China’s Debt Diplomacy: Economic Expansion Or Strategic Coercion? – Analysis

China’s Belt and Road Initiative (BRI) has been heralded as a transformative vision for global infrastructure development, linking continents through an intricate web of trade routes, ports, and railways. With over 140 countries participating and an estimated $1 trillion in investments, the BRI’s scale is unprecedented.

However, the promise of prosperity often comes with a hidden cost, as many nations find themselves ensnared in unsustainable debt and geopolitical dependencies. For many developing nations, what begins as an opportunity for growth soon morphs into a precarious trap of unsustainable debt and strategic dependence.

The Indian Ocean Region: A Theater of Debt Diplomacy

The Indian Ocean Region (IOR) has emerged as a pivotal arena for Chinese investments under the BRI due to its critical role in global trade. Over 80% of the world’s maritime oil trade passes through the IOR, making it a strategic chokepoint for global commerce. Ports such as Hambantota in Sri Lanka, Gwadar in Pakistan, and Chittagong in Bangladesh illustrate Beijing’s calculated strategy of embedding itself in regional infrastructure to bolster its influence and secure economic and military footholds. The results, however, have often been economically devastating for the host nations.

Sri Lanka: The Hambantota Port, financed by a $1.4 billion Chinese loan, quickly became a liability for Sri Lanka. Unable to service its debt, the nation was compelled to lease the port to a Chinese state-owned enterprise for 99 years. This lease highlighted the severe financial repercussions for Sri Lanka and highlighted Beijing’s ability to convert economic leverage into strategic advantage. The port’s location, just a few nautical miles from vital shipping lanes, grants China significant influence over one of the world’s busiest maritime corridors. For Sri Lanka, the arrangement has sparked domestic debates over sovereignty and economic mismanagement, while for the region, it has raised alarms about the precedent it sets for Chinese control over critical infrastructure. The port’s potential use for military purposes emphasises its strategic importance to Beijing.
Pakistan: The $60 billion China-Pakistan Economic Corridor (CPEC), a flagship BRI project, exemplifies the pitfalls of unchecked borrowing. Beset by financial irregularities and security concerns, CPEC has left Pakistan grappling with mounting debt and an economy on the brink of collapse. Despite promises of economic revival, the corridor has exacerbated Pakistan’s financial instability.
Maldives: Chinese investments in the Maldives, including major infrastructure projects, have plunged the island nation into significant debt. A recent financial cooperation agreement between the Maldives and China aims to mitigate its economic distress but raises questions about further entrenchment of Chinese influence.

Africa: A Continent Entangled

Africa’s extensive participation in the BRI has brought much-needed infrastructure and a legacy of debt distress. For instance, the Nairobi-Mombasa Standard Gauge Railway in Kenya, lauded as a transformative project, has faced criticism for its steep costs and questionable profitability. On the other hand, Ethiopia’s Addis Ababa-Djibouti railway showcases some success in connecting landlocked nations to ports, albeit under heavy financial dependence on China.

Zambia’s reliance on Chinese loans has placed it in a precarious situation, with fears of losing control over critical national infrastructure such as airports and power plants. These examples illustrate the dichotomy of outcomes within Africa, highlighting the need for better financial scrutiny and sustainable partnerships.

Zambia: With Chinese loans accounting for a significant portion of its external debt, Zambia faces the risk of losing control over key infrastructure, including airports and power plants. This vulnerability highlights the dangers of over-leveraging through opaque financial arrangements.
Kenya: The Standard Gauge Railway, a flagship project funded by China, has been criticised for its exorbitant costs and lack of financial viability. The project underlines how Chinese loans often burden economies without delivering proportional benefits.

The Dual-Use Strategy

China’s infrastructure investments frequently serve dual purposes, blurring the lines between civilian and military objectives. Ports initially constructed for commercial use, such as Gwadar and Hambantota, have strategic potential to bolster Beijing’s military footprint in the Indo-Pacific. This dual-use approach allows China to extend its strategic reach while maintaining plausible deniability.
Economic Dependency as a Strategic Tool

Beyond infrastructure, China’s debt diplomacy leverages economic dependencies to sustain its industrial economy. This strategy enables Beijing to dominate local markets by flooding them with cheap goods, undermining domestic industries and stifling their growth. Over time, host nations find their manufacturing capacities eroded, forcing them to rely on imports from China. This dependency weakens economic sovereignty and shapes domestic policies, as governments often prioritise debt repayment over social and economic development. The resulting fiscal constraints reduce the capacity for public investment, entrenching economic stagnation and furthering China’s influence.

A Case for Alternatives: India’s Approach

India’s strategic investments starkly contrast China’s opaque and predatory lending practices. The development of Chabahar Port in Iran and the operationalisation of the North-South Transport Corridor emphasise regional connectivity and mutual benefit. India’s focus on transparency and economic sustainability offers a more equitable engagement model for developing nations.

Lessons and Warnings

The cautionary tales of Sri Lanka, Pakistan, and Zambia highlight the risks of engaging with China’s BRI without thoroughly assessing the long-term implications. While the allure of infrastructure development is compelling, nations must prioritise sustainable partnerships over short-term gains. Transparent and accountable alternatives, such as those offered by India and other global powers, are crucial to countering the strategic and economic coercion embedded in China’s debt diplomacy.

As developing nations navigate these geopolitical waters, they must choose between development and stagnation and between sovereignty and subjugation. The consequences of these decisions will shape the global order for decades to come.