China’s debt-trap diplomacy- A threat to Indian peripheral relations


The 21st century is an era of economic supremacy where political diplomacy is a subset of the former. The war of humans is now dominated by economic suppression as opposed to militaristic aggression. The political will to dominate the global village has shifted into the hands of those countries which have strong independent economies and can dictate the international prices. Debt-trap policy is one such epitome of economic weapon. This policy fundamentally means a situation in which the party has taken a loan from the other country on the basis of returning it within a period of time with interest as per the mutual agreement, and ultimately the borrowing party fails to clear the debt by not being able to pay back.


The primary reason for this debt-trap scenario is the high rates of interests being levied coupled with short duration of time for paying back. The principal amount which has been borrowed has to be paid back with interest that has been accrued over a set time and such heavy accumulation of interest calculated on the loan amount results into failure of a debtor country in returning the loan. Such economic collapse of returning the excessive debt by the borrowing country is used as a tool of asset-building and profitization by the creditor country, thus leading to a situation of economic victimization followed by immolation of political sovereignty by the debtor country to the whim and fancies of the creditor country.


China’s debt-trap diplomacy

China that plays as a dominating factor in the global economy through its geostrategic foreign investment has been criticized due to its heavy reliance on the Debt-trap policy. The calculated investment made by China in its weak neighbouring countries has deepened the Chinese hold in such states making their economy majorly dependent on China’s wishful economic consideration. The hidden intent of China by overburdening the weak countries with huge debt is to barter their enjoyed sovereignty. Such sovereignty is offered as a last resort because these cash-strapped countries have been stripped to such an extent that they have no option but to sacrifice their tag of dignity. Not only does it cost the sovereignty, but it also has to welcome the foreign intrusion of domestic assets by giving ownership rights of properties and converting its debts into equities.

With the global level investment projects that China is aggressively promoting, it has the vision to create a modernized Silk Road to open the doors of trade among Asia, Africa, and Europe and to invent the path of spreading its Crony-diplomacy. The project is termed as Belt and Road Initiative (BRI) or One Belt One Road (OBOR) and is an ambitious project to connect these countries through roads and maritime networks to spread the economic terror that China is currently creating in Asian countries. The ulterior motive of Chinese diplomacy that it tends to achieve through this project is masqueraded with a false aim of improving continental integration, bringing global economic stability and increasing the stagnant foreign trade.

This One trillion-dollar project 1 involves infrastructural development in countries that are part of BRI and often such costs of these projects are supported by China in the form of mountainous loans offered to these governments. However, providing loans to a country for its infrastructural growth is not wrong but the motive that China aims is critical. Due to the stronghold of China in these countries, it influences the other countries to agree to their infrastructural project that can suit the interest of China. Certainly, these projects results as an asset for the Chinese nation a bad debt for the domestic state.

The Chinese financial Machiavellianism 2 can be shown through numerous instances spreading pan-global but one such case that substantiates the Chinese ideology of Debt-trap diplomacy is where China got Sri Lanka to cough up its Hambantota port 3 in lieu of huge debt that Sri Lanka was unable to pay off. Although it wasn’t one-sided and China isn’t the only one to be blamed; the Sri Lankan government that greed to build domestic infrastructure also contributed to economic negligence bringing the nation into the periphery of huge debt thereby giving the Chinese government to enjoy the win-win situation by getting the hold of Sri Lankan territory as well as a port having a strategic location for Maritime networks on a lease of 99 years. Another county that has lost the economic conscious to the will of China is Pakistan. This Islamic Republic has to pay double the amount to China that it owes the International Monetary Fund in the next three years. 4

