- There is a suspicion that China is using “debt-trap finance” through its Belt and Road Initiative (BRI) to mire developing-country partners in unsustainable debt-based relationship to advance its economic and geopolitical ambitions.
- This view assumes that China could maximise its economic and geopolitical interests by ensnaring its BRI partners in debt distress. But evidence shows that China has not always been able to reap the alleged economic benefits and that it has even been a victim of its lending missteps.
- Pushback from BRI recipient countries is increasing, leading to a decline in BRI investment already. More importantly, domestic criticism on the BRI has emerged, which will scale back, but not stop, President Xi Jinping’s Belt and Road Initiative.
China’s increasingly assertive foreign economic policy through its Belt and Road Initiative (BRI) has been criticised as a practice of neo-mercantilism and, more recently, as “debt-trap diplomacy”. These views argue that China has sought to advance its economic and geopolitical influence by purposely ensnaring some of the developing countries in unsustainable loans-for-infrastructure deals.
The conventional wisdom is that the heavier the debt burden on the recipient country, the greater China’s leverage becomes when the country is being forced to sell to China stakes in Chinese-financed projects or hand over management to Chinese state-owned investors. Concerns about China’s debt-trap finance have found their way into some countries’ policy circle, aggravating the geopolitical tensions.
Where are the gains for China?
Critics of China’s BRI assume that its economic interests are maximised when its lending partners are in financial distress. However, there is no proof for this claim.
There is no reliable data for tracking the profit and loss of China’s BRI projects. But as I argued earlier, we can use data on the difference between China’s new foreign contracts (as a proxy to BRI projects) and completed foreign projects (as a proxy to realised foreign revenues) to gauge the performance of the BRI projects. This data shows that the BRI projects do have difficulties in generating revenues. Chinese foreign engineering and construction projects enjoyed a decade of steady revenue growth until 2015 when Beijing started prioritising the BRI. Their revenue growth has since lagged significantly behind the growth of new foreign contracts.
 “Revisiting US Grand Strategy Toward China”, by Robert D. Blackwell and Ash J. Tellis, Council on Foreign Relations, Council Special Report No. 72, March 2015.
 “China’s Debt-trap Diplomacy”, by Brahma Chellaney, Project Syndicate, January 23, 2017.
 “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World”, White House Office of Trade and Manufacturing Policy, June 2018; and “Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective”, by John Hurley, Scott Morris and Gailyn Portelance, Centre for Global Development, CGD Policy Paper 121, March 2018.
 See “Chi on China: Mega Trends of China (3a): The Belt and Road Strategic Plan – Hype, Suspicion and Truth of the Belt and Road Initiative”, 14 June 2017.Download to read more