Two American scholars recently debunked the myth of the Chinese "debt trap," saying that exhaustive research shows that Chinese banks have never actually seized an asset from any country and are willing to restructure the terms of existing loans.
They called the Chinese debt-trap narrative "a lie, and a powerful one." Deborah Brautigam, one of the authors of the research, published their findings in The Atlantic along with a professor from Harvard Business School last week.
For years, there has been an anecdotal myth saying that China inveigles poorer countries to take loans that they can't afford to build expensive infrastructure, and when they can't pay back the loan, China would try to take control of those assets from borrowers, according to the paper.
One such myth is that a Chinese firm pushed Sri Lanka to borrow money for the construction of Hambantota port, and a Chinese firm eventually took over the port when Sri Lanka defaulted on the debt.
However, the academics found it to be a lie. According to the research paper, around two decades ago, a Canadian company, then a Danish company both explored the feasibility of building the port at Hambantota, a city in the southern tip of Sri Lanka. They didn't move forward due to a variety of reasons. Then Sri Lanka's government approached the U.S. and India with the plan of building a port there, and both denied. Meanwhile, China Harbor Group learned the Sri Lanka government's hope, and won the contract, backed by China Eximbank.
Sri Lanka's debt burden soared since the government embarked on a debt-financed push to build and improve the country's infrastructure after the civil war came to an end in 2009. According to The Atlantic, of the $4.5 billion in debt service Sri Lanka would pay in 2017, only five percent was because of Hambantota, and the central bank governors under both Rajapaksa and Sirisena said that "Hambantota, and Chinese finance in general, was not the source of the country's financial distress."
When responding to former U.S. Vice President Mike Pence worrying that Hambantota could become a "forward military base" for China, the report explained that Hambantota's location is strategic only from a business perspective. "The port is cut into the coast to avoid the Indian Ocean's heavy swells, and its narrow channel allows only one ship to enter or exit at a time, typically with the aid of a tugboat. In the event of a military conflict, naval vessels stationed there would be proverbial fish in a barrel," the report says.
The Atlantic mentioned that companies from other countries have also benefited from Chinese-financed projects. For instance, Meghraj, an Indian-led company, joined the UK-based engineering firm Atkins in an international consortium to write the long-term plan for Hambantota Port and for the development of a new business zone.
As for authors, one is Deborah Brautigam, a professor of International Political Economy at the School of Advanced International Studies at Johns Hopkins University while the other one is Meg Rithmire, an associate professor at Harvard Business School.
(Cover image via CFP)