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RESEARCH ARTICLE
A critical look at Chinese ‘debt-trap diplomacy’: the
rise of a meme
Deborah Brautigam
,
ABSTRACT
In 2017, a meme was born in a think tank in northern India: Chinese ‘debt-trap diplomacy’.Thismeme
quickly spread through the media, intelligence circles and Western governments. Within 12 months it
generated nearly 2 million search results on Google in 0.52 seconds and was beginning to solidify into a
deep historical truth. Stories can contain truths and falsehoods. Human emotions, including negativity bias,
prime us to think in certain ways. This paper retells a series of stories about China’sinternationalinvolvement,
including in Angola, Djibouti, Sri Lanka and Venezuela, that challenge the media’s spin. It concludes with
some suggestions about the relationship between academia and the media and policy worlds, and the need
for scholars to speak ‘truth’to ‘power’.
ARTICLE HISTORY
Received 30 October 2019; Accepted 31 October 2019
KEYWORDS
debt-trap diplomacy, Chinese international involvement, cinema, ports, Hambantota, Djibouti, Angolan
ghost town
摘要
批判性看待中国’债务式陷阱外交’：一种文化病毒的兴起.Area Development and Policy. 2017年，’中国债务
式陷阱外交’作为一种文化基因在印度北部地区的智库圈内兴起。这一文化基因迅速在媒体界，情报圈和
西方政府之间流传。在12个月内，它在谷歌上仅用0.52秒就产生了将近200万个搜索结果，这种文化基因
开始被当做是深刻的历史真相。流传的故事有可能包含真理、谎言和人类情感，同样也包含一些消极看法
和偏见，这种现象引导我们开始以某种固有的方式进行思考。本文回顾了一系列关于中国在安哥拉，吉布
提，斯里兰卡和委内瑞拉等国家参与国际事务的故事，这些故事推翻了西方媒体的报道。文章最后对学术
界，媒体界和政策界之间的关系提出建议，并且强调学者们对’权力’说出’真相’的必要性。
关键词
债务式陷阱外交；中国国际参与；电影院；港口；汉班托特；吉布提；安哥拉鬼城
RESUMEN
U
namiradacríticaala‘diplomacia china de la trampa del endeudamiento’:elaugedeunmeme.Area
Development and Policy. En 2017 nació un meme en un comité asesor al norte de India: la ‘diplomacia china
de la trampa del endeudamiento’. Este meme se difundió rápidamente en los medios de comunicación, círculos
CONTACT
dbrautigam@jhu.edu
Johns Hopkins School for Advanced International Studies, NW Washington, DC, USA.
This article has been republished with minor changes. These changes do not impact the academic content of the article.
AREA DEVELOPMENT AND POLICY
2020, VOL. 5, NO. 1
https://doi.org/10.1080/23792949.2019.1689828
© 2019 Regional Studies Association
de inteligencia y Gobiernos occidentales. En 12 meses generó casi 2 millones de resultados en Google en 0,52
segundos y empezó a solidificarse en una profunda verdad histórica. Las historias pueden contener verdades y
falsedades. Las emociones humanas, incluyendo el sesgo de negatividad, nos preparan para pensar de cierta
manera. En este artículo se reconstruyen una serie de historias sobre la participación internacional de China,
incluyendo en Angola, Yibuti, Sri Lanka y Venezuela, que cuestionan la manipulación mediática. Se concluye con
algunas sugerencias sobre la relación entre el mundo académico y los mundos de los medios de comunicación y la
política, y la necesidad de que los académicos digan la ‘verdad’ante el ‘poder’.
PALABRAS CLAVE
diplomacia de la trampa del endeudamiento, participación internacional de China, cine, puertos,
Hambantota, Yibuti, una ciudad fantasma en Angola
АННОТАЦИЯ
Критический взгляд на китайскую ‘дипломатию долговой ловушки’:возникновение мема.Area
Development and Policy.В2017 году в одном исследовательском центре в северной Индии родился
мем:‘китайская дипломатия долговой ловушки’.Этот мем быстро распространился в средствах
массовой информации,разведывательных кругах и западных правительствах.Втечение12 месяцев
он cгенерировал почти 2миллиона результатов поиска в Google за 0,52 секунды и начал
восприниматься как исторический факт.Истории могут содержать правду и ложь.Человеческие
эмоции,включая негативную предвзятость,заставляют нас думать определенным образом.Вэтой
статье представлены истории о международной вовлеченности Китая,втомчислевАнголе,Джибути,
Шри-Ланке и Венесуэле,которые бросают вызов этому мему,взятому на вооружение СМИ.Статья
завершается некоторыми предложениями о взаимоотношениях между академическим сообществом,
СМИ и миром политики,а также о необходимости для ученых говорить ‘правду’‘властям’.
