Understanding debt and diplomacy: China, 'debt traps' and development in the Global South

China, held up as an unabashed supporter of non-conditional finance for rapid development in the Global South, is accused by the US government and other Western leaders of using massive loans to saddle developing economies with unsustainable debt, seemingly playing to Beijing’s foreign policy goals. Citing examples as wideranging as Sri Lanka and Kenya, critics contend that unrestricted borrowing—the keystone of Chinese influence in many parts of low-income developing and emerging countries—undermines prospects for sustainable development and even is a deliberate policy tool to acquire strategic assets in these countries. The use of development assistance in the form of loans, grants, and other forms of economic engagement with another country is characterised by International Relations scholars as ‘economic statecraft’. Understanding the general use of debt as an instrument of economic statecraft, as well as its appropriation and application by China in the emblematic cases in Global South, is crucial to any assessment of its significance for Latin America and the Caribbean. This policy brief, therefore, explores the historical and contemporary context of debt-trap diplomacy, its application as part of China’s economic statecraft and, finally, assesses the significance of development finance and debt for the region.