China’s ‘debt trap’ hurts poor economies and threatens US national security

Chinese loans with secret and unforgiving conditions threaten to paralyze many developing countries, whose concessions to China could begin to have repercussions for US national security.

“The Chinese Communist Party’s strategy to expand its influence in the Pacific has been coercion and deal-making,” Joel Rubin, who served in both party administrations and was most recently Deputy Assistant Secretary of State for Chinese Affairs. Obama administration, Fox News Digital reported. He added that the Chinese are targeting “countries of strategic importance for the navy, in particular for basing.”

Rubin’s comments come amid growing concerns about the impact of Chinese loans on developing countries, especially in places where China has used its position to take control of ports and natural resources in the interests of the country’s growing ambitions.

A dozen countries, including Pakistan, Kenya, Zambia, Laos and Mongolia, have faced economic instability or collapsed under the weight of loans received from China, according to a Fortune report this month.


Chinese soldiers with the Chinese flag in the background

Chinese loans with secret and unforgiving conditions threaten to paralyze many developing countries whose concessions to China could begin to have US national security implications. (Chinese PLA)

These countries have found that debt repayments consume the bulk of their tax revenue, forcing countries to make difficult choices about services such as schooling, electricity and vital social services. To make matters worse, countries indebted to China are often unable to seek help from other creditors because of the secret terms of their obligations. loans from China.

The result has been what many analysts have called China’s “debt trap” and some have theorized that the terms of the loans are nearly impossible to repay by design, forcing countries to cede strategically important interests under China’s control after they inevitably default on their debts.

Perhaps the most famous example of the Chinese debt trap is the Hambantota International Port in Sri Lanka. Opened in 2010, 70 percent control of the port was eventually sold to the Chinese company China Merchants Port to pay off government debt not related to the construction or operation of the port. As part of the deal, a 99-year lease was signed that transferred control of the port to China, despite objections from those who believed the deal undermined Sri Lanka’s sovereignty.

Hambantota International Port

The ship is moored at Hambantota International Port in Sri Lanka. (Liu Hongru/Xinhua via Getty) (Xinhua/Liu Hongru via Getty Images)

The deal came just a few years before Sri Lanka defaulted on its debt: Fortune estimated that 50% of these foreign loans came from China and that a third of the government’s income went to repay foreign debt.

Default caused economic crisis in Sri Lanka depriving the country of some 500,000 jobs, fueling skyrocketing inflation and pushing much of the country’s population into poverty. Meanwhile, China has gained control of a strategically important Indian Ocean port that helps connect a lucrative trade route.


According to a Financial Times report shortly after the deal, China’s takeover of the port was another step in its “One Belt, One Road” project, which aims to challenge the U.S.’s position as the dominant maritime superpower and create a “new Silk Road” of trade routes. connecting the country with Asia, the Middle East, Africa. and Europe.

Although calls for the US to intervene and essentially bail out countries from Chinese loans have intensified in recent years, Rubin argues that such a strategy would do little to bolster US interests.

People waving Chinese flags in Sri Lanka

People greet the Chinese tracking spacecraft Yuanwang-5 at Hambantota International Port in Sri Lanka. (Ajit Perera/Xinhua via Getty Images)

“One of the lessons learned from the Cold War era is that countries love to play big dogs on each other,” Rubin said.

Rubin noted that not only is it impractical for the US to “chase every country” brandishing “Uncle Sam dollars,” such a strategy will not change the long-term forecast of the situation. Instead, Rubin argued that it was vital for the US to develop partnerships with developing countries, which would make it less likely that they would turn to China for help.

“The idea is to get them to say no. I think that’s one of the interesting questions about national security: how do we advance our national security?” Rubin said. “Is this just an investment in defense? No”.


Rubin pointed to the development of economic ties as a way to strengthen US security, including US development assistance, which boosts the economies of developing countries while developing relationships that also benefit the United States.

Another example of an attempt to strengthen economic relations was Trans Pacific partnershipor TPP, a proposed trade agreement between the US and Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

The deal, drafted in 2015, faced strong opposition from factions on both sides, eventually leading to its demise.

“This trade agreement was one of the important strategic steps in an attempt to create an architecture of interconnection between the countries of the Pacific region through economic and trade actions,” Rubin said. “It reduces the incentive for countries to make deals with China because there could be penalties because there are positive alternatives.”

While Rubin noted that a trade deal like this is unlikely to materialize again anytime soon, he argued that any U.S. effort to push for regional agreements that “bring together” countries makes them less likely to turn to China and more likely to depend on each other.


Chinese navy

The Chinese navy is sent to Russia. (Li Li Yun/Xinhua via Getty Images)

“Also, frankly, increasing our development aid and our support,” Rubin said. “We have some great agencies, they are called export credit agencies – EXIM Bank, Development Finance Corporation, Trade Development Agency, and USAID – they are strengthening them to give us more tools to take our companies to these countries to get to our investors, bring our private sector out through the Department of Commerce and engage in trade and investment agreements to open up this business with the United States.”

Ruby made it clear defense investment is also important to contain China and reassure allies in Asia that the US is committed to their security, but defense is just one of the pillars that will advance the long-term goal of curbing Chinese ambitions.

“China is playing the long game. China has been thinking about this for decades and they have been thinking about this for decades,” Rubin said, adding that the American strategy should be to respond beyond defense spending.

“It’s not a compromise like one or the other. You should, can and should do both,” Rubin said. “The last thing you ever wanted was a real war, right? So we have to build trust.”