In January 2008, unbeknownst to the world, something shady was happening off
the southern coast of Sri Lanka. Construction was beginning on a shiny, new
4,000-acre port in the tiny town of Hambantota. 85% of the $361 million price tag
was paid for with Chinese loans. But this, on its own, was no
cause for concern. China’s EXIM bank funds thousands of projects around the world. What was strange was the location. Positioned between the Suez Canal and Strait
of Malacca, tens of thousands of ships pass by each year on their way between Europe and Asia
— one of the busiest transcontinental routes. Yet, Sri Lanka, with a population of
21 million, already had a profitable, functioning port just 100-miles northwest, in
Colombo — the world’s 25th busiest, in fact. So why, then, build a second so close, in
such a small town, and at such great expense? Sure enough, this skepticism
would soon be vindicated. In 2012, 3,667 ships berthed at
the neighboring port of Colombo. Two years had passed then since the opening
of Hambantota, yet it attracted just… 34. By 2016, the project had lost
$230 million according to its own ministry of finance.
And there’s more… In addition to the sea port, an equally pristine
and equally empty airport was built nearby. The last remaining airline pulled out
in 2018 due to insufficient demand. Its long runway and modern terminal
may now be used for… long-term parking. So, if not profit, what motivated
these extravagant investments? It all begins to crystallize
when you just zoom out. Sri Lanka is geographically blessed not only
with proximity to global shipping lanes, it’s also just 34-miles, at its closest point,
to India — one of China’s closest rivals. Coincidence? Maybe. But then, in 2017,
came what many see as the smoking gun. Unable to pay back its many
multi-million dollar loans, Sri Lanka was forced to hand over the
port and 15,000-acres around it, to China. It didn’t take a wild imagination to see how the
country then already notorious for making illegal claims in the South China Sea might use this
strategic outpost for more than mere shipping. Since then, close observers have watched the same
early warning signs play out around the globe. Tajikistan. Djibouti. Ethiopia. Kyrgyzstan.
Angola. Nigeria. What could once be dismissed as circumstantial, many now argue
has become a neocolonial playbook. It’s called [ ]. Here’s what happens: First, China approaches a small, impoverished
nation — usually in Africa — with an offer it can’t refuse. Stadiums, palaces, roads, ports —
it doesn’t really matter what “it” is. Between 2000 and 2019, Chinese banks have loaned an
estimated $153 billion to African governments alone. Looking at a map, it’s hard to find a place
on the continent that hasn’t taken Chinese loans. Inevitably, the project fails. Trains
sit empty, airports open without flights, roads lead to nowhere, and an oil
refinery runs at just 6% capacity. In fact, it almost seems like
China wants them to fail. Finally, the coup de grâce. After the fanfare
has subsided and the recipient country is left right back where it started plus crumbling
roads and mountains of debt, in swoops China. It generously offers to forgive the loans. And
all it asks for is one thing in return: a tiny, insignificant piece of its sovereign territory.