The spreading debt of China in the weaker countries has viz-a-viz challenged the superpowers of the globe. Deepening its root of debt-trap in Pakistan and Sri Lanka; it has now reached to Africa and has left its footprint even in Europe. Further, China holds 12% of the total debt that the Pacific countries owe. 5 These victimized countries often get lured by the far-reached visionary projects to grow rapidly but such avaricious ideology mostly turns out to be a factor that contributes in degrading the economy. China that is taking huge risks by investing almost in every poor country is trying to change the international scenario. The expected investment that China is going to make is up to 1.3$ trillion in infrastructure projects in pan-global by its BRI policy. 6Such diplomacy extends to the hold of China economically, politically as well as militaristically. It is a global war that China is playing, although, not with a sword but with debt. These acts are an alarm for the other superpowers to avoid falling into the Thucydides trap 7

Threat to Indian Diplomatic Relations

At present, India needs to safeguard its international dominance from getting displaced due to the rising crony diplomacy of China. Chinese diplomacy is a potential threat to Indian foreign trade. Although India still shines bright in South Asia maintaining peaceful relations with other countries, unfortunately, these cash-strapped countries who have borrowed money from China will have no option but to sacrifice their political will in its hands resulting in China dictating their internal affairs. Not only does this risk the diplomatic relations of India, but it will also pose as military threat, maybe not now but possibly in the future. The recent example is the Hambantota port Sri Lanka which is now under the control of China raising the security issues in South India.

The reason for Sri Lanka falling in a Chinese Debt-trap was a high-interest rate of 6.3% that was charged because China was the only one to respond to the demand of Sri Lanka. 8 If India had the vision to take a calculated risk, it could have won the dominance in Sri-Lanka keeping China away from its influence. The narrow vision of India related to its foreign investment model repeatedly leads to several missed-opportunities. While China is winning the trust votes of its neighbouring countries through the rapid expansion of the BRI project, India is still finding an alternative to BRI. One of the ways India can challenge the Chinese diplomacy in Asian region is by promoting cross-border cooperation on infrastructural development. As Asian states crave for infrastructural development, it needs economically supportive allies to fulfil their needs; therefore, India can be the ideal match by showing a hand of friendship with these nations by providing them handsome loans in a more profitable

China’s Debt-trap policy can act as a model for India in order to gain diplomacy in Asia. However, the model needs to be refined and modified in accordance with the ethics and principles of the Indian state that ensures welfare and promotion for weaker countries rather than using them as a tool of profitization. It can regain the fragile relations by offering Line of Credit to such countries or may fund the projects at a low-interest rate. With that, it should try to make new clients so as to keep its diplomacy alive because China’s ‘Debt-trap’ economics will likely result in it gaining greater access to nations around India, therefore, India should be vigilant enough to ensure that the bilateral ties with neighbouring countries are not severed. It is irrefutable that China is strongly planning to increase its global presence either by hook or by crook. Therefore, facing the Chinese threat and vehemently rebutting it by enhancing its own diplomatic relations is the need of the hour for India to survive as one of the superpowers of the World.


1 Brahma Chellaney, China’s Debt-trap diplomacy, LIVEMINT [27th Jan, 2017]
2 Chan, Yang, and Elizabeth Guill. “China to Europe’s Rescue: ‘Benevolent Generosity’ or ‘ Financial Machiavellianism’?” China Perspectives, no. 3 (87), 2011, pp. 86–87.
3 Maris Ab- Habib, How China got Sri Lanka to cough up a port, NEW YORK TIMES, [25th June, 2018]
4 Faseeh Mangi, Pakistan needs to repay China more than double amount it owes IMF, BUSINESS STANDARD, [3rd Oct, 2019]
5 Rohan Fox & Mathew Dornan, China in the Pacific: is China engaged in debt-trap diplomacy? DEVPOLICYBLOG [Nov,2018].
6 Lessons from Sri Lanka on China’s Debt-trap diplomacy, INSTITUTE FOR SECURITY STUDIES,
7 Graham Allison, The Thucydides Trap, FOREIGN POLICY, [9th June, 2017] created by China leading into an inevitable global war threatening world peace and security
8 Manoj Joshi, China’s Debt-trap: Chance for India to step up its game, OBSERVER RESEARCH FOUNDATION [21st Jan, 2019]

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