China’s Belt and Road Initiatives (BRI) lending strategy impels its partners into the grip of a debt trap in South Asia. The International Debt Report 2023 (IDR2023) of the World Bank signalled debt crisis risks posing enormous challenges to many Low-and Middle-Income Countries (LMIC). Moreover, debt stress and vulnerability further aggravated their conditions, creating a huge divide between the lender and the lendees.
China’s strategy is clear. It is to expand its hegemony by weaponising the vulnerabilities of the LMIC. Under the pretext of reconstruction and development, it offers loans and lures these countries into agreements. The vertical accumulation of interest due to nonpayment of loans develops a debt trap. The country concerned gets trapped in the legal labyrinth, leading to increasing fragility, civil unrest, political instability, and sovereign default. It gives China the scope to fulfil its geoeconomic and geostrategic interests, paving the way for global ascendance.
Beijing’s loan dispensing promotionism with economically vulnerable countries began with its Going Global Strategy in 1999. Under this initiative, Chinese lending and investment in the LMICs became resilient. Subsequently, it rolled out One Belt One Road (OBOR) economic and foreign policy to expand its footprint and decouple Western hegemony.
The BRI crystallises the same strategic framework under a different nomenclature. However, what is central to this exercise is to foreground the relevance of Chinese globalisation. IDR 2023 mentions that LMIC’s combined public and publicly guaranteed external debt obligations to China totalled $180 billion at the end of 2022.
In the context of South Asia and its external debt obligation to China, there is a rise of “nearly sevenfold over 11 years, from $6.4 billion in 2012 to $42.9 billion in 2022”. The Agricultural Bank of China (ABC), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), Bank of Communications, Bank of Shanghai, Bank of China, and China CITIC Bank carry out the country’s overseas lending. The non-repayment of loans, which leads to a debt trap, has become increasingly stressful. This fragility creates the scope for more interference in strategic matters for China.
Along this line, the story of South Asia is equally dire. Countries such as Pakistan, Sri Lanka, Maldives, Bangladesh, Afghanistan, and Nepal are under severe stress because of the debt trap set against them by China and its BRI formulations.
Beijing’s ongoing China-Pakistan Economic Corridor (CPEC) project, which connects Kashgar in northwest China’s Xinjiang Uygur Autonomous Region with Pakistan’s southwest Gwadar port in Balochistan province, remains a major geopolitical challenge for Islamabad. The corridor passes through Gilgit-Baltistan, the part of the Indian state of Jammu and Kashmir (J&K) illegally occupied by Pakistan, also known as Pakistan-occupied Kashmir (PoK). The economic corridor involves energy, highway, and port infrastructure. The total investment in CPEC is to the tune of $62 billion, out of which about $30 billion has been invested so far.
The power projects amounting to $28 billion have been made operational, as per the statistics of the Ministry of Planning, Development, and Special Initiatives, Government of Pakistan. On the other hand, the burgeoning debt repayment has further embroiled the cash-strapped Pakistani economy, which owes approximately $131 billion in debt to external creditors in June 2023. A significant chunk of this goes to Beijing.
Massive external borrowing without corresponding debt repayment may bring Pakistan into Beijing’s sovereign debt trap, jeopardising the former’s autonomy and foreign policy choices. However, China’s growing bonhomie with Pakistan is designed to checkmate India’s power and regional influence. India’s ’enemy’ is China’s ‘friend’, at least in South Asia. This dynamic presents the scope for complex geopolitics in the region and the exercise of its hegemonic behaviour.But China’s projects were also found to be vulnerable when five Chinese were killed in a suicide attack in Khyber Pakhtunkhwa in March 2024. Subsequently, Islamabad agreed to pay $2.5 million to the families of slain Chinese nationals as compensation to restore Beijing’s confidence.
However, the anti-China sentiment is growing and becoming intense across the length of the CPEC, from Balochistan to the PoK. Gwadar is the epicentre because of its centrality within the CPEC and its crucial strategic location. Gwadar’s geoeconomic, geostrategic, and geo-connectivity significance helps Beijing decouple itself from Malacca dependencies, known as the Malacca dilemma. The strong sentiments of secessionism coupled with anti-China undercurrents in Balochistan complicate the Pakistan chapter of BRI.
