Wednesday, January 9, 2019

China: Beyond Debt Trap Diplomacy

China Brief published on 5 January 2019 an analysis titled "Beyond 'Debt-Trap Diplomacy': The Dissemination of PRC State Capitalism" by Hong Zhang, George Mason University.

The author cites China's control of Hambantota port in Sri Lanka as an example of debt-trap diplomacy. Similar concerns have arisen recently in Djibouti and Kenya. She continues, however, to make the more important point that China's effort to tie countries to a global network of state capitalism may make loans a less important tool of China's foreign policy. Chinese state-owned enterprises (SOEs) are graduating from the old model of relying on China's policy bank loans to win infrastructure contracts abroad as the margin in the contracting sector is thinning. Instead, they are looking to move up the value chain and take on the role of developer and direct investor. The debt-trap diplomacy narrative, she argues, fails to capture the changing role played by China's SOEs.

This argument makes sense in the case of infrastructure projects such as ports that may turn a profit. It is hard to see where it works in the case of railroads and roads that do not make a profit.

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