Xi Jinping has been appointed to a third term as paramount leader of China, giving him more time to unspool his strategy to displace the post-World War II American-built global order. China’s Belt and Road Initiative has made several trillion dollars in market-rate loans to finance infrastructure projects in developing countries that Xi is seeking to influence. As it becomes increasingly clear how unserviceable these loans are, the United States must counter China’s debt-trap diplomacy by holding partner countries accountable.
China doesn’t require policy adjustments or governance standards to be met before building a project; they just provide the money. Policymakers in other countries often ask the U.S. why it can’t do the same. But the United States cannot and should not compete dollar-for-dollar with China. Our model must be based on sustainable growth. China may require little from recipient countries on the front end, but choosing to engage with China is far from cost-free. Recent events in Sri Lanka are giving the world a preview of just how pricey it can be.
Gotobaya Rajapaksa, the former Sri Lankan president who recently had to flee his own people, ought now to be aware of this cost. Exhibit A is the Hambantota port deal, signed the previous time the Rajapaksa family held power. China financed an unsustainable Sri Lankan port with over a billion dollars in loans. Desperate for cash to repay foreign debts, Sri Lanka handed over control of the port to China for 99 years. And just like that, China has a strategically located Indian Ocean deep water port. China’s claim they won’t use Hambantota port for military purposes is dubious at best given its grand strategy of displacing U.S. global preeminence.
When a new regime came to power in Sri Lanka in 2015, the United States saw an opportunity to consolidate democratic, free market reforms, and reduce Sri Lankan poverty through economic development assistance. Two years later, based on political and institutional progress in Sri Lanka, the U.S. government awarded Sri Lanka with almost $500 million in infrastructure projects directly benefiting its people. But in 2020, the government withdrew this assistance before putting a shovel in the ground. What happened?
Narratives began appearing online in Sri Lanka that U.S. grant assistance to rebuild the highway around Columbo, improve roads, and introduce a system of land reform, were in fact a secret military plot. Certainly, Sri Lankan politics worked against success, but so did broader geopolitics. Although difficult to trace the origins of the “U.S. military takeover” narrative, Chinese news services certainly amplified it, and the Rajapaksas, then vying for the presidency again, ran with it.
Rather than embracing a partnership designed to benefit their own people, the new Rajapaksa government ignored it. Why? Sri Lanka has an approximately $51 billion debt load, roughly a third of which is held by China and shrouded in the opaqueness typical of Chinese loans. In contrast, the U.S. project was grant funded. Washington only required an open, transparent process and the inclusion of societal stakeholders. The practical reality, however, is that leaders in the Rajapaksa mold want the money first. They give little thought to the consequences of binding generations of their people to a massive debt load.
Sri Lanka teaches us that the United States shouldn’t compete with China on its terms. By providing the $500 million, the U.S. would have essentially told the Sri Lankan government that U.S. money would flow despite their unwillingness to be a good partner and look out for their people’s best interests. That would have weakened the U.S. position in both Sri Lanka’s and China’s eyes.
It soon followed that Rajapaksa had to face his own people on his own record. The infrastructure projects were not the catalyst for Rajapaksa’s downfall or the widespread protests in Sri Lanka earlier this year. But the withdrawal reflected the overall disastrous economic reality that the government’s decision-making had created. The Sri Lankan people’s verdict was clear: enough.
The United States should now reengage with Sri Lanka, still keeping its principles intact. And Sri Lanka has an incentive to proceed with U.S. reengagement differently.
For those leaders who embraced Chinese loans no questions asked, the bill is coming due. The United States cannot fall into the trap of providing economic assistance simply to have a presence. China’s efforts to control the developing world through debt are broader and far more integrated than single country-by-country relations: it’s a slow-moving, long-term strategy to increase the costs of confrontation and tip the global power balance in their favor. It’s happening in the open. America must play the long game too. It’s time to hold partners accountable.