‘Game of Loans’: How China uses ‘debt-trap diplomacy’ to extend its military reach

“At its core, it is a proposal for putting China at the center of the global economy, and doing that through building infrastructure and through negotiating trade agreements,” said Jonathan Hillman, director of the Reconnecting Asia Project, at the Center for Strategic and International Studies. “It’s a very expansive vision for connectivity, for really moving China into the center of everything.”

China’s Belt and Road Initiative was unveiled in 2013, when it was called “One Belt, One Road,” (“belt” for land routes and “road” for sea routes). It was a massive infrastructure funding project, in which China would underwrite billions of dollars in improvement on the Eurasian continent and spark a new golden age of commerce.

The brainchild of Chinese President Xi Jinping is ostensibly a win-win for all involved. China’s overcapacity in construction (it has seven of the 10 largest construction companies in the world) would be matched with countries’ unmet infrastructure needs.

And China would lend poorer countries the money.

[Opinion: China and the US: Trading places on their trade positions?]

But like everything that sounds too good to be true, there’s a catch.

“Chinese loans are not necessarily usurious, but they usually come with harsher interest rates or terms than [Asian Development Bank] or World Bank loans,” said Gregory Poling, director of the Asia Maritime Transparency Initiative at CSIS.

And like any predatory lender, China can put an overextended borrower in a debt trap.

Take Sri Lanka, for example.

Saddled with more than $1 billion of debt, the Sri Lankan government had little choice but to lease the strategic port of Hambantota to companies owned by the Chinese government.

“Sri Lanka is kind of a cautionary tale for how China ended up with a controlling stake in a port, and a 99-year lease, when the Sri Lankan government never really intended that to happen in the first place,” Hillman said.

[Sri Lanka backs China’s maritime ‘Silk Road’ plan]

And then, there’s the main port in Djibouti, which is not only adjacent to China’s only overseas military base, but is also the main access point for U.S., French, Italian, and Japanese bases.

It may soon be turned over to another Chinese-linked company.

“I think the example of Djibouti has been instructive to all of us,” John Garnaut, former senior adviser to Australian Prime Minister Malcolm Turnbull, testified before a House Armed Services Committee hearing last month. “Too often, we’re seeing things that were advertised as just pure economic investments in infrastructure that have ended up being used to this process of debt trap diplomacy, to kind of transfer to change at lease hold into freehold ownership of crucial infrastructure.”

China, which likes to play the long game, is slowly but inexorably extending its power and influence while America stands by and watches, said former Defense Secretary and CIA Director Robert Gates.

“We don’t have anything, even in the back of our mind, to compete with ‘One Belt, One Road,’ this trillion-dollar Chinese initiative which will be transformative in Asia,” Gates told NBC in a recent “Meet the Press” podcast.

“The Chinese have basically contracted to rebuild the port of Gwadar in Pakistan, and there will be a Chinese naval base there. They already have a naval base in Djibouti,” Gates said.

“These projects are a two-fer for the Chinese, because they get credit in those countries for building these big infrastructure projects,” he said. “These countries are going to be deeply in debt to China for a long period of time, and that takes with it a tremendous amount of political influence.”

Gates argues the U.S. made a series of strategic blunders under both the Obama and Trump administrations that have given China tremendous advantage over the U.S.

[Trump blames ‘incompetence’ of prior administrations for US trade deficit with China]

“They think big, and they are very adept at taking advantage of opportunities,” Gates said. “We made a big mistake in not signing on in the Obama administration to the Asian infrastructure investment bank that the Chinese created.”

And Gates said President Trump’s withdrawal from the Trans-Pacific Partnership, “handed the Chinese a great gift, and they have stepped right in to take advantage of it.”

Last week, Trump told group of Republican senators that he’s asked his new economic team to take a look at possibly re-entering the agreement.

While the U.S. doesn’t have the sort of government money to throw around that China does, it could do a better job of promoting private investment, said Hillman, who agrees that walking away from TPP was a mistake.

“The U.S. has lots of private sector capital that [managers] would be interested in investing, but the challenge is these markets are really risky,” Hillman said. “In my opinion, the best response is the United States putting its own positive economic vision, and I think some version of TPP would be a component of that.”

“Part of the problem,” Gates said, “is that after the end of the Cold War, we basically dismantled some of instruments of power that were critical to us, [Agency for International Development, United States Information Agency], a lot of these are a pale reflection of what they once were.

“We have nothing to counter ‘One Belt, One Road.’ So, the first thing we need is to figure out what’s our strategy? How do we present ourselves to the rest of the world as an alternative to China?”

Meanwhile, Michael Green, director of Asian studies at Georgetown University, noted at a public forum last week the irony of China’s predatory loan practices.

“The 99-year lease giving control of the port to China is ironically and deliciously evocative of the British imperial strategies that led to control of Hong Kong,” Green said. “I wonder how many Chinese involved had that in the back of their mind as they created this quasi-colonial approach to Sri Lanka.”