Is Debt Diplomacy a Risky Geoeconomic Approach? Comprehending China’s BRI’s Complicated Reality
China’s Belt and Road Initiative (BRI) is reshaping the global economic landscape, but not always in the ways its architects envisioned. Hailed as a blueprint for connectivity and growth, the trillion-dollar project has become a lightning rod for controversy, with critics accusing Beijing of leveraging debt to control vulnerable nations. For countries like Sri Lanka, Laos, and Malaysia, the promises of development have often been overshadowed by the realities of dependency and strategic compromise.
The Indian Ocean Region (IOR) stands as a prime example of how China’s infrastructure financing has reshaped maritime geopolitics. The IOR is critical for global trade and energy flows and is home to some of the world’s busiest shipping lanes. For China, investing in this region is more than economic; it’s strategic. Ports such as Hambantota in Sri Lanka and Gwadar in Pakistan illustrate how Beijing’s investments serve dual purposes, blending commercial interests with military ambitions.
Sri Lanka’s experience with Hambantota Port exemplifies the pitfalls of China’s debt diplomacy. Between 2007 and 2012, Sri Lanka borrowed over $1 billion from China’s Exim Bank to develop the port despite warnings about its limited economic viability. When the project failed to generate sufficient revenue, the government was forced to lease the port to a Chinese state-owned enterprise for 99 years. While this deal alleviated some immediate financial pressures, it left Sri Lanka grappling with questions of sovereignty and strategic autonomy. Hambantota, located near vital shipping lanes, is now emblematic of how economic leverage can translate into geopolitical influence.
Laos, a landlocked nation with ambitious development goals, offers another cautionary tale. The construction of the $6 billion Boten-Vientiane railway and other Chinese-financed projects plunged the country into significant debt. In 2020, Beijing secured a 90% stake in Laos’ national electricity grid in exchange for debt relief, granting China control over critical infrastructure. For Laos, this arrangement highlights the risks of dependency, where short-term gains in infrastructure come at the expense of long-term sovereignty.
Malaysia presents a more nuanced narrative. The East Coast Rail Link (ECRL) project initially embodied the challenges of engaging with China’s BRI. Valued at $16.5 billion, the project was mired in allegations of inflated costs and political corruption under former Prime Minister Najib Razak. However, a change in government led to renegotiations that reduced the project’s cost to $11 billion and established a joint management structure between Malaysia and China. Malaysia’s recalibration of its engagement demonstrates that strategic renegotiations can mitigate the risks associated with large-scale Chinese investments.
Africa, too, has seen the transformative yet contentious impacts of China’s BRI. In Kenya, the Nairobi-Mombasa Standard Gauge Railway was lauded for boosting connectivity but criticized for its steep costs and limited financial sustainability. Meanwhile, Zambia’s reliance on Chinese loans has placed its key infrastructure, including airports and power plants, at risk. These examples highlight the dichotomy of opportunity and dependency that characterizes China’s involvement in Africa.
The dual-use nature of many BRI projects further complicates the narrative. Ports initially framed as commercial hubs, such as Gwadar and Hambantota, hold significant strategic value, allowing China to extend its naval footprint. This dual-purpose strategy has raised alarms among regional powers, particularly in the Indo-Pacific, where maritime security and influence are hotly contested.
China’s economic approach often creates dependencies that extend beyond infrastructure. By flooding local markets with inexpensive goods, Beijing undermines domestic industries, fostering reliance on Chinese imports. Over time, this dependency shapes domestic policies, as governments prioritize debt repayment over essential investments in public services and long-term development.
India, offering a counterbalance to China’s BRI, has championed a transparent and sustainable development model. Investments such as the Chabahar Port in Iran and the operationalisation of the International North-South Transport Corridor (INSTC) highlight India’s commitment to fostering equitable economic growth. Unlike China’s opaque deals, India’s initiatives aim to enhance regional connectivity without compromising the sovereignty of partner nations.
The experiences of Sri Lanka, Laos, and Malaysia reveal the complexities of China’s debt diplomacy. While the allure of infrastructure development is compelling, the long-term implications often include economic instability and diminished autonomy. For developing nations, the challenge lies in balancing immediate development needs with the imperative to preserve sovereignty.
As global trade routes and maritime power dynamics evolve, the stakes for nations entangled in China’s BRI remain high. Transparency, diversified partnerships, and rigorous financial assessments are essential to ensure that the promise of development does not come at the expense of strategic independence. In navigating the intricacies of debt diplomacy, the future of global geopolitics will be shaped by the choices these nations make today.
