News Analysis
As part of its global domination strategy, China has become one of the world’s largest lenders to the least developed nations, charging higher interest rates and demanding collateral in the form of ports, airports, minerals, and revenue streams.
Foreign aid accounts for 1 percent of the $4.05 trillion U.S. federal budget, with half of this money being spent on poverty reduction. While U.S. aid can come in various forms of international assistance, U.S. aid looks like real aid. With China, the line is blurred between aid and investment. China claims to be one of the largest donors, but it would be more accurate to call it a giant creditor.
The Chinese Communist Party (CCP) has a focused aid strategy wrapped up in its program of foreign investment and trade promotion. The United States, on the other hand, does not seem to have a unified or codified aid strategy. Moreover, U.S. trade and investment are made by the private sector, with little or no government direction.
In addition to grants and interest-free loans, the CCP considers concessional loans as aid. Beijing links aid, loans, export credits, and military aid together, although these would not qualify as aid under the Organization of Economic Co-operation and Development (OECD).
The CCP aid/investment campaign is already nearly 60 years in the making. In 1964, then-Premier Zhou Enlai visited Ghana. He established the Chinese aid pattern that remains today, namely that Chinese-funded projects must use Chinese-manufactured equipment, materials, and technical assistance.
The Belt and Road Initiative (BRI, also known as “One Belt, One Road”) adopted by the CCP in 2013 is the most recent and blatant example of how Beijing develops a long-term plan, then rolls short- and medium-term milestones into it. This creates a complex web of investments, trade, propaganda, soft power, coercion, and geopolitics, which could result in China becoming the preeminent world power by 2035.
Debt-trap diplomacy is a powerful weapon in the CCP’s arsenal. Like cheetahs singling out and stalking the sick gazelle in the herd, Beijing looks for countries close to the breaking point of debt. These are small undeveloped economies one loan away from collapse. The CCP then offers them loans with oppressive terms, which ultimately allows Beijing to gain control of the country’s assets or revenue streams.
Research into Chinese lending finds that much of it is being carried out by state-owned actors rather than the government directly. In total, counting government and state-backed lending, China is outspending the United States and Western nations on lending to the world’s poorest countries 2 to 1. Additionally, the CCP generally charges higher interest rates, has shorter repayment periods, and demands collateral.
The collateral can be ports, such as Greece’s Piraeus Port, Sri Lanka’s Hambantota Port, or Pakistan’s Gwadar Port, all of which the CCP now has significant control or ownership of. Beijing’s investment and aid regimen are targeted at countries that could provide resources such as minerals and metals and countries like Djibouti with strategic locations. The CCP now controls Djibouti’s Doraleh naval port.
The CCP argues that China was not the first or largest lender for many countries that have gone into default; however, the Western counterargument is that the Chinese loans have pushed these countries over the brink.
These countries seek loans from China because the IMF, World Bank, Paris Club, and other traditional lenders have deemed the countries in danger of default. In many instances, these countries seek to borrow money to pay interest on previous loans. The traditional lenders will refuse to lend money to these countries for fear of worsening their economic situation.
Meanwhile, the debt owed by the world’s poorest countries to China increased three-fold between 2011 and 2020. On April 22, South China Morning Post reported that both the IMF and the World Bank had warned about record levels of global debt, particularly among developing countries. For this reason, the United States and other Western nations have accused the CCP of debt-trap diplomacy and the seizure of key assets. Beijing has refuted these claims.
Under the Trump administration in 2019, the U.S. International Development Finance Corp. (DFC) was overhauled. Designed to counter CCP influence, the DFC provides loans to help developing nations promote infrastructure improvements. The Financial Times of India suggested that U.S. financial and military aid should be coupled with a comprehensive trade policy. Without a trade component, foreign nations may question the U.S. commitment to a long-term relationship. This is particularly true in Africa, Latin America, and Asia where investment and trade are desperately needed and where China links its strategic and military goals to its trade and investment decisions.
The Atlantic Council recommended on April 25 that the United States adopt more of a private sector mindset. Washington should aim to find out what foreign countries need and want, and then provide aid in such a way that helps solve these countries’ problems before the CCP arrives with a checkbook. Furthermore, the United States must be more unified across government agencies with all parts working together and in cooperation with the private sector.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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