Opinion | With its belt and road projects, China risks falling into the biggest debt trap of all

Partner countries have started to seek to renegotiate terms after projects start, meaning China may have to offer more concessions, even as instability threatens the projects. Beijing could end up becoming hostage to the massive loans it is giving out

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The Lotus Tower in Colombo, Sri Lanka, is set to be completed later this year under China’s Belt and Road Initiative. Sri Lanka has denied all claims that it is a victim of debt-trap diplomacy. Ironically, China could turn out to be the biggest debt trap victim of all. Photo: Xinhua

Published: 3:00pm, 24 May 2019Updated: 3:00pm, 24 May 2019

Critics often claim China is using its massive Belt and Road Initiative as a form of coercive debt-trap diplomacy to exert control over the countries that join its transnational infrastructure investment scheme. This risk, as Deborah Brautigam of Johns Hopkins University recently noted, is often exaggerated by the media. In fact, the initiative may hold a different kind of risk — for China itself.

At the recent belt and road summit in Beijing, Chinese President Xi Jinping seemed to acknowledge the “debt trap” criticism. In his address, Xi said that “building high-quality, sustainable, risk-resistant, reasonably priced, and inclusive infrastructure will help countries to utilise fully their resource endowments”.

This is an encouraging signal, as it shows that China has become more aware of the debt implications of the initiative. A study by the Centre for Global Development concluded that eight of the 63 countries taking part are at risk of “debt distress”.

But, as John Maynard Keynes memorably put it: “If you owe your bank a hundred pounds, you have a problem. But if you owe your bank a million pounds, it has.” In the context of the belt and road, China may turn out to be the banker who is owed a million pounds.