The setup is clear: the party with more wealth and power presents itself as friendly, and offers a generous loan to the weaker party. The borrowing party spends the money, and is left with a debt larger than it can repay: by design, the greater party has lent a sum which the poorer party will be unable to pay back. The loan documents include provisions which stipulate that in the event of a default, the richer party is entitled to take certain actions against the nonremitting party.
In the case of a loan between nations, the terms of the lease will declare that the lender may seize the property, or take control of the property, perhaps by means of an occupying military force. This is precisely what China has implemented in its loans to various third-world countries.
In the first few decades of the twenty-first century, China has lent millions of dollars to the tiny Pacific nation of Tonga. Strategically located near Australia and New Zealand, and rich in certain natural resources like fish and minerals, Tonga is situated adjacent to certain crucial seaways which China would like to control. Tonga consists of approximately 45 inhabited islands and over a hundred uninhabited islands. The islands are small, and the nation’s total land area is around 289 square miles, or 748 square kilometers.
Given Tonga’s minimal economy, the amount of money it owes to China is relatively enormous. In 2019, journalist Nick Perry wrote:
Analysts say those loans could prove Tonga’s undoing. The country of 106,000 people owes some $108 million to China’s Export-Import bank, equivalent to about 25% of GDP.
China funded a multi-million dollar office complex for the Tongan government, and paid millions to fund the training of Tonga’s athletes in the runup to various international games, including the Pacific Games and the Olympics. China also funded the training of Tonga’s government employees in the latest administrative methods.
Can Tonga repay the money it owes to China? Tonga’s economy is not robust. It relies on gifts sent by emigrants — Tongans who’ve left their native country to find jobs abroad, and who then send money to the families in Tonga. Its products include handicrafts, and most of its agriculture is subsistence. It imports nearly all of its energy.
What will happen when Tonga is unable to make scheduled payments?
China has already been down this road with other nations, as Nick Perry writes:
In Sri Lanka, for example, the government was forced to hand over control of its Hambantota port as it struggles to repay loans it got from China to build the facility — a move that has given Beijing a strategic foothold within hundreds of miles of rival India.
Seeing China’s expansionist moves in Tonga, Australia and New Zealand have begun giving cash to various small nations in the South Pacific. Will these actions be enough to prevent China from gobbling up the tiny island countries?
China’s imperialistic ambitions are also visible in Africa.
A Chinese bank lent approximately $700 million dollars to the government of Mozambique. Like all banks in mainland China, this bank is controlled by the Chinese Communist Party. The money was used to build a bridge from Mozambique’s capital city, Maputo, to one of its suburbs, Katembe. The cost for the construction of the bridge was seen by many observers as above the market rate. Also above the market rate was the interest charged by the Chinese bank. The Mozambican government opted for the loans despite the availability of other loans at lower rates: bribery is alleged.
Like Tonga, Mozambique now finds itself with loans which it might not be able to repay. What will happen then? China might assert an alleged right to repossess its property — in this case, the bridge. To claim and protect its property, China might imagine a right to station soldiers there.
Using the “debt trap,” China has found a way to turn small nations into its colonies. This economic colonialism is a powerful mechanism and helps China work toward its goal of a global empire.