КЛЮЧЕВЫЕ СЛОВА
дипломатия долговой ловушки,международная вовлеченность Китая,кино,порты,Хамбантота,
Джибути,ангольский город-призрак
A meme is an idea that spreads from person to person within a culture, often with the aim of
conveying a particular phenomenon, theme or meaning. On 23 January 2017, a Chinese debt-
trap diplomacy meme was born in a think tank in northern India and was furthered by a paper
written by two Harvard University graduate students who called it Chinese ‘debt book diplo-
macy’. The student paper was enthusiastically cited by The Guardian and The New York Times
and other major media outlets as academic proof of China’s nefarious intentions. The meme
began to take deep root in Washington, DC, and ricocheted beyond Delhi to Japan, all along
the Beltway and again into The New York Times and beyond. Later, it was amplified, it was
thundered by a US Secretary of State, it walked quietly into intelligence circles, it hovered in the
US Congress and it settled in the Pentagon. All these people became very worried about this
idea, about this meme. By November 2018, a Google web search generated 1,990,000 results in
0.52 seconds. It was beginning to solidify as firm conventional wisdom and to be accepted as a
deep historical truth.
This paper explores this meme, Chinese ‘debt-trap diplomacy’, the claim that China
deliberately seeks to entrap countries in a web of debt to secure some kind of strategic
advantage or an asset of some kind. It examines the meme’s rise, spread and the underlying
phenomena it purports to capture. The paper will also establish the larger context by retelling
some of the more well-known myths and narratives about Chinese lending, stories woven to
explain things that observers do not understand all that clearly.
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AREA DEVELOPMENT AND POLICY
RASHOMON: STORIES THAT ARE TRUE AND FALSE
To retell some of these stories, I rely heavily on a methodology used by the Japanese film director
Akira Kurosawa in his 1950s’film Rashomon. Rashomon is set in eighth-century Japan. It tells the
story of what seems at first to be a clear-cut case of the murder of a samurai warrior by a local
bandit, and the rape of his wife. In the first narrative, the bandit seems to confess, and everything
seems cut and dried. However, three other people (the bride, the samurai’s ghost and a woodcut-
ter) who were all witnesses to the event then retell the story, and each story points to wholly
different rationales and wholly different endings. These radically different accounts are not simply
a result of the way in which eyewitnesses are unreliable and the lines between fact and memory are
blurred in what the eyewitnesses thought they saw. These stories are very different, so this
apparently cut-and-dried case turns out to be anything but. All the stories agree that there was a
body in the woods, but, as the film unfolds, one comes to doubt whether there is any evidence to
support the initial story. The genius of Rashomon, the film critic Roger Everett said, is all the
flashbacks through which these stories are told are both true and false, are accurate accounts of
what each witness thought happened, but also reflect a point of view.
The stories about China are similar to the stories recalled in Rashomon in that they contain
truths and falsehoods. Keeping Rashomon in mind will be helpful as we explore the meme of
Chinese debt-trap diplomacy. It will also be helpful to remember that human beings are more
prone to remember and notice negative examples than positive examples.
FEAR, NEGATIVITY BIAS AND CONCERNS ABOUT CHINA’S OVERSEAS
ENGAGEMENT
Scientists state that, as a species, Homo sapiens has a built-in negativity bias based on fear. As the
cognitive psychologist Daniel Kahneman (2011), who won the Nobel Prize in Economics in 2002
for his insights and cognitive psychology, argues, the brains of human beings and other animals
contain a mechanism that is designed to give priority to bad news. Experiments show that
information, stories, events and experiences that we perceive as negative are imprinted in our
minds more quickly than positive perceptions, and that negative experiences and events linger
more strongly and longer in our memories than positive ones.
In the academic world, an example is authors’responses to reviews of papers submitted to
journals where the positive comments referees make are for most people ignored and where
what are recalled are the critical remarks of ‘referee number two’. The same principle applies to
teaching evaluations where teachers ruminate 12 times longer on the anonymous negative
comments of the one student who does not like him or her and their teaching than on the
glowing comments of students who appreciate them.
This negativity bias is demonstrated in much of the West’s reaction to China’sroleinAfrica.
Around 2006, West started to notice that the Chinese were also in Africa. China had beenfunding
infrastructure in Africa since at least 1960, yet aside from a brief ‘red scare’period in the 1960s and
1970s, no one was noticing. At a time when the rest of the international community had turned
away from infrastructure finance, the Chinese were primarily building roads, bridges and electric
power plants, airports and government buildings. As we will see below, according to opinion polls,
their contribution was widely regarded as positive in the countries where they were working. Yet,
around 2006, the media, especially in Western countries, and politicians, especially the
Republicans and Democrats in Washington, began to perceive China as a threat, labelling it a
‘new imperial power’. They saw its involvement as bad news for other developed and developing
countries. The Chinese might fund the construction of dozens of hospitals, but if one developed a
A critical look at Chinese ‘debt-trap diplomacy’: the rise of a meme 3
AREA DEVELOPMENT AND POLICY
crack, as happened in Angola, or if one cave-in happened on a bend in a Zambian road, the
impression spread that all Chinese construction work was shoddy (The Economist,2011).
More than 10 years ago, Mawdsley (2008) captured the media side of this dynamic
beautifully, where evidence was presented that when the UK media looks at China and the
West together, China is generally portrayed in a negative light as a nefarious actor and the
West is portrayed in a positive light.