And voilà — China has a new military base. Or, rather, that’s how the story goes. The “debt-trap” narrative is so often
repeated that it’s been labeled a “meme”. Yet almost everything said thus far is either
downright wrong or at least misleading. In the case of Sri Lanka, no debt was ever
forgiven, no sovereignty was ceded to China, there is no military base, and China didn’t
approach Sri Lanka — Sri Lanka approached China. There’s another way to make
sense of China’s actions. And it neither requires that you
assume it’s evil, nor benevolent. Sponsored by Brilliant. Learn math, science, and computer science the intuitive
way with the link in the description. When poor countries need money,
wealthy ones, through organizations like the Development Assistance Committee
have, for the last 80 years, provided it. But what these largely-Western countries and banks
will pay for has changed dramatically over time. At one point, 70% of World Bank
financing went toward economic infrastructure — physical things like
roads, water, and electricity. Today, just 30%, in favor of things like education,
democratic elections, and family planning. But while the West has largely moved on from
infrastructure, the developing world hasn’t. Africa, for instance, receives only about
half of the $130-170 billion in infrastructure it needs each year, leaving it
with a massive $68-108 billion gap. Now, hold that thought for a second. Sometime around 2010, the world’s most populous
country had a problem. After two decades of breakneck growth and development, it began, to
put it simply, running out of things to build. China was still developing like
crazy, but with diminishing returns. By 2012, the profit rate of new domestic
infrastructure projects fell below zero. Meanwhile, the entire economy, and
with it, the party’s legitimacy, depends on these construction jobs, excess
foreign exchange, and the manufacturing industry. In short: to feed the bottomless appetite of
Capitalism, China needed to find new consumers. Supply, meet demand. In Africa,
it found the perfect match. If one views development as a
predictable, repeatable series of stages, China was, only recently, one stage
ahead of Africa — meaning it had lots of experience building exactly
the sorts of things it now needed. Whether true or not, China believed
its port cities and economic zones were models that could be
exported across the globe. It was the perfect collision of excess supply and unmet demand. In just a few short
years, Chinese overseas investment exploded. For recipient nations, this wasn’t just a lot of
money at the right time, but also the right kind. When giant, multilateral institutions
like the World Bank lend you money, you better be prepared to show exactly how, when, who, and where it went. And, in addition
to all the paperwork you’ll have to fill out and kickbacks you’ll miss out on, you might
even be required to implement policy reforms. Aid, in other words, is both
“free” and extremely costly. That is, until China came along. The icing
on the cake of Chinese money is that its companies don’t ask ‘Why do you need this
project?’, only ‘When can we get started?’ The result is that these investments
are designed to be as scrupulous and economically viable as
are the recipient governments. When local politicians are careful and
institutions strong, Chinese investment is uniquely valuable because it takes on countries
and projects someone more cautious might avoid. The Chinese shipping conglomerate Cosco, for
instance, turned Greece’s Piraeus Port into the Mediterranean’s second-largest, despite being
one of only two bidders to take control in 2016. Low-interest Chinese loans helped Angola boost its
credit rating, giving it access to new lenders. When it goes poorly, on the other
hand, it can go really poorly. The state-owned China Communications Construction
Company was debarred by the World Bank for bribery and Chinese officials were involved in
Malaysia’s Development Berhad Scandal. In the case of Sri Lanka’s Hambantota
port, the story is a bit more complex. First, you may ask: Was the
project destined to fail? The answer is… inconclusive. What we do know is that its government had been considering the project for
decades before it approached China. And while the port of Colombo is indeed nearby, it was then approaching capacity, and many of
the world’s ports are close to one another. A second and separate question
is: Was corruption involved? Here the answer is a resounding… ‘yes’. Hambantota is not just any rural coastal
town, but the hometown of the president who signed off on the project. Despite a large rock
blocking the harbor, making it entirely unusable, it “opened” on his birthday in 2010 — a sign
of his personal association and involvement. $7.6 million of project funds were secretly
diverted to his failed re-election campaign. If there is a “pattern” to
China’s overseas investments, it might be frequent — though
not universal — corruption. Bribes and kickbacks are widespread
across much of the developing world, and Chinese companies seem
generally willing to pay them. A significant number of
these projects benefit no one except local politicians and Chinese developers. But corruption is not the same as a deliberate
debt-trap. If China wanted its borrowers to default on their loans, one might expect it to
specifically target countries likely to do so. Yet, independent researcher after researcher
