The US and China are now locked in a competition for global leadership. There is a prevailing narrative that the Chinese government is using its Belt and Road initiative to gain power over developing countries as it seeks to expand its geopolitical influence. Their alleged strategy is to offer countries low-interest loans for big infrastructure projects that it knows that the countries cannot pay back but will likely accept because of those countries’ leaders’ grandiose ambitions. When the countries later find it hard to service those loans and are on the brink of default, China steps in and takes control of the asset it financed, in the process making those countries subservient to them.
In an article in this month’s issue of The Atlantic, Deborah Brautigam and Meg Rithmire challenge this myth of devious Chinese leadership taking advantage of somewhat naive and clueless leaders of developing countries that results in a loss of sovereignty. I too had heard only the myths about Chinese debt traps so I found the article to be quite eye-opening
They take a close look at what is often quoted as a classic case of the debt-trap strategy, a new port that was constructed in the town of Hambantota on the southern coast of Sri Lanka that is right smack dab in “the busy Indian Ocean shipping lane that accounts for nearly all of the ocean-borne trade between Asia and Europe, and more than 80 percent of ocean-borne global trade.”
The prime example of this is the Sri Lankan port of Hambantota. As the story goes, Beijing pushed Sri Lanka into borrowing money from Chinese banks to pay for the project, which had no prospect of commercial success. Onerous terms and feeble revenues eventually pushed Sri Lanka into default, at which point Beijing demanded the port as collateral, forcing the Sri Lankan government to surrender control to a Chinese firm.
The Trump administration pointed to Hambantota to warn of China’s strategic use of debt: In 2018, former Vice President Mike Pence called it “debt-trap diplomacy”—a phrase he used through the last days of the administration—and evidence of China’s military ambitions. Last year, erstwhile Attorney General William Barr raised the case to argue that Beijing is “loading poor countries up with debt, refusing to renegotiate terms, and then taking control of the infrastructure itself.”
As Michael Ondaatje, one of Sri Lanka’s greatest chroniclers, once said, “In Sri Lanka a well-told lie is worth a thousand facts.” And the debt-trap narrative is just that: a lie, and a powerful one.
The authors say that the truth is quite different. Canada, the US, Europe, and India were all approached by Sri Lanka about taking part in the venture but declined. Furthermore, China never actually took ownership of any land.
It was the Canadian International Development Agency—not China—that financed Canada’s leading engineering and construction firm, SNC-Lavalin, to carry out a feasibility study for the port.
The Canadian project failed to move forward, mostly because of the vicissitudes of Sri Lankan politics.
We reviewed a second feasibility report, produced in 2006 by the Danish engineering firm Ramboll, that made similar recommendations to the plans put forward by SNC-Lavalin.
Armed with the Ramboll report, Sri Lanka’s government approached the United States and India; both countries said no. But a Chinese construction firm, China Harbor Group, had learned about Colombo’s hopes, and lobbied hard for the project. China Eximbank agreed to fund it, and China Harbor won the contract.
When Sirisena took office [as president of Sri Lanka in 2015], Sri Lanka owed more to Japan, the World Bank, and the Asian Development Bank than to China. Of the $4.5 billion in debt service Sri Lanka would pay in 2017, only 5 percent was because of Hambantota. The Central Bank governors under both Rajapaksa and Sirisena do not agree on much, but they both told us that Hambantota, and Chinese finance in general, was not the source of the country’s financial distress.
The alarm that the port would greatly enhance China’s military capability in the Indian Ocean also seems to be overstated.
Before the port episode, “Sri Lanka could sink into the Indian Ocean and most of the Western world wouldn’t notice,” Subhashini Abeysinghe, research director at Verité Research, an independent Colombo-based think tank, told us. Suddenly, the island nation featured prominently in foreign-policy speeches in Washington. Pence voiced worry that Hambantota could become a “forward military base” for China.
Yet Hambantota’s location is strategic only from a business perspective: The port is cut into the coast to avoid the Indian Ocean’s heavy swells, and its narrow channel allows only one ship to enter or exit at a time, typically with the aid of a tugboat. In the event of a military conflict, naval vessels stationed there would be proverbial fish in a barrel.
Many developing countries are getting tired of being portrayed as gullible dupes easily played by China when in reality they can play geopolitical games as well as anyone.
Over the past 20 years, Chinese firms have learned a lot about how to play in an international construction business that remains dominated by Europe: Whereas China has 27 firms among the top 100 global contractors, up from nine in 2000, Europe has 37, down from 41. The U.S. has seven, compared to 19 two decades ago.
The other side of the debt-trap myth involves debtor countries. Places such as Sri Lanka—or, for that matter, Kenya, Zambia, or Malaysia—are no stranger to geopolitical games. And they’re irked by American views that they’ve been so easily swindled.
The events that led to a Chinese company’s acquisition of a majority stake in a Sri Lankan port reveal a great deal about how our world is changing. China and other countries are becoming more sophisticated in bargaining with one another. And it would be a shame if the U.S. fails to learn alongside them.
Learning something new requires the acknowledgment that one has something to learn. The notion of American exceptionalism, that the US is the leader and the best in pretty much everything, that is so deeply embedded in the American psyche, is a hindrance to this. The US spends more on useless military hardware than any other country. If even a small fraction of that is diverted away, it would be able to compete with China in collaborative infrastructure projects with many nations. But cutting the bloated military budget is the one thing that neither party will touch.