Balochis perceive the Chinese stake in carrying out infrastructural activities in Quetta and Gwadar as exploitative. There are also strong resentments among the people of Balochistan and Gilgit-Baltistan concerning the collusion between Pakistan and China to exploit their resource-rich geographies. More reactionary activities in Balochistan and other places against BRI and interventionist proclivity restrict progress in CPEC. The debt stress increases exponentially because the corridor can only give dividends if it’s implemented and then operationalised.
If we take the case of Sri Lanka, it is more precarious. The debt trap imposed by China has led to civil unrest, political instability, and a severe economic crisis. The post-Covid economic crisis and the inflation stress put the island nation in trouble. The debt of $4.2 billion to the Export-Import (EXIM) Bank of China and the nonpayment of the outstanding and resultant debt stress crushed Sri Lanka entirely in 2022. India had to intervene in every way possible to ease the stress. The coal-fired Norocholai power station, the Hambantota port, the Mattala Rajapaksa International Airport (MRIA), the Colombo International Container Terminal (CICT) at the Colombo port, the Lotus Tower, Colombo port city, Southern and Central Expressway, Kandy North-Pathadumbara Integrated Water Supply Project, etc., are the infrastructures built by China in Sri Lanka.
The political and economic implications of these projects are devastating. A debt trap is staring at Sri Lanka, giving the current government nightmares. Managing Sri Lankan affairs takes time and effort. Its tourism economy needs to be improved to ease the burden of debt. Therefore, its dependency on China will remain for as long as 99 years until the expiry of the agreement for Hambantota Port.
China’s chief objective is to have a sustained influence in strategically critical Sri Lanka, especially its port space. It helps the former weaponise the marine space surrounding the latter for its maritime silk route connectivity and to keep an eye on India and its critical defence infrastructures, which are largely stationed in the south. For China, the debt trap is well directed at Sri Lanka to make it toothlessly sovereign. The commercial loans are used to trap Colombo for China’s economic and geostrategic interests.
For the Maldives, the debt trap is neck-deep. However, China has recently restructured its debt to give the Maldives momentary relief. The International Monetary Fund (IMF) warned the country of debt distress. It shows that the Maldives is expected to pay China around USD 1.3 billion. China, therefore, runs the show there. The tourism-dependent economy cannot pay the debt. However, its strategic position in the Indian Ocean region is its unique selling point.
Beijing has invested in the blue economy, digital technology, green technology, transport, connectivity, and energy infrastructure. China-Maldives Friendship Bridge, upgrading Ibrahim Nasir International Airport, the Youth City project in Hulhumale, the Free Trade Agreement (FTA), telecommunication, housing, etc. are significant infrastructural developments that Beijing has undertaken. Its military project, a naval base at Uthuru-Thila-Falhu, is reportedly a work in progress.
Therefore, China’s geostrategic interest in the Maldives cannot be ignored. Its economic coercion develops the entrapments from which Malé finds no respite. Beijing intends to encircle the Indian subcontinent, trapping Bangladesh, Sri Lanka, and the Maldives in a string of pearls strategy. The objective is to check on India and its impressive rise in recent years.
Xi Jinping’s pet Maritime Silk Route (MSR) project gives immense importance to the Indian Ocean Region. Therefore, the island nations in the Indian Ocean, such as the Seychelles, Mauritius, Sri Lanka, and the Maldives, acquire prominence. Beijing has allegedly intervened in the political affairs of the tiny island nation to the extent of carrying out regime change, leading to the victory of Mohamed Muizzu, a pro-Chinese candidate, in the Maldives presidential elections.
The China-Bangladesh camaraderie presents indications of the debt trap. The former has gone full-scale into the latter’s territory. Its BRI, the Global Development Initiative, the Global Security Initiative, and the Global Civilisation Initiative are in full swing to develop Bangladesh’s infrastructural strength. Vision 2041 and Smart Bangladesh expand the existing catalogue.
In 2023, Yao Wen, Ambassador of China to Bangladesh, stated in an article titled “China-Bangladesh Relations in 2023: Laying Solid Foundation for Splendid Future” that there are around 700 Chinese companies in Bangladesh. Between 2016 and 2022, Chinese investment in Bangladesh was around $26 billion. This will accelerate significantly in 2023. It spends mostly on transport, connectivity, digitisation, and energy projects. They include the Padma Multipurpose Rail Road Bridge, the Bangabandhu Sheikh Mujibur Rahman Tunnel, the Bangladesh-China Friendship Bridge, the Dhaka-Khulna (N8) Highway, the Dhaka-Sylhet 4-lane Highway, the Payra 1320 MW Power Plant, the Patuakali 1320 MW Power Plant, etc.
