Because in Afrika and elsewhere, governments have secured massive loans from Beijing using strategic assets—such as oil, minerals, and land rights— as collateral. If borrower nations find themselves unable to repay the loan, China can claim the strategic asset. Sri Lanka recently learned this the hard way and handed over control of the port of Hambantota, giving China a strategic foothold along a busy trade waterway.
According to Professor Brahma Chellaney at the New Delhi-based Center for Policy Research, “several other countries, from Argentina to Namibia to Laos, have been ensnared in a Chinese debt trap, forcing them to confront agonizing choices in order to stave off default.”
While Chinese debt diplomacy may not seem relevant to most Americans, it is a serious threat to the USA’s national security. Most directly, China’s crafty negotiations and seizure of strategic assets can limit the USA’s influence and access overseas. For instance, the tiny country of Djibouti is home to the most significant American military base in Afrika. Thanks to Chinese loans, Djibouti’s debt-to-GDP ratio surged from 50 to 85 percent between 2014 and 2016. If Djibouti were to default and relinquish the port that resupplies the U.S. base, American military capability in Africa and the Middle East could be seriously threatened.