China's Self-Imposed Debt Trap
ArticlesEnglish Articles

Is China Getting Caught In A Self-Imposed Debt Spiral?

Abstract: China’s debt crisis has been a growing concern, as the country’s debt levels have risen dramatically over the past decade. A major debt crisis in China could lead to a significant downturn in global economic growth, posing wide-ranging implications for international trade and investment. What actions should the Chinese government take to address the situation?

Problem statement: How does China’s debt trap policy affect its economic growth?

Bottom-line-up-front: While the ultimate outcome of the crisis remains uncertain, it is clear that the issue of China’s debt will continue to be a significant concern for global policymakers and investors in the coming years.

So what?: China takes advantage of developing countries by adding to their debt and giving them money, even though there are clear risks. The Chinese government should address the issue through a series of policy measures, including tightening credit conditions and cracking down on shadow banking. Nonetheless, these measures have had limited success in reducing debt levels in the past, raising concerns about a potential financial crisis.


Source: Corzo

An Escalating Global Financial Crisis

China’s debt crisis has dramatically worsened. However, the magnitude of the debt is not so alarming because they believe the majority of the money is state-owned. Therefore, and in light of the escalating global financial crisis, should China not be concerned?

Countries are going bankrupt because of China’s debt crisis, but China is feeling the effects the most. Where did this chaos begin? China has been actively funding weak economies around the world. The goal was to buy their loyalty, but its plan has failed miserably in most countries. Classic examples of investments gone wrong are Pakistan, Zambia, and Sri Lanka. China now needs the money, and the countries Beijing invested in are themselves in a state of crisis. Trillions of dollars have been spent, but not much advancement has occurred in many development projects.

China has been actively funding weak economies around the world. The goal was to buy their loyalty, but its plan has failed miserably in most countries.

The Belt And Road Initiative

The Belt and Road Initiative (BRI), the cornerstone of Xi’s foreign policy and a tool for the Chinese government to deepen its debt trap, has now been shown to be counterproductive. Roadblocks have been placed along the once-promising BRI. As a result of partner countries’ inability to handle their debts, the projects under the initiative have stalled. Consequently, China has been subsidizing other countries to deal with their debt. From 2000 to 2021, China bailed out 22 countries. Most of the bailouts did not occur until after 2017 and were intended to help the BRI succeed. This, unfortunately, demonstrates how the BRI contributed to a dramatic increase in defaulted loans in China. These financial aid packages benefited countries like Argentina, Laos, Belarus, Mongolia, Egypt, Sri Lanka, Ukraine, Pakistan, Suriname, Ecuador, Venezuela, and Turkey. Despite being on different continents, these nations have all had one thing in common: they have all taken loans from the Chinese government and the International Monetary Fund. Can anything be deduced from all these parallels?

Sri Lanka And Zambia Caught In This Trap

Recently, Sri Lanka received a bailout from the IMF, necessitating a debt restructuring. Increasingly, Sri Lanka is finding it difficult to repay the loans it took. China’s Belt and Road Initiative (BRI), which aims to improve communication and trade with other countries, has provided significant funding for infrastructure development in Sri Lanka. For example, the Hambantota port and the Mattala airport received funding from these sources. However, the terms of these loans and their potential impact on Sri Lanka’s debt sustainability have raised some eyebrows. In 2017, Sri Lanka could not repay a Chinese loan for the Hambantota port, so China was given a 99-year lease on the facility. This sparked worries that China might be setting debt traps in Sri Lanka and other countries to gain a strategic advantage.

According to Chinese diplomats, China has not employed any debt traps, but it is clear that multiple factors have contributed to Sri Lanka’s debt crisis. Sri Lanka’s government, international organizations, and lenders (including China) will need to work together to solve the problem and secure the country’s economic future.

Zambia’s infrastructure, such as roads, bridges, and power plants, has greatly benefited from the large loans provided by China in recent years. Concerns have been raised, however, about the level of debt Zambia has accumulated as a result of these loans and the effect on the country’s ability to service its debt. Zambia is attempting to restructure its almost $15 billion in external debt, which is expected to be finished in the first quarter of 2023.

There have been worries about the interest rates and the hiring of Chinese contractors for infrastructure projects associated with these loans. Some experts are concerned that Zambia’s inability to pay back these loans could hinder the country’s long-term economic growth. In response to these worries, the Zambian government has attempted to renegotiate some of its debt with China and has also taken steps to improve debt management and transparency. A debt management office was set up in 2018, this was a planned move to better manage public debt, and a debt sustainability analysis was conducted in 2020 to evaluate the current debt load.

While the money from China’s loans has been crucial to Zambia’s infrastructural development, both countries need to ensure the loans’ conditions are favourable to their individual economic growth in the long run.


The causes of China’s debt crisis are multifaceted and have been accumulating for years owing to its rapid increase in infrastructure spending, the rapid expansion of credit, and slowing economic growth. Even though the Chinese government has taken action to address the issue by, among other things, tightening credit conditions and cracking down on shadow banking, there are concerns that these measures have had limited success in reducing debt levels.

Even though the Chinese government has taken action to address the issue, there are concerns that these measures have had limited success in reducing debt levels.

Since China is the world’s second-largest economy and a major driver of global growth, its debt crisis affects economies worldwide. A severe debt crisis in China could have far-reaching effects on international trade and investment and cause a significant slowdown in global economic growth.

However, it should be kept in mind that China is not the only country experiencing difficulty managing its debt. The cases of Sri Lanka and Zambia have been mentioned above. Sustainable economic growth and stability in China and other countries require concerted efforts to address the debt issue on the part of policymakers, lenders, and international organizations. China’s economy won’t be able to improve until its debt crisis is fixed – a top priority for the country at the moment. We are yet to observe whether or not this year will mark the beginning of Beijing’s economic comeback.

Kriti Chopra is currently a doctoral scholar at Christ University who also works as a senior research affiliate at the Center for East Asian Studies. Ms Chopra’s thesis research explores China’s handling of human rights issues in Inner Mongolia. Her areas of interest include migration in the East Asian Area as well as human rights, particularly the rights of minorities. She has also co-authored a chapter in the book “The Rohingyas in South Asia.” The views contained in this article are the author’s alone.

You may also like

Comments are closed.