China’s infrastructure loans sparks concern around sovereignty: Report

New Delhi: Whether or not Chinese infrastructure loans are a deliberate "debt-trap" strategy, the resultant high debt levels of recipient countries and opaque loan terms compromise their sovereignty, a report has said.

A report from Modern Diplomacy said that "the loans pose significant challenges for host countries seeking to achieve development without compromising their sovereignty."

However, the report maintained that if the Chinese infrastructure loans constitute a deliberate “debt trap” remains a contested question subject to debate.

It cited Western critics arguing that Beijing extends "excessive loans with opaque terms" to financially vulnerable states with terms to structurally weak developing countries to push them toward default, creating leverage for China to extract economic or political concessions.

The report cited the lease of Sri Lanka’s Hambantota port to a Chinese state‑owned firm after Colombo struggled with repayments as most cited by Western critics of China gaining control over strategic assets such as ports or railways, through long-term leases.

Conversely, supporters of China’s lending practices reject the “debt‑trap” hypothesis, considering it a “narrative trap” or Western propaganda aimed at discrediting Chinese cooperation.

According to them, Chinese banks and policy lenders provide financing for projects that many developing countries cannot secure from traditional Western or international financial institutions such as the World Bank and the International Monetary Fund.

"Studies indicate that Chinese development banks have never seized assets from any struggling country but have instead been willing to restructure loan terms. Further, the financial aid often arises from a combination of internal and external factors not directly attributable to China," the report said.

China argued that major loan financed projects are taken up based on request of recipients and the debt crises often stem from internal mismanagement, global market volatility, or the specific domestic responsibilities of each individual country.

Beijing maintains that multilateral financial institutions like the World Bank and Western commercial creditors hold the largest share of debt of developing countries and remain the primary source of repayment pressures, it noted.