China and Debt Trap Diplomacy: Less Heat and More Light Required

Kenya's Daily Nation published on 18 August 2018 a commentary titled "Debt Weapon of Choice for China to Penetrate Developing Countries" by Eric Wamanji.

The author concluded that when states default on loans, this affords China the liberty to seize assets and even territory in lieu of the repayments.

Kenya's Business Daily published on 13 February 2018 an article titled "China Takes Up Lion's Share Debt Spend" by Constant Munda.

This article provides more detailed information on Kenya's external debt servicing, noting that China recently received about 48 percent of the total amount that Kenya paid back on loans to all lenders.

Approaching the debt-trap argument from a different perspective, Asia Global Online posted on 16 August 2018 an analysis titled "China, Venezuela, and the Illusion of Debt-Trap Diplomacy" by Matt Ferchen, Carnegie-Tsinghua Center for Global Policy.

The author points out that Venezuela is the single largest recipient of Chinese official finance and Venezuela may be the most extreme case of a Chinese debt relationship gone wrong for both debtor and creditor alike. He argues that claims about China's debt-trap diplomacy 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. What China is experiencing, he suggested, is in some ways similar to periods in the 1930s and 1970s when American companies, and subsequently the U.S. government, found themselves in unsustainable debt relationships that eventually harmed both parties.

While China's loans to Africa are contributing to debt distress in countries such as Djibouti and Kenya, it is important not to overstate the role of China or to suggest that Chinese loans are causing problems across the continent. The IMF keeps monthly tabs on debt-distressed countries globally. In many cases, China is not a major source of lending to those countries. Even as in the case of Venezuela where China is the major lender, it is not at all clear that this will end well for China. The warning flags are flying, but this is the occasion for more facts and less emotion.