It is not just British newspapers that portray China’s African engagement in a frightening
manner. The US government has made similar claims. Former Secretary of State Rex Tillerson
labelled China a predatory lender. When National Security Advisor Ambassador John Bolton
launched the Donald Trump administration’s Africa policy in November 2018, he mentioned
Africa 40 times in his speech and China 17 times. China, he claimed, ‘uses bribes, opaque
agreements, and the strategic use of debt to hold states in Africa captive to Beijing’swishesand
demands’. Bolton went on to claim that the US vision for Africa was ‘of independence, self-reliance
and growth’rather than ‘dependency, domination and debt’. In the same speech he claimed that
China’s‘predatory actions’were subcomponents of broader strategic initiatives including the Belt
andRoadInitiative(BRI), which was described as ‘a plan to develop a series of trade routes leading to
andfromChinawiththeultimategoalofadvancingChineseglobaldominance’(Bolton, 2017).
This negativity bias about China’s role in other developing countries is not just limited to
the current administration and to Republicans. In 2011, Secretary of State Hillary Clinton
went to Africa to warn Africans against ‘the new colonialism’; and at the 2014 US–Africa
summit, President Barack Obama’s paternalistic advice to African leaders that they ‘make sure
that if, in fact, China is putting in roads and bridges, number one, that they’re hiring African
workers’repeated another myth: that China does not employ African workers, one whose
falseness has been demonstrated by scholars such as Barry Sautman (Sautman & Yan, 2015).
The result is a situation where for over a decade Western politicians and pundits have
warned that China is a rogue donor with regard to its finance, is a new colonialist, and a
predatory and pernicious lender that snares vulnerable states in a debt trap leveraging its loans
in order to have its way with weak victims.
From my perspective as someone who first began to study China 40 years ago in 1979, only
three years after the end of Mao’s Cultural Revolution, the relatively sudden change, especially
in the past two years, in the global zeitgeist and in the degree of alarm regarding China’s
activities outside its borders that is reflected in these headlines, is perplexing, especially when
one considers the actual evidence of China’s activities as opposed to fears and projections
about what those activities portend.
To be sure, there are reasons for concerns about new developments in Chinese engagement
overseas. An example is the South China Sea where the Chinese are fortifying islands and
creating new ‘facts on the ground’claiming large swaths of the area to be part of China. I
remember as a graduate student in the 1980s studying the overlapping claims on the islands off
the coast of Japan, the islands and shoals in the South China Sea (the Spratly, Paracel, Pratas,
Scarborough Shoal, Macclesfield Bank and so on) and the implications of China’s claims.
Forty years later, these concerns have intensified as China and others in the region move to
militarize some of these rocky outcrops. Conflicts have emerged.
Of the heightened concerns about Chinese overseas engagement, the one I think has the
most concrete foundation is that in July 2017 the Chinese opened their first overseas military
(support) base in Djibouti, even though establishing an overseas base is something that China
repeatedly said it would never do. Djibouti occupies a strategic location on the Bab-el-Mandeb
Strait that separates the Horn of Africa from Yemen and the Arabian Peninsula. The Chinese
facility lies on the major Gulf of Aden–Suez Canal maritime shipping route, and is located
only 7 kilometres from the US special operations Camp Lemonnier used to prosecute the ‘War
on Terror’. The US Africa Command (AFRICOM) in Germany is alarmed about the
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proximity of the two facilities. The establishment of a Chinese facility is not a surprise. China
would be unlikely to allow its economic security to be protected forever by the US’security
umbrella, especially since the United States has a history of imposing crippling trade embar-
goes on China and other countries. Yet, the base in Djibouti raises questions as to whether
China’s outward march will continue to be peaceful.
CHINA’S BELT AND ROAD INITIATIVE (BRI) AND THE QUESTION OF
DEBT
In 2013, Beijing initiated a new and much larger global infrastructure-building strategy: the
Belt and Road Initiative (BRI). To many people, the BRI is exciting, resembling a new
Marshall Plan, and to others, it is alarming. Beijing portrays it as a cross-border, win–win
economic stimulus package that will spur economic growth in China and also the countries
with which it engages along the old Silk Roads (Liu & Dunford, 2016). China has pledged to
finance and build infrastructure, creating new economic corridors that stretch across central
Asia to Europe and south and south-east to the Indo-Pacific.
In Washington, however, the spin is that the BRI is not really about commerce but is about
China’s strategic dominance: that China wants to use its economic muscle for political leverage, that
China wants to rewrite business rules and practices developed by the West or even that China wants
to rule the world, using the BRI as a kind of weapon. This kind of rhetoric has increased as the BRI
has brought China closer to Europe. Recent investments by Chinese companies in ports in Greece
and elsewhere in Southern Europe have been called Trojan horses entering Europe through its soft
underbelly (Johnson, 2018;Lee,2018). China, by buying up ports, is said to be trying stealthily to
expand its military presence along ancient trading routes and vital shipping lines.
These images have power. What are China’s intentions? So far there is plenty of speculation,
but no incontrovertible evidence of Chinese military strategy connected to the BRI. However, in
2017, some people thought they had found a case. In that year Sri Lanka sold a majority of shares
in its loss-making Hambantota port to China Merchants Port Holdings Co. for US$1.12 billion
(Brautigam, 2019).
