficult situation faced by Sri Lanka, China provided assistance through various channels to improve local people’s livelihood. Chinese financial institutions also stayed engaged and worked to explore ways to properly handle mature debts and help Sri Lanka tide over current difficulties.
The debt issue deserves attention and should be addressed in a coordinated manner by all parties worldwide. But it should not be politicized, let alone become a narrative weapon for one to attack another. “The debt to me is an investment, but that to you is a trap”. This is a typical example of double standards and a narrative trap. Rumors stop with the wise. China stands ready to work with the international community to support the development and debt relief of developing countries. At the same time, developed countries as well as their private financial institutions and international multilateral financial institutions also need to take stronger actions in a way to support the inclusive and sustainable development of the world economy.
