In a meeting held on Saturday in New Delhi, Italian Prime Minister Giorgia Meloni told Chinese Premier Li Quang that Italy plans to exit Chinese President Xi Jinping's prominent Belt and Road Initiative. This discussion, which took place on the sidelines of the G20 summit, holds significance due to the Italian government's transparent stance regarding its intention to withdraw from the BRI. Italy has expressed that Beijing's renowned multibillion-dollar infrastructure initiative has failed to deliver any advantages to Rome.
Debt-trap diplomacy refers to a situation in international finance where a lending country or institution provides loans to a borrowing nation, at times with the primary goal of enhancing the lender's political influence. In such cases, the creditor nation is believed to offer an abundance of credit to the debtor nation, foreseeing that the debtor may struggle to meet repayment obligations. This situation can then be leveraged to extract economic or political advantages. Importantly, the terms and conditions of these loans are frequently kept undisclosed to the public.
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China's Belt and Road Initiative (BRI) has undertaken numerous investments and given loans across the European Union, continental Europe, African continent and even South Asian region. These investments encompass the port of Piraeus in Greece, Kenya’s Port of Mombasa, Hungarian railways etc. Some of these nations who took loan from China are now stuck in the China’s debt trap as well.
In April 2021, the Prime Minister of Montenegro appealed to the European Union for assistance in repaying a $1 billion loan extended by the Exim Bank of China in 2014 to finance the A-1 motorway. This loan represented approximately 25 percent of Montenegro's external debt, and its terms stipulated that China would gain control of thousands of hectares in case of non-payment. Notably, the project had been deemed unviable and economically unsound in two separate feasibility studies conducted by the European Bank for Reconstruction and Development and the European Investment Bank.
Kenya secured loans amounting to at least $9.8 billion from China. Chinese debt constitutes 21 percent of Kenya's foreign debt and 72 percent of its bilateral debt. In late December 2018, Kenya reportedly faced a critical situation regarding its Chinese loans, particularly those aimed at developing the Port of Mombasa, its biggest and most profitable. There were concerns that a potential default could have led to Kenya surrendering control of the port to China.
China's loans to Sri Lanka have primarily required the use of Chinese labour on funded projects, with relatively few policy reforms or structural adjustments. Critics cite the Hambantota International Port and Mattala Rajapaksa International Airport projects as examples of debt-trap diplomacy. The construction of the port, backed by Chinese firms, led to financial losses, prompting Sri Lanka to lease it to China Merchants Port for $1.12 billion. This raised concerns about the port's potential military use by China.
Pakistan has received $42.7 billion in World Bank assistance since 1980, with most being loans. By 2020, its debt to China reached $30 billion due to loans for China–Pakistan Economic Corridor (CPEC) projects, raising concerns about sovereignty and repayment. It's estimated that it would take Pakistan nearly four decades to repay its debt to China. Several experts argue that the China-Pakistan Economic Corridor (CPEC) prioritizes China's interests over Pakistan's, potentially jeopardizing Pakistan's sovereignty due to its increasing economic reliance on China.
In December 2019, former Maldives President Mohamed Nasheed, who also serves as the speaker of the People's Majlis (the Maldives parliament), revealed that the Maldives had accumulated $3.5 billion in debt to China, raising concerns about the Chinese debt trap. Nasheed emphasised that this issue encompassed economic, human rights, sovereignty, and freedom concerns for the island nation. China's growing strategic interest in the Maldives since 2008 has prompted increased efforts to exert influence over the country's administrative apparatus through economic means.
Several countries, including Nigeria, Djibouti, Republic of the Congo, and Egypt, have incurred substantial debt owed to China. Nigeria, with $3.1 billion of its $27.6 billion foreign debt owned by China, faces concerns about potential debt-related challenges due to corruption issues. Djibouti's strategic port development has resulted in Chinese loans constituting 77 percent of its total debt, while Egypt relies on Chinese financing for its New Administrative Capital project, welcoming Chinese investment as an alternative to American reluctance. The Republic of the Congo owes an estimated $2.5 billion to Chinese lenders, with the precise figure undisclosed.
Argentina has faced challenges regarding access and oversight of a Chinese satellite tracking station located within its territory. Ecuador, despite acquiring a substantial loan from the IMF and holding debts to international institutions, has committed to selling a significant portion of its crude oil to China in exchange for Chinese loans. Meanwhile, in the case of Venezuela, it's described as a "lose-lose" financial situation for both China and Venezuela, challenging the prevalent narrative of debt-trap diplomacy, as both parties are at risk of losing in unsustainable lending arrangements.