The China’s Debt Politics
China’s role in global debt politics has long been a subject of debate, with some scholars and policymakers characterizing its lending practices as a “debt trap,” while others argue that Chinese loans offer economic emancipation to recipient countries. Pakistan recently received a $2 billion debt rollover from China, a move that underscores the complex economic and political dynamics of international debt relations. The question remains: why is China rolling over debt for Pakistan and other countries? What does this mean in the broader context of global debt and economic stability?
China’s debt diplomacy must be analyzed within the framework of political economy, focusing on debt as a tool of geopolitical influence and economic restructuring. Many developing nations, including Pakistan, have turned to China for financial assistance due to their limited access to Western financial institutions such as the International Monetary Fund (IMF) and World Bank, which impose stringent structural adjustment programs. China’s lending practices, particularly under the Belt and Road Initiative (BRI), are seen by some as an alternative model of development financing, while others argue that they reinforce financial dependency and extractive economic relationships. Global debt levels have reached unprecedented heights. According to the Institute of International Finance (IIF), global debt stood at around $307 trillion in 2023, with both developing and developed countries facing severe debt burdens. The United States, for instance, holds over $34 trillion in national debt, while Japan’s debt-to-GDP ratio exceeds 250%. Meanwhile, heavily indebted developing countries such as Argentina, Sri Lanka, and Zambia have struggled with sovereign debt crises. China itself carries a domestic debt burden exceeding 300% of its GDP, largely fueled by state-driven investment and an expansive credit system. However, China is also one of the world’s largest creditors, having provided more than $1.1 trillion in loans to developing nations, particularly through its state-owned policy banks.
Comparing China’s debt diplomacy with that of Western institutions, scholars such as Eswar Prasad in “The Dollar Trap” argue that the global financial system remains anchored in U.S. dollar hegemony, compelling nations to rely on U.S.-led financial structures. In contrast, China’s lending mechanisms often bypass the dollar-dominated system, providing alternative financing options to countries wary of IMF-imposed austerity measures. Wolfgang Streeck, in “Buying Time,” contends that debt accumulation has become a fundamental feature of late capitalism, used by states to defer economic crises while maintaining the illusion of fiscal stability. Cheryl Payer’s “The Debt Trap” similarly illustrates how international lending institutions have historically used debt to extract resources and enforce economic discipline in the Global South. China’s debt relations with Pakistan and other developing nations can be seen through the lens of dialectical materialism, where debt functions as a mechanism of class struggle on a global scale. Debt perpetuates dependency by keeping recipient countries in a subordinate position, unable to achieve genuine economic sovereignty. While China’s loans often come without explicit political conditions, they still reinforce an economic structure where surplus value is extracted through capital-intensive projects controlled by Chinese firms. This aligns with the Gramscian notion of hegemonic control, where economic and ideological dominance is maintained through consent rather than coercion.
Debt politics also shapes the political tone of society, influencing public trust in governance and financial institutions. In many indebted countries, debt crises lead to public disillusionment, strengthening authoritarian tendencies as governments justify repressive policies in the name of economic stability. Political leaders use debt as a narrative to manufacture public consent, convincing societies that borrowing is the only viable path to development while suppressing discussions on alternative economic models. This erosion of democratic discourse weakens societal trust, making communities more vulnerable to external control and reducing their ability to demand financial transparency and accountability. The relationship between debt and authoritarianism is particularly evident in countries where financial dependency forces governments to prioritize creditor demands over domestic welfare. As debt repayments consume national revenues, social spending declines, exacerbating inequality and public discontent. Instead of accelerating economic democratization, debt-driven policies often consolidate power among elite groups who control financial decision-making. This process aligns with Marxist critiques of capitalist accumulation, wherein economic policies serve the interests of ruling classes rather than the broader population. Moving away from sovereign control over national resources, debt-ridden states lose their ability to implement policies that align with the needs of their people, further entrenching dependency and exploitation.
Pakistan’s reliance on Chinese financial support reflects broader issues of underdevelopment and structural weaknesses in its economy. Despite receiving significant investments under the China-Pakistan Economic Corridor (CPEC), Pakistan has struggled to translate infrastructure development into sustainable economic growth. The failure to industrialize, reliance on imports, weak export performance, and recurring fiscal deficits have prevented debt from transforming into long-term development. This aligns with Thomas Piketty’s argument in “Capital in the Twenty-First Century,” where he highlights how wealth accumulation remains concentrated in the hands of capital owners, while indebted economies continue to struggle with structural inequalities.
Manufacturing public opinion around debt politics is another critical dimension. Governments and media often present debt rollovers as economic relief, masking the underlying structural issues that perpetuate financial dependency. In the case of Pakistan, successive governments have celebrated Chinese financial assistance as a sign of strategic partnership, while ignoring the long-term economic constraints imposed by mounting external liabilities. The political tone of debt discourse shapes public perception, often preventing critical engagement with alternative economic policies that prioritize self-reliance and industrial policy over external borrowing.
To build trust within society and move towards financial democratization, indebted nations must reclaim control over their financial policies. This requires strengthening domestic financial institutions, promoting inclusive economic participation, and ensuring transparent governance mechanisms. National economic sovereignty can only be achieved through policies that prioritize equitable resource distribution, self-sustaining industries, and diversified trade relations. Furthermore, economic literacy among citizens is essential to challenge dominant debt narratives and advocate for alternative financial models that serve collective interests rather than elite agendas.
To break free from the cycle of debt dependency, countries like Pakistan must adopt a multi-pronged approach.
First, economic diversification and structural reforms are essential to reducing reliance on external financing. This requires strengthening domestic industries, improving export competitiveness, and curbing unnecessary imports.
Second, progressive taxation policies and wealth redistribution can mitigate economic inequalities, ensuring that the benefits of development are more evenly distributed.
Third, alternative financial arrangements, such as regional monetary cooperation and trade in local currencies, could help reduce dependence on Western-dominated financial institutions and the U.S. dollar.
China’s debt diplomacy, while offering an alternative to traditional Western financial hegemony, does not inherently lead to economic emancipation. China’s debt to other countries, particularly in comparison with Pakistan and other Belt and Road Initiative (BRI) nations, reveals a pattern where debt and authoritarianism often intersect. Many BRI countries, including Pakistan, have become financially dependent on Chinese loans, which, while presented as economic lifelines, also reinforce political centralization and reduce democratic agency. The debt burden restricts policy autonomy, compelling recipient nations to align with China’s strategic interests. This financial reliance mirrors broader global trends where indebted nations face pressures to conform to creditor priorities, limiting their ability to pursue independent developmental pathways. The intersection of debt and authoritarian governance becomes evident as ruling elites in recipient states justify restrictive policies and economic austerity under the guise of financial stability, consolidating power while diminishing public participation in economic decision-making.
Without strategic economic planning, debt rollovers only serve to postpone crises rather than resolve them. The lessons from highly indebted countries suggest that sustainable development cannot be achieved through perpetual borrowing. Instead, a fundamental rethinking of global financial structures and national economic policies is required to create a more equitable and self-sustaining economic order. As history has shown, true economic sovereignty is only possible when nations prioritize structural transformation over temporary financial relief.
