Examining China’s Intentions: Accidental Debt Trap Diplomacy and Misunderstood Maritime Disputes in ASEAN
Amirah Hamita is a Third year English Literature student. She worked as a digital consultant at IDEAS Globally, an advisory firm with social entrepreneurial projects in China, Myanmar, and Nepal. (dwh.mira12@gmail.com)
Introduction
With recent developing maritime disputes brewing in the South China Sea, especially with tense China-Taiwan relations, regional tensions are poised to escalate and threaten economic and political stability in Southeast Asia. The South China Sea's territorial dispute is a heavily contested topic, and rightfully so, given that it is a critical shipping route with untapped natural reserves. Stakeholders and claimants include major ASEAN economies such as Malaysia, Vietnam, Philippines, and have even garnered the attention of the United States and Japan.
The United Nations Conference on Trade and Development (UNCTAD) roughly estimates that 80% of global trade by volume is transported through the sea, with the South China Sea responsible for one-third of global shipping [1]. According to the U.S Geological Survey, the South China Sea holds about 160 trillion cubic feet of natural gas and 12 billion barrels of oil yet to be discovered [2].
China's assertive claims put pressure on the regional economic trade, movement of naval forces, and political stability of the surrounding ASEAN countries affected by its claims. The long-time dispute is more commonly known as the 'nine-dash' line conflict.
What is the origin of the 'Nine-Dash line'?
Beijing claims the right to the Paracel and Spratly island chains as part of the nation and even issued a map demarcating its claims, dating as far back as 1947 [3]. However, China's 'indisputable' claims over the islands and the surrounding waters has primarily been used inconsistently and ambiguously by the PRC. [4]
China's sovereignty claims over the South China Sea present the largest portion of territory, extending hundreds of miles south and east from its southernmost province of Hainan. It almost encircles the entire South China Sea, depicted on Chinese maps through nine-dash lines.
Malaysia, the Philippines, and Vietnam are all adversaries to China's claims. They invoke historical documents, geographical proximity, and international maritime laws outlined by the United Nations Convention on the Law of the Sea (UNCLOS) [5]. They argue that China's assertions violate a country's right to an Exclusive Economic Zone, which extends 200 nautical miles regardless of whether it is a mainland or an Island. China was a signatory to the law in the 1970s [6].
"Being able to control the waterway, what we normally call the sea-lines of communication is extremely important in China", commented Mats Engman, a spokesperson for the Institute for Security & Development Policy [7]. He continues that China has no immediate interest in war; rather, it just wants to ensure access to the sea. In short, China's primary - and quite arguably - sole aim is for their own economic benefit, as opposed to exacerbating geopolitical conflict for the sake of challenging western hegemony.
Belt and Road Initiative in ASEAN
Although maritime trade disputes in the region is a heavily one-sided conflict, with an overall favourable view for ASEAN, China's initiatives and trade projects seem to elicit a more polarising reaction from all sides.
Southeast Asia is a crucial element to Beijing's geo-economic strategy, set in the backdrop of growing trade and power competition between China and the West. The region provides major potential for economic growth, because Beijing is seen, primarily by the west, making participating poor nations interdependent with the Chinese economy, in order to build economic and political influence.
The Belt and Road Initiative (BRI) is a series of infrastructure projects funded by private-public partnerships and loan schemes from state-owned banks. The initiative provides the economic framework for Chinese state-owned companies to explore and invest in alternative markets beyond China’s borders.
Dispelling the Western Myth of 'Debt Trap' Diplomacy
China is by now the world’s largest and most prominent debt collector, with one estimate suggesting that 80% of the state’s lending portfolio in developing countries is backing states in financial distress [8]. The accusation of the ‘predatory’ BRI loan schemes lies in the belief that it is part of a manipulative global strategy, where these unsustainable debts are then used to gain leverage over participating ASEAN governments. Within the context of maritime disputes, this can be seen as a disingenuous form of aid, as participating countries are more likely to yield to Chinese claims for territorial conflict with the reward of funded infrastructure projects and increased trade with China.
However, many ASEAN countries have benefited from these projects, such as China funding railways in Indonesia and Laos, a port in Timor-Leste, etc. China-ASEAN trade peaked in 2022 at $975 billion USD; this is a drastic improvement from only 40$ billion USD in the year 2000 [9].
The notion that China has deliberately accepted debt that will benefit China over time can be dispelled when looking at the terms and data of the loan schemes. These loans have been quite concessional, offering below-market rates, especially when compared to debt-stressed countries where the loans coming from private lenders would be offered at much higher rates. Despite this, overdue repayments are increasing in proportion of total overdue loan repayments to official creditors. The number of the Chinese funded and loan-financed projects with significant ESG risk exposure rapidly jumped from 17 projects worth $420 million in 2000 to 1,693 projects worth $470 billion in 2021 [8].
Therefore, the BRI is not a monolith project seeking geo-political power but rather a set of decentralised projects with generous loan schemes for emerging risky markets, where the outcome has, more often than not, resulted in unfinished projects and defaulted loans.
In fact, China has taken measures and risk management guardrails in order to protect its overseas infrastructure investments. This is because being in the position of the world’s biggest lender puts China in a tricky position, and not just economically. Beijing’s public approval rating in the developing world plunged from 56% in 2019 to 40% in 2021 [8]. This only adds to the increasing pressure to escalate regional conflict from the U.S. and its allies in ASEAN.
The Relevancy and Intersection between the BRI and maritime disputes
But, with China facing economic headwinds themselves, alongside the increasingly tense maritime disputes, this begs the question: is it viable to continue financing and investing in Southeast Asian countries? Geopolitical and economic stakes means that it is more crucial than ever for China to maintain their bilateral relations, even when financial losses are outnumbered by its gains.
The one future that every stakeholder looks forward to is to de-escalate the maritime disputes. It is improbable that ASEAN as a collective would look forward to a regional war when only certain countries (Philippines, Malaysia, and Vietnam) have explicitly expressed their resentment towards territorial disputes and Chinese financial dominance in the region. Smaller countries like Cambodia, Timor-Leste, and Laos have benefited and will continue to benefit from the BRI.
China shows no immediate interest in war or gaining soft power in the region. The way forward appears to be, as President Xi stated, to invest in ‘small but beautiful’ projects - to reduce Chinese investments and gain more guaranteed returns as opposed to bigger projects, which may result in non-performing loans. This will allow less global scrutiny on Chinese investments in emerging markets as non-performing loans would inevitably decrease, and China would no longer be seen solely as a manipulative force in the region.
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Works Cited
[1] United Nations Conference on Trade and Development (UNCTAD). (2015) 'Review of Maritime Transport'.
[2] Asia Maritime Transparency Initiative. https://amti.csis.org/south-china-sea-energy-exploration-and-development/
[4] Brown, Peter J. (8 December 2009). "Calculated ambiguity in the South China Sea". Asia Times. Archived from the original on 5 January 2010.
[6] Hannesson, Rögnvaldur. (2008) 'The exclusive economic zone and economic development in the Pacific island countries', Marine Policy, Volume 32, Issue 6, pp. 886-897. doi: https://doi.org/10.1016/j.marpol.2008.01.002
