1. Introduction
Since 2013, under the Belt and Road Initiative (BRI), China has put its name on the map as the world’s largest creditor with more than 2000 loan agreements with 20 countries. Under this context, several debates have emerged around whether China is using this initiative as a debt trap.
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2. China‘s use of debt policy as a tool for expanding global influence
Critics argue that China's lending practices under the Belt and Road Initiative resemble a form of "debt-trap diplomacy." This is because, unlike traditional multilateral or Western lenders with strict repayment assessments, China's loans are provided more freely, even to economically fragile nations with limited ability to repay or manage spending. When these countries struggle with repayment, the concern is that China will take the upper hand to coerce its creditors to gain strategic or political concessions, such as control over key infrastructure or influence over policy decisions. For example, in 2015, China lent Sri Lanka $1.2 billion under the BRI despite Sri Lanka’s post-civil war alarming economic mismanagement and its inability to handle any additional foreign debt or independently manage business operations (Rithmire & Li, 2019) (Nanayakkara, 2022). Moreover, even with the anticipated failure of the Hambantota Port in the first phase, China showed its unconditional willingness to further support Sri Lanka, particularly for phases II and III of the project. In addition, the reason for China's loan agreement being branded as “a debt diplomacy” is mainly that the lease was only agreed upon in 2016 and came into effect in 2017 when China leveraged Sri Lanka’s desperation to sign the 70% equity stake of the port to the China Merchants Ports for 99 years (Ranga Sirilal & Shihar Aneez, 2017). After reaching an agreement, China’s official agency even tweeted “Another milestone along path of #Beltandroad”, suggesting a calculated agenda (China Xinhua News [@XHNews], 2017). The culmination of this is that Hambantota port, besides becoming the linchpin of BRI, is considered a favorable base for the Chinese military expansion, holding key Indian Ocean shipping routes. In other words, China’s lending policy extends beyond economic aid, potentially aiming for long-term control over vulnerable nations by targeting countries’ key gateways and resources.
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3. China's imposition of "debt-trap" diplomacy is a misleading accusation
Despite all the myths, labeling the BRI as "a debt trap" can be both factually wrong and exaggerated. Firstly, considering global debt or within the country, China, a latecomer to the international market, held only a modest share. Specifically, in Kenya, $6.3 billion in loans as of March 2023, Treasury figures announced that Chinese loans account for only 17 percent of total external public debt. Adding to that, the mismanagement of finance from borrowing countries is caused mostly by external shock rather than the initial internal mismanagement. Therefore, it’s pointless to blame China for selecting offspring that are beneficial to its territorial acquisition plan. In the case of Sri Lanka, the economy relied heavily on tourism, and the unexpected emergence of COVID-19, climate change, etc., brought several negative effects on its tourism business, with further financial problems of liquidity and foreign exchange crises. Last but not least, the renting agreement is made by bilateral discussion with transparency, clarity, and facilitation for debtors to repay. To be more precise, the Sri Lankan government itself offered to enter into a franchising agreement with the Chinese company. Sri Lanka reserves the right to buy back shares of the port, and the Chinese company is only responsible for the operation and management of the port. In addition, it has been explicitly stated by both Sri Lanka and China that the port is for commercial use only, with no military purpose whatsoever. Considering in economic aspect, there is no wrong in debt collection through taking charge of the building project. Meanwhile, in the negotiation aspect, the Sri Lankan authorities can refuse the deal and take other solutions if they consider this action from China as a sovereignty invasion.
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4. Conclusion
While framed as financial aid, questions remain: China’s lending can also be a strategic effort to expand Chinese global influence by securing infrastructure control of indebted nations, or is it purely a result of countries’ mismanagement and failures to drive desired outcomes?
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(Posted in June 2025)​
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AUTHORS
Le Thi Hong Van, Advanced Japanese Style International Business Program, 63rd cohort, Foreign Trade University.
Nguyen Phuong Thao, Faculty of International Communication and Culture, 51st cohort, Diplomatic Academy of Vietnam.
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GRAPHIC DESIGNER
Kieu Bui Khanh Bang, Faculty of International Politics and Diplomacy, 50th cohort, Diplomatic Academy of Vietnam.
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REFERENCES
[1] China Xinhua News [@XHNews]. (2017, October 12). Another milestone along path of #BeltandRoad. [Tweet]. X (Formerly Twitter). https://x.com/XHNews/status/939753813115789312/
[2] Hillman, J. (2018, April 2). Game of Loans: How China Bought Hambantota. Csis.org. https://www.csis.org/analysis/game-loans-how-china-bought-hambantota
[3] Horn, S., Parks, B., Reinhart, C., & Trebesch, C. (2023). China as an International Lender of Last Resort. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4413842
[4] Nanayakkara, D. (2022). South-South Integration and the SDGs: Enhancing Structural Transformation in Key Partner Countries of the Belt and Road Initiative Dhamikka Nanayakkara Assistant Governor, Central Bank Sri Lanka Debt Management and Debt Sustainability The Sri Lankan Experience. UNCTAD. https://unctad.org/system/files/information-document/BRI-Project_policy-brief-05_en.pdf
[5] Ranga Sirilal, & Shihar Aneez. (2017, July 29). Sri Lanka signs $1.1 billion China port deal amid local, foreign concerns. Reuters. https://www.reuters.com/article/business/sri-lanka-signs-11-billion-china-port-deal-amid-local-foreign-concerns-idUSKBN1AE0CM/
[6] Rithmire, M., & Li, Y. (2019, January). Chinese Infrastructure Investments in Sri Lanka: A Pearl or a Teardrop on the Belt and Road? - Case - Faculty & Research - Harvard Business School. Www.hbs.edu; Havard Business Review. https://www.hbs.edu/faculty/Pages/item.aspx?num=55410
[7] The BRI is Not a Debt Trap! (2018, October 16). China-US Focus. https://www.chinausfocus.com/finance-economy/the-bri-is-not-a-debt-trap