Does China Debt-Trap Countries? | The Hindu

With the ongoing debt crisis in Sri Lanka turning the spotlight on China’s lending practices, Beijing has been pushing back against allegations of what has been called “debt trap diplomacy”.

Many economies are reeling from the impact of the COVID-19 pandemic, which has worsened financial stress. Some of those countries, such as Sri Lanka and Zambia, were also the recipients of large Chinese loans.

Experts have noted that while Chinese lending may have worsened debt problems in some countries, debt owed to China was in most cases dwarfed by what was owed to other lenders, including the World Bank and International Monetary Fund.

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[VL-inquisitor]

If someone tells you that Sri Lanka is a victim of China’s debt trap, don’t let them fool you. Here are the key facts to consider when analysing the current debt crisis in Sri Lanka, and for that matter, similar events in the developing countries.

Q1 - Is China the biggest lender to Sri Lanka. Answer - no, 47% of its foreign debts are in form of Eurobonds and many of these are Western Institutional Investors such as UBS, JP Morgan, Blackrock, etc. Outside of this category, ADB is the single largest lender at 13%, followed by China and Japan, each at 10% apiece, and then World Bank at 9%. In other words, saying China is exploiting Sri Lanka through ‘debt trap’ is completely false, or misleading at best.

Q2 - Is China causing the debt crisis in Sri Lanka or is it helping to address such debt crisis. Perhaps we can use the Hambantota Port to illustrate this as it is often cited as the exemplary debt trap case or China involved in predatory lending. Sri Lanka’s bloating foreign debt problem already appeared in the 2010s. In 2017, China (through Export & Import Bank of China, China Development Bank) was called in to refinance its previous debts to Sri Lanka as well as facilitate the latter in servicing other foreign debt payments. A JV between Sri Lanka’s state-owned Port Authority and China Merchant Bank was formed in 2017 to run the said 99-year lease of Hambantota Port requiring China’s side to provide new USD900 million funds. Without which (ie the emergency funding), the country would have faced serious debt distress. In other words, this port-lease / emergency fund was not causing the country’s debt issue, but rather alleviating it.

Q3 - When these developing countries can’t keep up the debt payments, what would China normally do? As a matter of fact, China has assisted these countries by debt cancellation and debt restructuring (including reliefs such as extending maturity, interest rate reductions, refinancing, and extensions). Beneficiary countries include African countries as well as countries covered by the Belt and Road Initiative (see D. Brautigam’s clip for details).

Q4 - Where did the borrowed money go? Let's again use the Sri Lanka case. The foreign debt is being spent on infrastructures - in this case, Hambantota Port. As with all infrastructure investments, such spending enhances the future productivity and living standards of its nationals. Meantime, such spending also aids domestic employment. Most importantly, the money trails can be easily tracked and traced (for instance, railways or power plants). On the contrary, funds provided by the Eurobond Market have been mostly applied to cover the country's trade deficit and to meet fiscal deficits. In some developing countries where corruptions are prevalent, some of these funds may be misappropriated, ending in the pockets of its political leaders and oligarchs.

Q5 - What is the impact of rising international interest rates on Sri Lanka’s foreign debt? Interest rates hiking means that the refinancing costs of Sri Lanka's foreign debts will be on the rise, making its dire financial situation even worse.

In conclusion, the debt trap is not caused by China, but rather by western lenders. They are making it worse for Sri Lanka as these Western Countries are raising interest rates, making it more difficult for the country to service its interest payments and refinance maturing debts.

[drpratapgps]

The hindu : newspaper which prints 2 page Chinese ads in disguise of news ....

[manaskumarhaldar]

Debt problem in Sri Lanka is repayment of Western loans. How can Chinese "debt trap" be responsible ?

[Sunday-ujhz]

I know it’s fun to debunk popular theories but this was not very well researched and a very narrow view of the issue. The projects china undertakes is more than just economic and whether its losing money on it is not the issue. The issue is the overall result of it. China preys on vulnerable countries and banks on them not returning the money so that they can dictate the rest of the terms and gain more inroads. Moreover the loans are used to award projects chinese companies only.

