The China Debt Trap – USA Gov Policy

You’ve probably heard of the movie, Money Pit, in which Tom Hanks and Shelley Long, playing his wife, purchase a country home in need of repair for a very low price, only to find out later on it is a financial trap, and not a great deal. Sri Lankan government officials in Colombo must not have seen the movie before they met with officials from a consortium led by Chinese state-owned enterprise (SOE), China Merchant Port Holdings Company, in 2011. They were presented with a financial offer they could not refuse, to develop the Colombo International Container Terminal and in another, funds to develop the port at Hambantota.

Sri Lanka is a small island nation that lies off the south east tip of India. Most Americans would have trouble pointing it out on a map. Fewer still would recognize it as a strategic asset sitting between India and China. Beijing, however, is keenly aware of the country and its importance to China’s maritime Belt & Road Initiative (BRI) linking the Asian communist giant to Western markets. A Chinese consortium agreed to initially invest $500 million in a Sri Lankan project to build the first state of the art deep water terminal in South Asia, in exchange for 85% ownership of the facility. The port also is critical to India as 40% of transshipped container cargo heading to that country passes through the nation.

A twin Sri Lankan project that China Harbor Engineering Company (CHEC) is developing is the $1.4 billion Hambantota Port on the southern tip of the island, along with additional land reclamation that eventually will add up to a $13 billion investment to build a world-class financial and trade center, according to Jamestown Foundation’s May 7, 2021, China Brief. The port facilities at Hambantota, which quickly proved unprofitable, were handed over to China when Sri Lanka defaulted on its debt payment to China. Under the foreclosure agreement China received a 99-year lease on the port.

Sri Lankans today are concerned about China’s rapidly growing influence in the area. Other countries also are worried about what China plans militarily in the Indian Ocean region. Sri Lanka easily fell into China’s “debt trap” when its SEO consortium intentionally loaned the country more money than it knew the island nation could afford to repay. Presumably, Beijing did so with the intention of eventually foreclosing on Hambantota and using it as a naval facility. The top CCP leadership, including President Xi Jinping, see the port as a key link in its maritime BRI. It will potentially provide China with a maritime presence in the Indian Ocean and an increased ability for intelligence operations overseeing US activities at the American naval facility on Diego Garcia. China’s navy also could use it to launch patrols of the Indian Ocean shipping lanes.

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Last year China used its so-called “maritime BRI” to import 542 million tons of crude oil. Over 53% of China’s crude originates in the Middle East and is carried on tankers through the Indian Ocean to ports in China. Xi Jinping views it as a national security issue since other nations currently control the maritime route. Recognition of the concern was formalized first in a 2015 Defense White Paper linking the route to national economic and security issues. According to www.gov.cn, a Chinese government web site, “The traditional mentality that land outweighs sea must be abandoned, and great importance has to be attached to managing the seas and ocean and protecting maritime right and interests.” The Sri Lankan ports are part of China’s long-term “String of Pearls” strategy for creating military and economic links across the world in support of its hegemonic goals.

While Sri Lanka has not yet granted Chinese submarines permission to dock there since 2014, China did give its navy a gift of a frigate in 2019 further linking the two countries, according to a Jamestown Foundation report. In the case of the Sri Lankan debt equity swap, local government officials have grown wary of Chinese intentions and want to renegotiate the deal. It has not transpired. By 2019 China surpassed India in cumulative infrastructure investment in the country equivalent to 14% of the country’s GDP. This top-down prioritization of investment in Sri Lanka stems from Beijing’s 40-year effort to make military and economic inroads in the region. This pattern of coercive overseas investment is found in many countries of strategic importance to China. The Chinese debt trap strategy is proving to be an effective top down policy for the CCP.

DARIA NOVAK served in the United States State Department during the Reagan Administration, and currently is on the Board of the American Analysis of News and Media Inc., which publishes usagovpolicy.com and the New York Analysis of Policy and Government. Each Friday, she presents key updates on China.