PM Sheikh Hasina characterises these efforts as a new door of development. Is it development or a debt trap? It needs to be decoded.
The story of Afghanistan is an unhappy one. The return of the Taliban in the event of the US’s sudden withdrawal has opened the scope for theocracy and authoritarianism. Its economy needs to be fixed. This presents the best opportunity for China to make a tactical entry to spread its tentacles. Indications in this direction are quite perceptible.
In September 2023, China was the first to appoint an ambassador to Kabul. Beijing’s tact lay in the timing of this appointment, when the Taliban was experiencing global backlash for the present and future of Afghanistan under the Taliban regime. It is neither a friend of the Taliban nor concerned about the condition of women and minorities in Afghanistan. It is interested in natural resources, including copper, lithium, and rare earths. These critical resources are still untapped. Technology is the medium that converts them to their potential use for economic growth and development.
China is already considering extending CPEC into Afghanistan and, from there, to Iran. If this is realised, it will create a formidable China-aligned economic block on the western borders of India. BRI, therefore, takes care of developmental aspects. Beijing gives loans for this purpose. In the event of nonpayment, it may use technology and infrastructure to access resources. Friendship with Afghanistan underlines the region’s desire for natural resources and geopolitics. Bilal Karimi, Afghanistan’s ambassador to Beijing, catalogued Mes Aynak, known for the copper deposits and located on the outskirts of Kabul, for a discussion with Metallurgical Corporation of China Ltd (MCC) in December 2023.
Accessing Afghan hydrocarbons and minerals constitutes Beijing’s primary motive. China’s recent rapprochement with the Taliban is to fulfil its ambitious Silk Route project. It shares a 76-kilometre land boundary with Afghanistan; connecting Badakhshan with Xinjiang through the Wakhan Corridor, which has historically been a trade link since the Silk Route antiquity, of rivalry during the great game period and of China-ordained new geopolitics now, is one of its primary goals.
The BRI is making necessary progress in this direction. Further, Beijing also intends to expand it to Central Asia and West Asia, and Afghanistan can play a very significant role in actualising these aspirations. Its China-Pakistan Economic Corridor (CPEC) can integrate Afghanistan with Gwadar. These aspirations are easier said than done. The complex geopolitics and engagement of contrary regional interests will hinder China significantly. However, China’s debt trap is inching closer to Afghanistan, knowing its economic and political volatility and global perception.
Finally, China focuses on weaponising the Himalayas’ heights to control the region’s geopolitics in Nepal. Beijing plans to build up a Grand Himalayan Multi-Dimensional Connectivity Network in Nepal by investing $15 billion in various projects. Nepal’s external debt will reach $9.6 billion in 2023. Its economic fragility and aspirations of becoming a middle-income economy allow China to rush and fulfill its Middle Kingdom complex.
China has constructed Pokhara International Airport with a $215 million loan. The interest charged on this amount is 2 per cent, which is higher than the interest charged by the World Bank and Asian Development Bank (ADB). Nepal is currently reeling under financial strain due to huge external debts, and any additional loan from China may be a boomerang for Nepal’s flagging economy. To seek a detour out of the current impasse, the Nepalese political establishment is negotiating with the Chinese government to convert the Pokhara airport loans into grants. Notwithstanding this, Nepalese strategic think tanks are sceptical of Chinese hegemonic intentions in the Himalayan space and prefer Kathmandu’s balancing act with two great Asian neighbours, India and China.
No doubt, the Chinese debt trap looms large in South Asia. Its philosophy of a community of common destiny or shared partnership is a myth. Rather, its BRI gimmicks may infringe on the autonomy, sovereignty, and foreign policy choices of the participating nations, possibly pushing them into sovereign defaulters in the future.
Jajati K Pattnaik is an Associate Professor at the Centre for West Asian Studies, School of International Studies, Jawaharlal Nehru University, New Delhi. Chandan K Panda is an Assistant Professor at Rajiv Gandhi University (A Central University), Itanagar. The views expressed in the above piece are personal and solely those of the authors. They do not necessarily reflect Firstpost’s views.
 "War with China neither imminent nor inevitable, says US defense secretary Austin")
 "Can Muizzu arrest the ‘fleeing’ dollar to get Maldivian economy back on its feet?")
 "China accuses US of building Asia-Pacific version of NATO")
 "How China plans to achieve 'self-sufficiency' with its first food security law")