As of April 2019, US debt to China stood at $1.11 trillion. While this amount seems daunting, it is the proverbial tip of the iceberg once you compare it to debt across the world. China has recently cemented itself as the world’s big sister offering development loans across the globe. The loans are often procured to bridge key infrastructure gaps in many developing countries but have recently become renown as a debt trap. What is clear is that China is expanding and growing its economy while the US economy faces a decline. Going by this, it is not a great leap to predict that if this trend continues, it won’t be long before China ousts the US as the world’s economic superpower.
Becoming an Economic Superpower
To understand how China is moving onto what has historically been America’s spot, you have to look at how the US became an economic superpower in the first place. While many factors can be credited to the rise of US power, what made America a giant in the world is purely linked to leveraging of debt through the Marshall Plan. Money rules the world and whoever pulls the purse strings controls the rest. After the Second World War, most countries were in a state of economic depression while the US prospered. In order to rebuild their economies, these countries needed money: this is where the US came in.
Through the Marshall Plan, America lent out about $12 billion to countries in Western Europe alone. This was certainly not the exhaustive amount as the US lent money to countries across the world, thus increasing the dollar’s circulation and power. If you look closely, you will see that this same leveraging of debt is what China is doing. This is not to say that debt is altogether a bad thing as there can be no significant development without debt, especially for developing countries. It only means that good debt management even on a personal level is necessary to guarantee sustainable borrowing.
Responding to China’s “Debt Trap”
China’s lending policy creates a lovely catch-22 for most developing countries. On one hand, the loans help develop the infrastructure needed to propel these countries forward, while on the other hand, this propulsion is at the risk of losing their sovereignty. Countries like Zambia are already rallying to stop borrowing from China. However, some are arguing that the Chinese ‘debt trap’ is merely a construction of bad government policy and planning that make it impossible to service loans on time. What is clear is that many countries are indebted to China and many more are soon to be indebted as well.
Ultimately, if China continues lending as it is currently doing, it is only a matter of time before it earns the title of the world’s economic superpower.