1
This transaction was characterized as an ‘asset seizure’as though the Chinese
had forcibly taken control of the port when the Sri Lankans were allegedly unable to repay the
Chinese loans that had financed the port’s construction. As we will see, the actual story was quite
different from this characterization. Yet, it was at this point that the Chinese debt-trap diplomacy
meme was invented by an alarmed Indian pundit. The US government jumped on the bandwagon
and, as noted above, top officials in the Trump administration began repeatedly warning that
China has a deliberate strategy of entangling other developing countries in a web of debt and then
using debt to extract unfair or strategic concessions.
Debt sustainability in several countries borrowing from China under the new BRI is a
concern. At a joint International Monetary Fund (IMF)–Peoples’Bank of China conference
in Beijing in April 2018, the former head of the IMF, Christine Lagarde, stated that, in the
case of large-scale spending, ‘experiences from across the globe show that there is always a risk
of potentially failed projects and the misuse of funds’and that infrastructure financing ‘can also
lead to a problematic increase in debt, potentially limiting other spending as debt service rises,
and creating balance of payment challenges (Lagarde, 2018). At the April 2019 Belt and Road
Forum for International Cooperation, she stated:
history has taught us that, if not managed carefully, infrastructure investments can lead to a proble-
matic increase in debt. …I have said before that, to be fully successful, the Belt and Road should only
go where it is needed. I would add today that it should only go where it is sustainable, in all aspects.
(Lagarde, 2019)
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These concerns arise as most of the countries currently borrowing from China have
histories of IMF bailouts, so that they have gone through cycles of debt in the past and
seem to be again. And nearly all of them, including China, have weak institutions.
However, does evidence exist for this kind of debt leverage? The Johns Hopkins School of
Advanced International Studies curates a database on Chinese lending to Africa (Brautigam &
Hwang, 2016). It has information on about more than 1000 loans and, so far, in Africa, we have not
seenanyexampleswherewewouldsaytheChinesedeliberately entangled another country in debt,
andthenusedthatdebttoextractunfairorstrategicadvantagesofsomekindinAfrica,including
‘asset seizures’. Angola, for example, has borrowed a huge amount from China. Of course, many of
these loans are backed by Angola’soilexports,butthisisacommercialtransaction.Chinaisnot
getting huge strategic advantage in that relationship. Similarly, others have examined Chinese
lending elsewhere in the world –some 3000 cases –and while some projects have been cancelled
or renegotiated, none, aside from the single port inSriLanka,hasbeenusedtosupporttheideathat
the Chinese are seizing strategic assets when countries run into trouble with loan repayment (Kratz,
Feng, & Wright, 2019).
The evidence so far, including the Sri Lankan case, shows that the drumbeat of alarm about
Chinese banks’funding of infrastructure across the BRI and beyond is overblown. In a study we
conducted using our data on Chinese lending and African debt distress through 2017, China was a
major player in only three low-income African countries that were considered by the IMF to be debt
distressed or on the verge of debt distress (Eom, Brautigam, & Benabdallah, 2018). A similar
country-by-country analysis that included use of our data shows that the Chinese are, by and large,
notthemajorplayerinAfricandebtdistress(JubileeDebtCampaign,2018). Therefore, the role of
China in African debt distress was limited when one remembers that there are 54 countries in Africa.
That this narrative about the Chinese threat has cracks in it comes out in other things such as
public opinion polls. When the Pew Charitable Trust goes to Africa, when Afrobarometer
conducts surveys, and when the BBC’s World Public Opinion Polls (PIPA) ask questions in
developing countries, and particularly in Africa, about attitudes to China, they find that although
there are exceptions, a large number of people have favourable opinions of China as an economic
model and consider China an attractive partner for their development. For example, in 2014, 65%
in Kenya, 67% in Ghana and 85% in Africa’s most populous country, Nigeria, had favourable views
of China. The question is why? The answer is easy. The BRI slots very neatly into other countries’
national development aspirations. China has excess foreign-exchange, construction capacity, mid-
level manufacturing and it needs to invest these overseas. In the case of Asia, the Asian
Development Bank (ADB) has identified a shortfall of infrastructure finance put at US$26 trillion
over the 15 years between 2016 and 2030 (ADB, 2017). Huge sums are required to sustain growth,
reduce poverty and mitigate climate change. In Africa, the African Development Bank estimates
the annual infrastructure requirements are US$130 to US$270 billion/year. The World Bank and
the other wealthy country donors that are active in these areas have not been financing much
infrastructure. Furthermore, thought leaders in developing countries who have written public
opinion pieces on these issues often see China as offering an exciting menu of new ideas about
development, while new ideas are not coming out of the West. Therefore, rather than being
unenlightened, ignorant and in need of paternal protection from Western countries, they may see
the same scenes differently than we do here in the West.
RASHOMON, CHINA AND AFRICA: STORIES SEEN AND INTERPRETED
DIFFERENTLY
Throughout I have made the case that as regards China, a common pattern is for observers,
particularly from the West, to see a set of events and interpret them very differently from the
6Deborah Brautigam
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way they may be seen by those who are participants in the activities. Some stories will now
that illustrate how this can happen.