has failed to find any such evidence. Quote, “It is unlikely that [the] Belt
and Road Initiative will be plagued with wide-scale debt sustainability problems”,
says the Center for Global Development. The Lowy Institute finds that, quote,
“90% of China’s bilateral loans have gone to countries that… could
sustainably absorb such debt”. And finally, Deborah Brautigam of Johns Hopkins
writes, quote, “so far, in Africa, we have not seen any examples where we would say the Chinese
deliberately entangled another country in debt…” Experts attribute China’s slightly higher
lending to high-risk countries as compared to, say, Japan or the World Bank, to its sheer scale. Remember, we’re talking about over ten thousand
projects across over 100 countries. With this much money being spread across this wide a surface
area, there will be a few white elephants. Add in its “no-strings-attached”, “look-the-other-way”
approach, and that number doubles. Now, China may not set out with this intention, but you might argue that once it sees
an opportunity, it takes advantage. Two countries are usually cited as examples. First, if all one knows about Sri Lanka is that it
took out a $300 million loan in 2008 from China, who then took over that same port in 2017, it may appear to be a clear-cut
case of “debt-trap diplomacy”. But what this version of events misses is
context. At the time the deal was struck, China was not even Sri Lanka’s largest source
of debt — actually it owed more to the Asian Development Bank, Japan, and the World Bank. The
Chinese portion represented just 10% of the total. So why did Sri Lanka make the deal? In 2004, it suffered a devastating tsunami,
which contributed to a decline in exports. This, in turn, led to a “balance of trade”
problem. In short: because it was importing more than it was exporting, it ran out of US Dollars,
which it needed to make payments on its loans. In other words, Sri Lanka needed hard
cash today, which China provided. It was almost certainly unwise to take out
even more loans to build the Hambantota port — at least, at that time — but it
would have had this problem regardless, because the vast majority of its debt was
owed to other nations and institutions. The exact details of the deal are also
frequently misconstrued. What actually happened is that the Chinese company paid $1.1
billion for a 70% stake of a 99-year lease. No debt was forgiven in the
process — the money was used to pay off other loans from other countries. Neither will it gain a new
military base — at least, not, as the lease stipulates, without
Sri Lanka’s explicit permission. Next is Djibouti. Here, in 2015, China built its first and
currently only overseas military base. But so has Germany. And Spain. And France.
The U.K.. Saudi Arabia. And the U.S.. Its colonial history is long and complicated. But the ultra-condensed version is
that, in place of natural resources, Djibouti has access. Access to this 18-mile wide
chokepoint between the Red Sea and Indian Ocean. Its leaders have squeezed this fact
for all its worth by renting land to almost any military willing
to pay. Even Russia is invited. Africa is not a country. Every nation
that borrows from China is different. The “debt-trap” narrative is right to
identify an inherent power differential between giant China and the (mostly)
much smaller countries it lends to. But, by portraying China as the only party with
agency, it neglects the unique circumstances of each nation and absolves corrupt
local politicians of all culpability. Take a look, for instance, at the amount
of debt China has refinanced, renegotiated, or outright forgiven — less than France or
Japan, but not far behind the U.S. or Germany. This data suggests recipients
have some degree of leverage. Of course, none of this should
be confused with charity. When Chairman Xi Jinping visits Senegal, one of
the continent’s poorest nations, for example, China gains something valuable though intangible. While it may not be a primary motivation, it
receives, in return, diplomatic recognition, support, and, when it comes to, say, the
South China Sea or Xinjiang, silence. So, is Chinese investment: (A) An ambitious, 21st-century
Marshall Plan on steroids, Or (B) One, giant, trojan horse designed
to bankrupt poor countries and put the People’s Liberation Army
in every corner of the globe? Well, neither; it’s not much of a ‘plan’ at all. You may have noticed this video makes
no reference to its official name: “The Belt and Road Initiative”. That’s because… it doesn’t really exist. Originally called the “Silk Road Economic
Belt with Central Asian Countries” in 2013, the “project” has become increasingly
vague and amorphous since. To this day, there is no clear definition of what
is and isn’t a Belt and Road project. In fact, different levels of its own government disagree. Look at a map of all “participating countries”
and it becomes so large as to lose all meaning. There is no grand, cohesive, 50-year
strategy. And that’s the problem. The same inefficient construction and
opaque back-room deals that characterize the Chinese domestic economy
are now being replicated abroad. That should raise eyebrows. The danger of criticizing China for the wrong
reasons is that it reduces credibility when you need it the most. That’s the importance of logical
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