UPSC (IAS) Prelims 2021 Important topics: China’s Debt-trap diplomacy: China has announced that it is providing a $90 million grant to Sri Lanka.
- This announcement comes after Sri Lankan President sought help from a visiting Chinese delegation in disproving a perception that China-funded megaprojects are “debt traps.”
What’s the issue?
China has been using the financial tool of debt to gain influence across the world and grab considerable power in India’s neighbouring countries, thereby increasing the amount of political and security threats the nation is exposed to.
What is debt trap explain?
A debt trap is a situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments on the principal of a loan. These traps are usually caused by high-interest rates and short terms.
Debt-trap diplomacy is carried out in bilateral relations between countries with a negative intent. The creditor country intentionally extends excessive credit to a debtor country, thereby inducing the debtor into a debt trap.
How does China’s debt trap diplomacy work?
- In a push to gain rapid political and economic ascendency across the globe, China dispenses billions of dollars in the form of concessional loans to developing countries, mostly for their large-scale infrastructure projects.
- These developing nations, which are primarily low- or middle-income countries, are unable to keep up with the repayments, and Beijing then gets a chance to demand concessions or advantages in exchange for debt relief.
How countries are being trapped?
There are several advantages or concessions that China asks for in exchange for debt relief.
- Sri Lanka was forced to hand over control of the Hambantota port project to China for 99 years, after it found itself under massive debt owed to Beijing. This allowed China control over a key port positioned at the doorstep of its regional rival India, and a strategic foothold along a key commercial and military waterway.
- In exchange for relief, China constructed its first military base in Djibouti. Whereas Angola is replaying multibillion-dollar debt to China with crude oil, creating major problems for its economy. UPSC (IAS) Prelims 2021 Important topics: China’s Debt-trap diplomacy
Important for Prelims:
- What is China Pakistan Economic Corridor?
China under the multi-billion-dollar CPEC will set up a 1,124-megawatt power project- Kohala Hydropower Project- in Pakistan-occupied Kashmir despite India’s objection to it.
A tripartite agreement has been finalised among China’s Three Gorges Corporation, the authorities in Pakistan-occupied Kashmir (PoK) and the PPIB to implement the 1,124-megawatt Kohala hydroelectric power project under the China-Pakistan Economic Corridor (CPEC) framework.
- The project will be built on the Jhelum River and aims at annually providing more than five billion units of clean and low-cost electricity for consumers in Pakistan.
- This marks one of the largest investments of USD 2.4 billion in an independent power producer (IPP) in the region.
The CPEC is the flagship project of the multi-billion-dollar Belt and Road Initiative (BRI), a pet project of Chinese President Xi Jinping, aimed at enhancing Beijing’s influence around the world through China-funded infrastructure projects.
The 3,000 km-long China–Pakistan Economic Corridor (CPEC) consists of highways, railways, and pipelines.
CPEC eventually aims at linking the city of Gwadar in South Western Pakistan to China’s North Western region Xinjiang through a vast network of highways and railways.
The proposed project will be financed by heavily-subsidised loans, that will be disbursed to the Government of Pakistan by Chinese banks.
But, why is India concerned?
It passes through PoK.
CPEC rests on a Chinese plan to secure and shorten its supply lines through Gwadar with an enhanced presence in the Indian Ocean. Hence, it is widely believed that upon CPEC’s fruition, an extensive Chinese presence will undermine India’s influence in the Indian Ocean.
It is also being contended that if CPEC were to successfully transform the Pakistan economy that could be a “red rag” for India which will remain at the receiving end of a wealthier and stronger Pakistan.
Besides, India shares a great deal of trust deficit with China and Pakistan and has a history of conflict with both. As a result, even though suggestions to re-approach the project pragmatically have been made, no advocate has overruled the principle strands of contention that continue to mar India’s equations with China and Pakistan.
2. What is Kaladan Multimodal Project?
The Indian and Myanmar’s armies have, in a coordinated operation, destroyed at least 10 camps belonging to an insurgent group in Myanmar, which had become a threat to India’s mega Kaladan Project in the neighbouring country. The operation was also undertaken keeping in view the safety of Indian workers engaged in the project. The military action carried out was codenamed Operation Sunrise.
About Kaladan project:
The Kaladan project connects Sittwe Port in Myanmar to the India-Myanmar border.
The project was jointly initiated by India and Myanmar to create a multi-modal platform for cargo shipments from the eastern ports to Myanmar and to the North-eastern parts of the country through Myanmar.
Significance: It is expected to open up sea routes and promote economic development in the North-eastern states, and also add value to the economic, commercial and strategic ties between India and Myanmar. This project will reduce distance from Kolkata to Sittwe by approximately 1328 km and will reduce the need to transport good through the narrow Siliguri corridor, also known as Chicken’s Neck.
Where is Sittwe located?
Sittwe is the capital of Rakhine State (which has been in the news for the plight of Rohingya Muslims) in south-western Myanmar. It is located at the mouth of the Kaladan river, which flows into Mizoram in north-eastern India.
Significance of this port for India:
India has for years sought transit access through Bangladesh to ship goods to the landlocked north-eastern States. At present, the only route to this region from the rest of India is a rather circuitous one through a narrow strip of Indian territory nicknamed the Chicken’s Neck in West Bengal, sandwiched between Bhutan and Bangladesh. The new route through Sittwe would significantly lower the cost and distance of movement from Kolkata to Mizoram and beyond.