Debt for natural resources
A very large and very poor but resource-rich country that was just emerging from a period of
intense conflict decided to focus on development. Soon afterwards it was visited by a major
Asian power that had already become a significant consumer of its oil. This major power said:
we will make a deal with you. We will provide you with a line of credit worth US$10 billion
and you can use that credit to get our companies to develop your ports, develop your power
plants and construct infrastructure for you, and you can repay us with oil. This proposal was
quite controversial, and it took a long time for the country to agree with this proposal.
Eventually, however, it signed an agreement: the finance started to flow and work started.
When I tell this story, the audience is usually asked to identify the large poor country with
oil. Very few people who have not read this story reply ‘China’(Brautigam, 2009; Brautigam
& Hwang, 2016). And yet, the oil-rich country in this story was China, and the year was
1978, when China was emerging from the tumult of the Cultural Revolution. After years of
negotiations, Deng Xiaoping signed this deal with Japan’s Prime Minister Tanaka.
So why did Japan do this? Japan and China were not friends; far from it. However, Japan
saw commercial opportunities for its companies. The Japanese realized that China was not
creditworthy, as it could not be expected to secure sufficient foreign exchange to repay its
loans. Therefore, the Japanese secured the loan with oil and coal exports. It was business.
Japan got its companies into China early as well as its exports, so that when China needed
machinery, expertise and, eventually, spare parts for that machinery and follow-on projects, it
would turn first to Japan. For Japan, this step was of strategic economic significance, while for
China, which was not a member of the World Bank or the IMF and could not borrow on
international capital markets, accepting this loan made practical sense.
It is in the light of this experience that the Chinese are thinking about what they can do in
places that are not creditworthy and how they can secure their loans and still generate business in
places where others fear to tread. This experience was very influential, but this model was not new
to Japan, either: it is an international financial model that has been around for a long time.
An Angolan ghost city
The second story is about a ghost city in Angola. In 2010, Angola accepted a US$2.5 billion
oil-for-infrastructure loan from the Industrial and Commercial Bank of China to build the
Nova Cidade de Kilamba, 30 kilometres from the capital, Luanda. To date, the city comprises
some 750 five- to thirteen-floor apartment blocks, over 100 commercial premises, 17 schools
and 24 daycare centre, as well as over 240 stores. At first this enormous complex was empty.
Around 2012, journalists visited it and photographed a wonderful expanse of buildings and
playgrounds, but there was no one there. They declared it a ghost city, filed their stories, went
home and then the story of Angola’s ghost city began. However, while the story of the ghost
city was being circulated, the actual city of Kilamba began to fill up.
As scholars have noted, the take-off of the city was slow for several reasons (Alves &
Benazeraf, 2014; Buire, 2015). First, occupation of the city had to await the provision by the
Angolan side of water and sewerage services. Second, the management company set prices that
were too high: once long-term, low-cost mortgages were available for apartments costing US
$70,000–140,000, the apartments quickly filled up with savvy Angolans who could not afford
an apartment in Luanda, one of the most expensive cities in the world. The ghost city financed
by a Chinese loan does not exist, and yet this dead idea is like a zombie that continues to arise
and walk again, over and over.
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A Venezuelan story
The next story concerns Venezuela as astutely analysed by Matt Ferchen, a resident scholar at
the Carnegie-Tsinghua Centre for Global Policy, where he runs the China and the
Developing World programme. Ferchen pointed out that Venezuela upended claims of
Chinese debt trap diplomacy: ‘claims about China’s debt-trap diplomacy unquestioningly
assume that China’s own economic and geostrategic interests are maximized when its lending
partners are in distress. Such assumptions need to be more carefully examined, and the case of
Venezuela shows why’(Ferchen, 2018). He pointed out that Venezuela is the largest recipient
of Chinese official finance overseas. China’s investment was in long-term oil for loans
partnerships of the kinds described with regard to Japan and China.
After a phase of high oil prices, reaching more than US$100 per barrel, up to 2014, prices fell
by more than half. Commencing in March 2015, the US government imposed sanctions on
Venezuela, including against the Central Bank of Venezuela (BCV) and the state oil firm
Petróleos de Venezuela SA (PDVSA), which generates 90% of the country’srevenues.
According to the US Department of Energy, in April 2019, Venezuelan oil output reached a
16-year low, while the country has suffered from a protracted economic and political crisis and
failed to provide China with the promised oil deliveries. In these circumstances the response of the
Chinese side was to restructure the repayment terms, allowing Venezuela a two-year respite from
principal repayments. During this period, China purchased oil from Venezuela for cash, rather
than using the proceeds from the sale of the oil shipments to repay the loan. Once the two years
were up, however, the economic situation in Venezuela had deteriorated further, while the country
also had other international obligations to Russia, including several oil projects in which Rosneft
was involved. China, observers noted, had little interest in accumulating Venezuelan assets, even
when Venezuela was unable to resume repayment (Faiola & DeYoung, 2018).
