China and Debt-Trap Diplomacy: A Brief Assessment

The People's Republic of China (PRC) is the world's largest official creditor nation with its outstanding debt claims on the rest of the world totaling an estimated US$5.5 trillion in 2019 or more than 6% of global GDP. However, given Beijing’s very limited transparency in its disclosures when it comes to its external lending (and now its alleged culpability in the spread of the coronavirus) the accusation that the PRC has for years engaged in “debt-trap diplomacy” has come under renewed scrutiny. Specifically, the charge is that the Chinese government, which is the world's leading creditor lending via its multibillion dollar “Belt and Road Initiative” as well as various state-owned and controlled entities, lures developing countries, in particular, low-income countries, with easy money to fund often economically unviable projects. This is because China's ultimate goal is to get access to the borrowers' local markets and natural resources and indirectly controlling or outright seizing assets and resources, including extracting economic and political concessions when these countries fail to service their loans – which is often given at market or above-market interest rates and carry shorter maturities, thereby requiring regular refinancing. This paper reviews this claim and concludes that it seems exaggerated.