[sukumameupe]

This is a good run down on the subject but the music seriously gets in the way of listening

[jeweltilak]

This is an extremely biased reporting by the hindu.

I'm pasting an article from Harvard business review
 A dozen of these countries owe debt of at least 20% of their nominal GDP to China (Djibouti, Tonga, Maldives, the Republic of the Congo, Kyrgyzstan, Cambodia, Niger, Laos, Zambia, Samoa, Vanuatu, and Mongolia).
Maybe more importantly, our analysis reveals that 50% of China’s loans to developing countries go unreported, meaning that these debt stocks do not appear in the “gold standard” data sources provided by the World Bank, the IMF, or credit-rating agencies

[anubhaanushree]

This is a superficial analysis, to say the least. The fact remains that economic policies are not made in isolation. I was surprised at how the narrator called as 18% of loans to Zambia as "just" 18% without recognizing how huge that amount is for being concentrated in one country, plus ignoring the interest percentage China charges, which is insane and reminiscent of East India Company. You should read the history of East India Company and VOC to see how closely China is copying from these old timers.

[Hehehehehhohohoho]

When did Hindu became advocate of china ? And that apparently makes them opponent of India?

[Sarwansangi]

To some indians who are calling Chinese to trap countries into debt, trust me as a Pakistani I can assure you that You have not come across IMF. They colonialist have upgraded their game and are occupying countries on economic front.ie.we have now accepted the demand of basically handing over of State bank of Pak. Other thing is Saudi gave us loan on 3.2% interest rate while China asked 1.8%

[SarfarajShah]

As usual.. Objective and Factual analysis by The Hindu. Hoping for more videos like this which debunk popular myths like this.

[zhenwenlu]

Sri Lanka's foreign debt is $51 billion. 10% owed to China, 10% owed to Japan, 9% owed to IMF, 47% owed to global market financial institutions. So why only China is a debt trap? Not Japan, IMF, Global banks? I always thought that Indians are good at math.

[rap]

Being able to borrow is always a good thing. People seem to think that borrowing money is easy, it is very hard. Try to go to a bank and try if you can get a loan. They will only lend you if they are very sure they can get their money back.

It is the same thing with nations, it is very hard to get a loan. With the IMF and World bank, they make the borrowing nations jump through hoops, make economic and political concessions before they are approved a loan. Sometimes the countries even after submitting to all these impositions by IMF still don't get the loan. You people seem to think that it is the lending institution/nation who goes to the borrower nation and begs the latter to borrow from them.

China gets all this mudslinging and badmouthing only because the west feels threatened of their hegemony. They want to bring China down to preserve their superiority. And those who believes the US is very gullible and is being used by them.

[focus]

The hindu, the only paper which propagates the Chinese propaganda in india when the country was facing the Galvan crisis.Dont try to come up with such superficial analysis as far as china is involved dear.

[dexzzzx]

Coming from a channel called literally "The Hindu" I will take this information with a grain of salt.

[SandeepKumar-espo]

It must be matter of investigation that how much money funded by China for this report.

[anuragtumane]

Chinese debt trap can shows countries how borrowing money for loans may come at a cost.

[AnnaRchy]

Thank you for your honest analysis!
Love India, love China - from Russia! :)

[vishwassingh]

LEFT IDEOLOGIES AT PLAY: debunking debt-trap theory in 4:28 min video 😄

Such a poor video. Poor research.
Look, it's not the percentage of debt by China but rather how it's dealing with the projects it has lended money for. You have seen various instances of China influencing the policies of Srilanka and Pakistan against India. For example, the port taken away from India, in Sri Lanka.. and many more. China is encircling India by debt trapping its neighbors. Please bring in all these factors before making a video on topic like this. Your research just shows two figures - 10% and 18% . Please get serious. If you had gone deep then the video wouldn't have been this short.
Tell your left leaning bosses at The Hindu that it's enough to potray our ideology on our newspaper and let's not go beyond.
This is one of the poorest video by the Hindu.. Debunking debt trap theory in a 4:28 min video 😄

[sukhoisafeways]

If this is the standard of research, then it is better for me not to revisit it again.

[neerajbhatt]

Use right map of China.Aksai Chin is part of India.