In this situation, which resembles a lending trap for China rather than a debt-trap for
Venezuela, China was unable to use coercion to secure oil shipments and loan repayments, not
least because it is inconsistent with its position on non-interference in the internal affairs of
other sovereign states. China finds itself without foreign policy instruments to get back the
money it is owed. Ferchen concludes that the Venezuela case shows that in this significant case
China’s loans have ‘clearly undermined China’s own economic and geostrategic interests’
(Ferchen, 2018).
Debt-trap diplomacy: the Sri Lankan case
China has been involved in the construction or operation of 116 overseas ports in 62 countries.
Of these projects, that in Hambantota, Sri Lanka, is the only one cited as an actual instance
(rather than projected possibility) of debt-trap diplomacy as, following an election upset, the
highly indebted Sri Lanka conceded control of a port to a Chinese company on a 99-year
lease. The New York Times (2018) characterized this as ‘China got Sri Lanka to cough up a
port’. Is there evidence that China planned matters in this way? Did China deliberately set a
debt trap? Was this an asset seizure for non-payment?
To answer these questions, it is necessary to examine the historical context and to ask first
of all why China is interested in financing, constructing and acquiring ports. The debt-trap
diplomacy meme is associated with the geopolitical concept of a String of Pearls. First used in
a 2005 report on Energy Futures in Asia produced by Booz Allen Hamilton for the US
Department of Defence (The Washington Times,2005), the concept suggests that China plans
to develop a chain of military and commercial facilities along maritime routes from the
Chinese mainland to Port Sudan in the Horn of Africa, encircling India and threatening its
national security.
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Are there other explanations for China’s keen interest in ports? China’s own history
provides some insight. Port projects were one of China’s top priorities when its first adopted
reform and opening up in 1978. Between 1980 and 2000, China built more than 184 new
ports with associated industrial development and urban residence zones (this model is now
known as the ‘port–industrial park–city’model associated with the Chinese city of Shekou in
the bustling commercial region of Shenzhen). As ports are capital intensive with low rates of
return on capital due to the long periods over which they are developed and capita is
depreciated, China gave preference to joint ventures with foreign investors who were expected
to provide capital and operating efficiencies. Since then, Chinese ports have hosted numerous
foreign investors (Brautigam, 2019).
Today the port and shipping industries are globalized with increasing degrees of industrial
concentration. Just one example is the Danish shipping company Maersk, which serves 343 ports
in 121 countries, and its associated companies that include APM Terminals with infrastructure in 73
ports and 154 inland locations. As the largest exporter and the second largest importer in the world,
and as a country with a large port and shipping sector, Chinese port and shipping companies are also
seeking to grow by investing abroad, acquiring existing assets and establishing joint ventures. A case
in point is the partially state-owned and Hong Kong-headquartered China Merchants Port Holdings
Company (CM Port), which acquired Hambantota. In 2013, it embarked on a globalization path
with the acquisition of a 49% stake in the Terminal Link subsidiary of the French Compagnie
Maritime d’Affrètement-Compagnie Générale Maritime (CMA-CGM). CMA-GGM is the
world’s third largest container shipping company, while Terminal Link has terminals in 15 ports.
At the same time other countries seeking to embark on industrial growth are eagerfor Chinese
capital and know-how. As a result, Chinese companies have also become involved in the
construction of overseas port–park–city projects, often as joint ventures. In places where they are
likely to be lacking, ports must be developed ahead of demand. Development, however, involves an
act of faith that if the portis built,the shipswill come. However, investment in ports andindustrial
zones along with urban development is not only long-term, requiring many years to recover costs,
but also revenues are dependent on trends in global trade and dependent on a port’s ability to
develop and implement a strategic plan to attract shipping, investors and residents.
In the case of Sri Lanka, the idea of constructing a new port near the village of Hambantota in
the remote southern part of the country has been a part of Sri Lankan development plans for several
decades (for more details, see Brautigam, 2019). In 2002, the French Port Autonome de Marseille
offered to carry out a feasibility study, for example. A Chinese firm became involved in 2004 when,
after a devastating tsunami, Sri Lanka used Chinese government foreign aid to rebuild the artisanal
fishing port in Hambantota; China Harbour Engineering Company (CHEC) was chosen to
implement that project. With the end of Sri Lanka’scivilwarin2005,andtheelectionof
Mahinda Rajapaksa, who was from Hambantota, plans to make Hambantota into an Indian
Ocean trade, investment and services hub took off. After completion of a Danish feasibility study,
in 2007 the CHEC secured a contract to construct the first phase and China EXIM bank provided a
US$307 million commercial buyer’screditatafixedrateof6.3%(Sri Lanka was offered a variable
rate but selected the fixed rate as interest rates appeared to be increasing at that time). In 2010, a
second phase was launched with a 2% concessional rate loan from China EXIM Bank. However,
under the management of the Sri Lankan Port Authority (SPLA), the ships did not come. Political
infighting stymied the roll out of some of the planned services, such as oil bunkering. In the period
from when the port was opened ahead of schedule in 2010, the SPLA lost more than US$300
million. It is often necessary to build infrastructure ahead of demand, and losses in the initial years of
a port are not unusual. Hambantota had only 34 ship arrivals in 2012 (interestingly, this was the only
figure on ship arrivals noted by The New York Times, 2018). In 2016, by contrast, 281 ships arrived at
Hambantota. Yet, this was still below potentialand there was clearly not a consensus or a clear
strategy in the Sri Lankan government about how to attract business to the new port.
