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Read the fine print: the perils of Chinese development finance

Opinion by U.S. Ambassador to Japan Rahm Emanuel


In February, Secretary of State Antony Blinken detailed President Joe Biden’s blueprint to firmly anchor the United States in the Indo-Pacific, striving to solidify American leadership in the region. A free and open Indo-Pacific needs governments to safeguard democracy and commit to transparency. It requires deepening our partnerships to counter coercion, ensuring security and stability. And it means recognizing our economies — and the prosperity our people produce — are increasingly interconnected.


In many ways, this framework’s foundation mirrors the shared interests, shared values and shared goals of the U.S.-Japan alliance.


As Ambassador, my top priority is to deepen the bonds between our two countries. Together, we must confront our common challenges in common purpose throughout the Indo-Pacific. This includes meeting the region’s development needs through practices that are sustainable, transparent and underscore — rather than undermine — national sovereignty.


Together, we have worked for years in the Group of 20 and elsewhere to promote debt transparency and sustainability. We have also collaborated in the region with donor countries such as Australia and India to facilitate the financing of infrastructure projects that uphold best practices, reinforce developing countries’ agency and strengthen democratic processes. For its part, Japan has made Partnership for Quality Infrastructure a signature initiative of its commercial and development diplomacy. It has a well-earned reputation for delivering projects that employ local labor, share technical expertise and foster long-term economic growth. Most importantly, those investments do not come with hidden costs resulting in a lifetime of debt subservience.


In short, Japan is the gold standard on international infrastructure investment. Its impressive infrastructure investments complement our own work with governments, citizens and civil society organizations to advance countries’ development agendas. Across the Indo-Pacific, U.S. assistance has delivered open and secure connectivity and improved access to the internet, while boosting skills for the digital economy. In Cambodia, for example, we introduced digital technologies to empower its citizens to hold their governments accountable for services. To meet the region’s energy needs, the U.S. has mobilized over $3.7 billion for energy projects and provided enhanced energy services to more than two million beneficiaries.


One thing both of us have learned through decades of development partnerships is that empowering people enhances sustainability, sovereignty and democratic norms. However, the system that we built together — one that enables endless possibility — is under unprecedented pressure. Today, Indo-Pacific nations face a critical choice: a system based on a democratic rules-based order and shared principles, or coercion and the exercise of raw power on behalf of a single autocratic state.


The world is waking up to Beijing’s duplicity. Their playbook depends on disinformation, coercion, intimidation and aggression, even when it comes to development finance. In the Indo-Pacific and beyond China is engaging in predatory debt subservience. Enticing loans for infrastructure actually dig deeper financial holes for borrowing countries. Rather than a win-win, their projects become a win-lose bargain. That is because Chinese policy banks often lend at non-concessional terms that are impossible for nations to repay. And when that happens, China sometimes lays claim to nations’ commodity exports, particularly oil.


Spanning the Indo-Pacific in every corner, there are multiple examples of this debt-trap subservience. Some of the projects have been halted and others have led to local violence, but all have the common quality of buyer’s remorse. The question is not any particular project, but what we do about it. Worst of all, the real terms of China’s loans — the fine print, so to say — are frequently kept secret, so the taxpayers of these nations do not know what burdens they and their children will have to pay. All too often, it is only corrupt local elites and Chinese state-owned companies and their imported workers that see any benefits, while the country itself faces economic instability. It is clear the Belt and Road Initiative is a disguise designed to create a lifetime of dependencies, not a moment of development.


Any nation that operates through the modus operandi of conquering through division cannot advance an alliance, friendship, or progress. People in the Indo-Pacific — and everywhere — aspire to freedom, not serfdom. There is an endemic problem of nations incurring significant debt and struggling to make up the shortfalls for high-speed rail, subway and other transportation projects. If they knew the truth, would the people of any country accept a loan from the Chinese Development Bank containing the provision it would go into default if China decided to sever diplomatic ties?


There is no question we are at a critical juncture. But the region looks to America and Japan to ensure economic prosperity, cultivate climate resiliency and strengthen security through unity. The people of the Indo-Pacific deserve nothing less.

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