The myth of ‘debt-trap diplomacy’ and realities of Chinese development finance

Abstract

In recent decades China has emerged as a leader in international development finance, with the potential to provide sorely needed funds to address major global developmental gaps. However, not everyone is optimistic about this new source of lending. A narrative of ‘debt-trap diplomacy’ has emerged to describe Chinese lending to developing countries – most ardently advanced by the United States – contending that China seeks to ensnare smaller countries with onerous levels of debt in order to realise neocolonial aims. This article argues that the theory of debt-trap diplomacy does not accurately describe Chinese finance. First, investigating China–Africa relations, it will demonstrate that Chinese loans are not a major driver of debt distress. Second, it will demonstrate that China does not engage in predatory behaviour towards borrowing countries, using debt to facilitate takeovers of strategic assets and natural resources, or to promote military expansion. Finally, comparing Chinese and Western financial relations with Latin America and the Caribbean, it will demonstrate that, in contrast to the debt-trap narrative, China’s non-interventionist approach has opened space for developing countries, particularly those with governments facing hostility from the US and its allies.