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In January 2015, the Rajapaksa government was defeated in an election. By the end of
2016, Sri Lanka had an external debt of US$46.4 billion according to the Central Bank of Sri
Lanka and the IMF –57% of gross domestic product (GDP) –of which about 10% was owed
to China. The new government saw the Hambantota project as a pet project of the former
president. Seeking to raise foreign exchange to make sovereign debt repayments, it decided to
privatize a majority stake in Hambantota port. The proceeds were used to increase Sri Lanka’s
US dollar reserves in 2017–18 with a view to the repayment of maturing international
sovereign bonds. (China’s loans were at lower interest rates than the rate for Sri Lanka’sUS
dollar bonds, which were at least 8% and up to 12%, so it would not have been practical to use
the proceeds to pay off the lower Chinese loans.)
The port’s builder CHEC and another Chinese firm, CM Port, both bid for the port, and
CM Port was chosen by the Sri Lankan government. CM Port had already completed a build–
operate–transfer container terminal in Sri Lanka’s port of Colombo. In 2017, it acquired an
overall stake of 70% in two joint ventures (with SPLA) connected with the Hambantota Port
for an upfront payment of US$1.12 billion. Although some have thought this was a debt
equity swap, the debt remained in place. Responsibility for the loan repayment in accordance
with the original agreements was assumed by the Sri Lankan central government.
CM Port is the largest port owner and operator in China, handling almost 30% of all the
containers shipped in and out of China, so that it has the capital and commercial relationships with
shippers required to attract traffic. CM Port has already started to develop an adjacent industrial
zone costing US$600 million and to enlist investments by large Chinese state-owned enterprises
(SOEs) to invest in the zone and connectivity infrastructure is under construction. Envisaged are
the expanded development of oil bunkering and refining facilities with the port emerging as a
major deep-water storage, refuelling and maintenance stop just a short distance from the main sea
lanes that link the Suez Canal and the Malacca Straits, traversed by the world’s largest container
ships and oil tankers. Also planned and going beyond the Danish study are the establishment of
manufacturing and logistics companies transhipping to the Indian subcontinent. As Sri Lanka and
India have a free trade agreement, companies setting up manufacturing activities in Hambantota
will have duty-free access to Indian markets, though India may be concerned about the impact on
its trade deficit with Chinese companies.
Therefore, the sale of Hambantota was originally a fire sale designed to raise money to deal
with larger debt problems. As such it has a great deal in common with the sale of interests in
the Greek port of Piraeus to the Chinese shipping company COSCO, as the Greeks also faced
a debt crisis. Commercially the sale of the port of Piraeus has proved a success as anticipated at
the time when Cosco’s chief executive officer (CEO), Wei Jiafu, said: ‘We have a saying in
China, “Construct the eagle’s nest, and the eagle will come.”We have constructed such a nest
in your country to attract such Chinese eagles’(cited in Brautigam, 2019).
In the Sri Lankan case, the debt-diplomacy meme asserts that China inveigled Sri Lanka
to ‘cough up a port’. In the Greek case, a strategic choice was made to bring in a Chinese
shipper. These are two different framings of similar stories.
Debt-trap diplomacy? The Djibouti case
It was indicated above that Indian concerns about Hambantota were related to a potential
Chinese military presence, although the present account indicates that there are also potential
commercial challenges. However, Indian concerns about the potential military uses of
Hambantota spilled over into US government concerns about China’s port investments in
the small African country of Djibouti. Senior officials in the US administration charged in
December 2018 that Djibouti might:
10 Deborah Brautigam
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soon …hand over control of the Doraleh Container Terminal, a strategically-located shipping port on
the Red Sea, to Chinese state-owned enterprises. Should this occur, the balance of power in the Horn
of Africa …would shift in favour of China. And, our U.S. military personnel at Camp Lemonnier
could face even further challenges in their efforts to protect the American people. (Bolton, 2018)
In 2015, after about seven years of engagement in anti-piracy operations along the trade
routes off the coast of Somalia, China established its first overseas military facility in Djibouti
alongside those of several other countries. Djibouti has been quite successful in attracting
military tenants, but it seems as if China is the only country to share Djibouti’s vision of itself
as the potential ‘Singapore of Africa’, much as Hambantota might be seen as a potential
Singapore of the generally inward-looking Indian subcontinent.
Djibouti occupies a strategic location on transit routes to the Suez Canal and is an outlet to
the sea for land-locked Ethiopia, which, with over 110 million citizens, is Sub-Saharan
Africa’s second most populous country. It is well positioned to serve as a hub for transhipment,
industrial processing and duty-free wholesale activities in the Horn of Africa. To meet its
ambitions, in 2006 Djibouti granted Dubai’s DP World an exclusive 30-year concession, but
terminated it in 2018 when DP World was unwilling to expand its investment beyond the
Doraleh Container Terminal.