Illustration: Pixabay

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Ukraine’s Frozen Conflict

As we approach winter in the northern hemisphere, the war in Ukraine is beginning to resemble a “frozen conflict” from many perspectives. Ukrainian President Volodymyr Zelensky recently told the media he hopes the war will end faster once President-elect Trump takes over in January. Opinions in Moscow, however, differ from that of the Ukrainian leader. Russian President Vladimir Putin argues that the North Atlantic Treaty Organization (NATO) needs to exclude Ukraine from joining in “exchange” for peace. If it does not, he says, then no end to the war is in sight. So far there is no Christmas solution. Several NATO countries, according to Vladimir Socor of the Jamestown Foundation, are tentatively considering “coalitions-of-the-willing” to provide security for Ukraine outside of the formal NATO framework. There is, however, no collective mechanism today under which such an arrangement is viable. According to the NATO Charter, while Ukraine is a NATO partner country, it may not join as a full member since it has not fulfilled the requirements for membership. That has not stopped NATO and allies from continuing “to provide Ukraine with unprecedented levels of support, helping to uphold its fundamental right to self-defence,” according to the organization. Socor says that keeping Ukraine out of NATO will not advance peace with Russia. Waiting for a peace settlement, he suggests, would only serve to encourage Moscow to continue the war indefinitely. Although the Biden Administration officially withdrew its support for Ukrainian membership in 2021, NATO maintains an “open door” policy toward membership-seeking countries. The current White House position led the way for European states to oppose Ukraine’s membership saying that a decision should be delayed until “conditions are met.” Biden pushed for changing “open door” to a “bridge” metaphor. It is not intended as an across-the-board NATO policy and has been implemented in the past on a case-by-case basis, says Socor. “The alliance’s open-door policy was not fully insulated from Russia’s non-statutory blocking power, and NATO-aspirant countries’ path toward membership was not always irreversible.” Russia has successfully blocked states like Georgia from joining, first in 2008 and again after the war in Ukraine began in 2014. Russia recognizes the value add of Ukraine to NATO is enormous and that Kyiv has a better case than some other nations. Putin’s invasion was, in part, intended to foreclose that option. By 2021, Moscow was pushing hard to maximize its war objectives, which included further annexations of Ukrainian territory. A main goal for Putin was, and is, to ensure there is no Ukraine left to join NATO. As President-elect Trump prepares to assume office in January, he is faced with the historical challenges presented by the war. Post-conflict security guarantees were the center of several proposals made during the 2023 military stalemate. The incoming Trump Administration has yet to outline how it intends to handle the Russia-Ukraine war. Analysts in Washington believe that the new Administration will expect its European allies to guarantee the majority of Ukraine’s security needs. As we approach 2025, several European nations have acknowledged that they do not view Ukraine as eligible for NATO membership as it would draw the organization into the middle of the conflict. Others want to wait until the war is over or pending a “peace” settlement before considering Ukrainian membership. Socor reports that some “influential voices” are suggesting that “Kyiv should join NATO after “freezing” the war along a stable armistice line, de facto accepting Ukraine’s partition, with NATO security guarantees applying de jure to the government-controlled territory only.” This would mean starting accession talks soon with the actual talks to commence only after a ceasefire is in place. Trump arrives in Washington at a time when Putin’s hybrid strategies of war in Ukraine have eviscerated commonly-held differences between war and peace. “Absent a political consensus in NATO over Ukrainian membership, certain European allies, including France’s President Emmanuel Macron, are holding informal consultations about post-conflict security guarantees to Kyiv by NATO members outside of NATO’s framework,” according to the Jamestown Foundation. The Biden Administration downplayed the discussions on possible forms of military assistance and defense industry cooperation by sending only an Assistant Secretary of State. For a European peace to hold the Trump Administration would need to formally extend the United States’ nuclear deterrence to Ukraine. Options under discussion in Europe include a “coalition of the resolute” to deploy forces to Ukraine as part of a possible armistice package, deterring further Russian attacks, says Secor. European officials are also debating, without any agreement, whether its military forces could perform non-combat logistical roles to free Ukrainian forces to fight. None of the possible courses of action has moved forward as all eyes are waiting on the incoming Trump Administration for clues about its intended level of support for a NATO framework and other non-NATO proposals. Daria Novak served in the U.S. State Dept.