Context: Countries in India's neighbourhood - Sri Lanka, Pakistan, Nepal - grapple with economic challenges. Domestic factors apart, one significant reason contributing to the crisis is mounting Chinese debts. In this episode, we discuss how China is burdening low & middle-income countries with unsustainable debt with experts from across different parts of the world.
Key Issue

• Sri Lanka is in the throes of a deep economic crisis, with sky-rocketing inflation and depleting foreign reserves. 
• Pakistan too, in the middle of a political crisis, is facing an economic one. Nepal, likewise, is foreseeing an economic crisis and has banned the import of vehicles and other luxury items, due to declining foreign exchange reserves.

As for Pakistan, the China Pakistan Economic Corridor played a significant role. Its BRI aid also stands at $27.3 billion.

• Around 40 countries that felt the benevolence of China have the rug pulled from under their feet. Among these are Laos, Zambia and Kyrgyzstan too. 

Moreover, according to an international development research lab based at the College of William and Mary in Virginia, AidData, BRI has left multiple lower and middle-income countries with ‘hidden debts’ totalling $385 billion. 

• The report analysed over 13,000 aid and debt-financed projects worth $843 billion in 165 countries.

Nepal Rastra Bank, the country’s central bank, said that they have been seeing symptoms that there may be some kind of crisis in the economy, mainly because of growing imports.

Apart from economic distress, one thing running common between these countries is that they are all part of China’s Belt and Road Initiative (BRI). 

• The BRI is a global infrastructure development strategy developed by the Chinese to invest in nearly 70 countries.
• The Chinese government, through BRI, invests in building ports, roads, bridges, dams, power stations, railroads, etc. China is known to have BRI deals with all three countries.

What is debt-trap diplomacy?

• The US sees China’s lending practices as debt-trap diplomacy, a term made popular by the Trump administration. 
• Debt-trap diplomacy is when a richer country lends to poorer countries – that are resource-rich or strategically placed – overwhelming them with debts that are not sustainable. 
• This leads the poorer countries to give up their strategic assets or give in to political leverage.

Road Ahead

• India is looking to maintain its influence in the region and counter the growing debt-trap initiatives of its eastern neighbour China via cooperative strategies and humanitarian aid, a move aimed to ringfence its strategic interests in the region and also keep the shadow of China away from its other borders.