COMMENT: China’s debt-trap diplomacy – lessons from Sri Lanka, Bangladesh, and beyond

In the past two decades, China has emerged not just as the world’s second-largest economy after the US, but also as a dominant force in global infrastructure financing. Central to this global expansion in the last few years is Beijing’s Belt and Road Initiative (BRI), the multi-trillion-dollar project, on the surface at least aimed at improving connectivity and international cooperation across Asia, Africa, and even Europe.

While the BRI has built roads, railways and ports in some of the world’s most underdeveloped regions, it has also led to growing worries about so-called ‘debt-trap diplomacy’ – a method by which China is accused of luring developing nations into taking on massive infrastructure loans that they cannot, in the end repay.

For the nations affected this results in economic dependence on China and often the surrender of strategic assets – or both. While Beijing insists the BRI is mutually beneficial, critics point at real-world examples where the fine print of Chinese lending has left countries worse off than when they started.

Two of the best examples of this are in Asia.

Sri Lanka

Sri Lanka’s experience has become wholly emblematic of what so many now see as the perils of falling into Chinese debt. In 2007, Colombo turned to China for help in funding a then ambitious Hambantota Port project. Essentially a deep-sea facility on the island’s southern coast that will allow Sri Lank to function as both a refuelling sport for ships crossing the Indian Ocean as well as a potential LNG storage facility in the years ahead, it was built largely on the back of Chinese loans. Construction was also carried out to some extent at least by Chinese companies. But after opening, the port quickly ran into trouble. Despite its ideal location near key Indian Ocean shipping lanes, Hambantota has to date failed to attract significant maritime traffic and is operating at just a fraction of its potential capacity, making it the proverbial white elephant in a country barely able to keep its head above water economically..

As such, by 2017, and saddled with $1bn+ in debt related to the project, Sri Lanka had little choice but to lease the port as well as a further15,000 acres of nearby land to China Merchants Port Holdings. That the irony that this also came with a 99-year lease and was being agreed with the country that just 20-years previously had reclaimed Hong Kong after a similar agreement with the UK was not lost on Asia-watchers. The Chinese had come full circle and were now leasing former British colonial possessions.

Though Sri Lanka’s government denied that the port handover amounted to a loss of sovereignty, the symbolism was stark. Critics in Colombo and elsewhere said it illustrated how Beijing could leverage debt to gain control over key infrastructure in foreign nations.

While China rejected the ‘debt trap’ narrative, in the process arguing that Sri Lanka’s financial woes were largely due to poor domestic economic management, the episode raised alarm bells across the developing world.

Bangladesh

Bangladesh to the Northeast of Sri Lanka is itself a growing South Asian economy with a strategic location at the mouth of the Bay of Bengal and has been more circumspect in its dealings with China.

While Dhaka is a BRI partner and has accepted Chinese financing for some infrastructure projects, including the Padma Bridge rail link and power plants, it has also sought to maintain a balance by engaging with Japan, neighbouring India, and Western donors. Russia too is a key partner, especially in the form of a much-needed nuclear power plant nearing completion west of the Bangladeshi capital.

In recent years, Bangladeshi officials have shown a keen awareness of the Sri Lankan experience. Projects funded by China have been more tightly scrutinised, and Dhaka has resisted calls for China to construct a deep-sea port in Sonadia, opting instead for a Japan-backed project in Matarbari to the north.

This pivot suggests that Bangladesh is sensibly eager to avoid over-reliance on Chinese loans, fearing the geopolitical strings that will come attached.

Even so, China remains one of Bangladesh’s top trading partners and is a key source of foreign investment – and China plays the long-game. Knock-backs to date will have been noted in Beijing but a new approach will, in time, be made. The challenge for Dhaka, as for many developing nations, is to harness the benefits of Chinese capital while at the same time safeguarding sovereignty and in particular fiscal health.

Beyond Asia: a pattern emerges

The issues seen in Sri Lanka and Bangladesh are not isolated. Across Africa, Latin America, and the Pacific, numerous countries have grappled with the complex consequences of Chinese debt.

In Zambia, it is reported that Chinese loans have funded large-scale infrastructure such as airports, roads, and power stations. But as repayment obligations grew, Lusaka struggled to work with its debt and became the first African country to default during the COVID-19 pandemic in 2020.

While not attributable solely to China, Chinese loans account for a significant portion, and negotiations for debt relief have proven complex and unproductive.

Elsewhere, smaller nations such as Laos and Montenegro have faced similar predicaments. Laos borrowed heavily from China to finance a high-speed rail line linking it to southern China, raising fears that the landlocked country may become overly dependent on Beijing for trade and security. Montenegro, meanwhile, borrowed nearly €1bn from China for a highway project so costly that it threatened to overwhelm the tiny Balkan state’s finances. At one point China held a quarter of Montenegro’s debt.

Because of these examples, it is argued that China’s lending is not simply about economics. While Beijing often holds aloft the BRI in terms of win-win cooperation, critics suggest it is part of a broader strategy to build political influence and secure access to resources, markets, and military footholds.

In this reading, infrastructure is not just a development tool but a geopolitical instrument. Ports in Sri Lanka, Pakistan, and Djibouti—though ostensibly commercial—could support naval logistics. Chinese-built roads in Central Asia and Africa improve access not only for goods but also for Chinese political and military influence. Cambodia, Djibouti and Tajikistan already host limited numbers of Chinese troops in strategic parts of the world.

Beijing meanwhile claims that Chinese investment fills a vital infrastructure gap in the Global South, adding that many of these projects bring tangible benefits such as jobs, energy and transport links.

The key concern, however, lies not in Chinese engagement itself, but in how such engagement is structured. Many Chinese loans are non-concessional, collateralised with natural resources or revenue-generating assets. That these are then signed with limited public scrutiny only exacerbates the long-term hostility felt by host nations and raises risks of corruption and unsustainable debt.

To this end, lenders such as the IMF and World Bank have begun urging borrowing countries to ensure greater transparency in their financial arrangements with China while at the same time Western countries have launched alternative initiatives, such as the G7’s Partnership for Global Infrastructure and Investment.

The challenge now for countries like Sri Lanka, Bangladesh and others in the Global South, Africa and elsewhere is to strike a delicate balance. Investment in many regions and sectors is desperately needed but must only be agreed upon without compromising economic independence or national sovereignty.

Otherwise …/IntelliNews/