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

Quick Analysis

Putin’s Saber Rattling

Earlier this week, President Biden reversed his 2022 decision, authorizing the provision of antipersonnel land mines to the Ukrainian government. It follows an earlier Administration authorization to allow the use of an advanced American missile system capable of striking as deep as 100 miles inside Russian territory. The US election season may be ending, but both Russia and the West show no indication of stepping down the conflict. Russian propaganda continues to swell as the Kremlin increases its threats to use nuclear weapons against the West. Last week Andrey Sushentsov, program director of the pro-Kremlin think tank Valdai Discussion Club (VDC), published an article on growing nuclear tensions in the region. Official Russian language in the last few years has been threatening. Since the US election, rhetoric like that in the Sushentsov article, has approached the level of nuclear blackmail. The VDC article’s main theme centers on Russia’s intent to directly confront the West militarily if the North Atlantic Treaty Organization (NATO) becomes involved in Russia’s conflict with Ukraine. “On the one hand, these threats are intended to frighten the West, but on the other, Russian propagandists themselves are starting to believe in the inevitability of escalation,” according to Ksenia Kirillova of the Jamestown Foundation. On November 11, Sushentsov wrote that “The conflict will reach a completely new level, with unpredictable consequences for Europe and the entire world.” Kirillova points out that Putin’s distorted image of the world is divorced from reality and is causing the Kremlin to issue demands that are impossible to fulfill. Financial and other Russian resources needed to support Putin’s war are growing scarcer at the same time. This week the Kremlin announced a reduction of payments to its soldiers. Recently North Korea acknowledged it was sending soldiers to fight in Ukraine as Putin is running out of bodies to use as cannon fire. The war is not going well for Russia. One question floating around the Washington intelligence community is whether Putin will act out of desperation before President-elect Trump assumes office. In recent months the Russian propaganda machine is spewing out materials from fairly reputable analytical platforms inside the country. Kirillova says that “Kremlin ‘experts’ do not conceal that such threats are only intended to break the West psychologically, as they themselves are not prepared for full-scale nuclear war.” Despite Russia’s lack of preparation for an all-out war with the West, the expanding nuclear rhetoric carries with it an increase in the threat of a full-scale war in multiple theaters of operation. In June 2023 a founder of the Russian Council on Foreign and Defense Policy, Sergey Karaganov, called for “delivering a pre-emptive strike of retaliation” on Poland to force the West to surrender. In the previous month, Dmitry Suslov, a direct of research programs at the policy center proposed organizing “a demonstration nuclear explosion” aimed at intimidating the West. In September, President Putin announced a reappraisal of Russian nuclear doctrine after speaking earlier in the year at the plenary session of the St. Petersburg International Economic Forum and jokingly calling Suslov a “scary person.” Pavel Baev, writing in the European Daily Monitor, says “Putin intends his announcement to mark an escalation of nuclear brinkmanship and influence the proceedings of future Ukrainian peace efforts.” Putin is expanding the list of environmental conditions that are acceptable for using a nuclear weapon and incorporating it into Russian military doctrine. Baev adds that “The ups and downs of Russian brinkmanship are disconnected from the kinetic battles of the war, correlating instead with Ukrainian peace offensives, such as Ukrainian President Volodymyr Zelenskyy’s first peace summit in Bürgenstock, Switzerland.” Despite the increase in vitriolic language, in a You Tube video published a week before the US presidential election, Karaganov openly assured the West the primary goal of the escalation is to break the American spirit and that of the West, not outright nuclear war. By Election Day in the US, with political prognosticators predicting a win for former president Trump, Karaganov changed his tune and called for an increased role in nuclear deterrence. Kirillova points out that Western concessions to Russia are unlikely to reduce the risk of nuclear escalation. The distorted reality inside the Kremlin continues to push that President-elect Trump is an adherent of “world government,” that Ukraine will create a nuclear weapon, and Russia must prepare for a nuclear conflagration to achieve its ambitions for a new world order. President-elect Trump has indicated he will not agree to concessions that destabilize Europe, the Middle East or other regions. Going forward a strong US foreign policy may be the most stabilizing course the West can count on to restrain Putin and his intent to rebuild the Russian empire. Daria Novak served in the U.S. State Dept. Illustration: Pixabay

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