Is China Creating Debt Traps in the Developing World?

    This discussion paper looks into China’s financial relations with developing countries in recent years, amid claims that Beijing is using “debt-trap diplomacy” to its geopolitical and economic advantage, which critics say amounts to a new form of colonialism.

    There has been increased discussion regarding China’s financial relations with developing countries in recent years. The US State Department, along with a number of analysts accuse China of pursuing what is referred to as “debt-trap diplomacy” in developing countries. Poor nations, they say, have been borrowing heavily from China, and Beijing is abusing this situation for geopolitical and economic advantage. Some even claim that this is a new form of colonialism whereas others see Chinese engagement with the developing world as an opportunity. This paper provides a summary of this discussion as well as a reflection on how this recent and ongoing process should be understood from the perspective of developing countries. The analysis involves claims about how the IMF and the US have also done the same for decades and, depending on developing country governments’ degree of autonomy, a competition between Western funders and China can be seen as an opportunity for African countries.

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