With the help of Chinese loans, CM Port was involved in the construction of the Doraleh
Multipurpose Port, from 2013, aiming to make Djibouti a showcase ‘port–park–city’, but it
faces a challenge in that DP World is suing CM Port, accusing the Chinese firm of luring
Djibouti to break its exclusive contract with DP World. Although DP World was unwilling to
expand its investments in Djibouti, it clearly sees prospects for port development in that part
of the world. One of Djibouti’s concerns was DP World’s project to construct a rival port in
Somaliland that would also serve Ethiopia.
Ambitions of this kind lie at the heart of China’s lending and investment programme in
Djibouti’s port and zone projects. In this case there is another Rashomon-type story. On the
one side, the US military has been concerned about China gaining control of the entire port
and threatening US military operations. The Djibouti government has accused DP World of
not wanting to invest in Djibouti, but just wanting to sit there keeping potential competitors
out while they invested in other places around the Horn of Africa, whereas the Chinese were
prepared to invest. Naturally, DP World sees it differently. In the meantime, borrowing to
finance the port and the Djibouti–Addis Ababa railway infrastructure in a country with a small
economy led to large increases in Djibouti’s foreign debt (about US$1.3 billion) and now this
small country is at risk of debt distress.
Is Djibouti a case of deliberate Chinese debt trap diplomacy? So far it is difficult to see any
Chinese leverage being used to gain a strategic asset. It is true that Djibouti borrowed from
China and now has a debt to repay, but one cannot easily build a major port and railway line in
a very small country without borrowing a substantial amount of finance. If the Djibouti port is
to serve Ethiopia and if Djibouti wants to follow the model of Singapore and Dubai, it has to
take risks. As a commercial maritime venture, projects such as the Djibouti port expansion can
be viewed as potentially attractive but risky. The fact that rival projects are under way suggests
there is a business case for the investment; and in this case Djibouti has a head start. It will be
some time before we know whether this investment will be a white elephant problem for
Djibouti, or for the Chinese funders. However, there is so far little reason to think that the
Chinese project poses a direct threat to the other nations that have military interests in
Djibouti, including the United States.
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CONCLUSIONS
This paper started by introducing the Japanese film Rashomon. By the time the film ends, it is
no longer clear who is the victim and who perpetrated the crime. Was it a story of deceit or
heroism? Did a rape actually occur? Was there a principal; was there an agent or even a victim;
and what will happen to the protagonists? Akira Kurosawa does not provide a tidy ending and
the viewer is left to debate the outcomes.
What Kurosawa does is similar to what academics do. As academics we often leave things
ambiguous, are vague about them and call them grey areas: it could be this; it could be that.
Truth can never be known. At times academics are quite smug in making claims about the
unknowability of the truth.
However, I would like to argue for more engagement, for taking a stand. Despite
ambiguities, we should dig into the stories that we think we know, especially when they affect
public policy, as is happening right now. I would urge you to embrace a mission, on which
some of us have embarked, of helping to bridge the gap between what we do as isolated
academics and what the pundits and the policy advisors do outside of our ivory towers. This
mission is to bring in what we know as experts in our fields, to publicize the facts and the
evidence that we do have and which are very much out of favour in Washington right now. To
bring these things into the debate involves trying to write for wider audiences and to talk to
the media, to policy-makers, including the intelligence community. This is how I currently
spend my time. I do not often attend academic conferences. I prioritize speaking to the
military, to policy-makers, to the IMF and to the US State Department about these issues. In
my own field of the political economy of China’s engagement with other developing countries,
the most widely circulated news media generally offers only one narrative, and policy-makers
are not able to really dig into these stories.
The story of Chinese lending is far more complicated, interesting and potentially devel-
opmental than it is currently portrayed. Other academics may find that similar issues arise in
their own work, where the simple narrative and the conventional wisdom are contradicted or
put into question by field research and empirical findings. Being a bridge between academia
and the policy world can help to build the kind of epistemic networks that over time can
produce a fundamental rethinking of the conventional wisdom, leading to shifts in praxis. And
that is how both theory and practice evolve.
ACKNOWLEDGEMENTS
The author thanks Xue Zhang for transcribing the lecture given on 5 April at the 2019
Association of American Geographers (AAG) conference in Washington, DC.
NOTE
1. A concession agreement relating to the development, management and operation of the port
was signed on 25 July 2017 by China Merchants Port Holdings Company Ltd (CMPort), Sri
Lanka Ports Authority (SLPA), the Government of the Democratic Socialist Republic of Sri
Lanka (GOSL), Hambantota International Port Group (Private) Ltd (HIPG) and Hambantota
International Port Services Company (Private) Ltd (HIPS), under which CMPort will invest up
US$1.12 billion, of which nearly US$1 billion will be paid to the SLPA for 85% of the share
capital of the HIPG, and of which the HIPG uses a portion to acquire a 58% share in the HIPS
(http://www.cmport.com.hk/En/news/Detail.aspx?id=10007328).
12 Deborah Brautigam
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DISCLOSURE STATEMENT
No potential conflict of interest was reported by the author.
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