What is “Debt-Trap 2.0” Narrative? And Why Is Zambia the Battleground?

Hussein Askary

Vice-Chairman of the Belt and Road Institute in Sweden

Following the publication of my article “The End of Fukuyama and Debt Trap 2.0”, many readers asked for further explanation on the difference between the first “debt-trap” narrative and the latter one. I will not dwell on Debt Trap 1.0, because I have explained it in many case studies earlier. It may suffice to read the appendix below or read my articles on the cases of Sri Lanka  and Pakistan. My article on the case of Zambia helps bridge the Debt-Trap 1.0 narrative to the new one, Debt-Trap 2.0.

To illustrate Debt Trap 2.0, I would like to first use this anecdotal story for simplification, then explain it in more objective details:

Mr. Z is in trouble, because he has due payments upon debt which he claims was “gambling debt” incurred by his deceased father. Several years ago, when the “gambling debt” of Mr. Z’s father owed to Mr. Aberdeen and other creditors was due for payment, Mr. Z borrowed even more money from Mr. Blackrock to repay Mr. Aberdeen’s debt. He also borrowed some extra money to make ends meet at that moment due to economic difficulties. So, the debt settlement of the first “gambling loans” now increased the debt burden of Mr. Z, because the interest rate on the new loan was much higher than the original debt. But Mr. Z did not have to worry at that moment, because he had a five-years break until the debt of Mr. Blackrock mature and due for repayment.

In the meantime, Mr. Wang comes to town and loans money to Mr. Z to help him build a house, with a little farm next to it to grow food for the family. Mr. Wang also loaned Mr. Z money to build a wind turbine to generate electricity for the house. Mr. Wang even suggested that Mr. Z build a small workshop so he could raise enough income to both support his family and repay the debt on the house, farm, and wind turbine. The loans from both Mr. Aberdeen and Mr. Blackrock were never used to build anything, except to pay old gambling debt. But that debt kept rising. Now, when the five years elapsed, Mr. Blackrock (and Mr. Aberdeen who became a manager of the loans of the latter), demanded full payment with interest. However, Mr. Z has not yet built the workshop nor his farm is producing a surplus of food to sell in the market to be able to pay back his debt. So, Mr. Z is once again in trouble to find a third source to borrow from to payback both for the gambling debt, and part of the debt on the house, farm, and wind turbine owed to Mr. Wang. The latter is much smaller, because it is divided into many tranches over a long period of time.

The “third” lender came to town represented by the three witches of Macbeth: Ms. IMF, Ms. Treasury, and Ms. EU. They told Mr. Z that they can help him pay back his debt to Mr. Blackrock if he convinces Mr. Wang to forgive all his debt and, in addition, give him some extra cash. They also told Mr. Z that he should forget about the workshop, because he cannot afford to take new loans from Mr. Wang for that purpose. When Mr. Z told Mr. Wang about the demands of the three witches, Mr. Wang protested that it was not his loans which created Mr. Z’s trouble, but the gambling debt did. Nonetheless, Mr. Wang agreed to postpone the first payment of Mr. Z’s debt until his situation is improved.

Mr. Z went back to the three witches and told them what Mr. Wang had told him. The three witches then staged a big protest outside the house of Mr. Wang, with a whole mob holding torches and chanting that Mr. Wang was an evil man because he refused to forgive the debt, and even refused to give Mr. Z some money to settle his gambling debt to Mr. Blackrock. “How dare you!”, they screamed. So, Mr. Wang left the town, while the three witches, Mr. Black Rock, Mr. Aberdeen, and the mob are still protesting that everything is at a standstill because of Mr. Wang.

Mr. Reuters, a member of the mob, keeps reporting on this situation. Other members of the mob have been protesting from Z’s former colonial master’s capital, London.

No one knows to this date how this dilemma will be settled.



What is “Debt-Trap 2.0”?

“Debt-Trap 2.0” is a new attempt, launched in 2022 by the U.S. Treasury Department (*) to undermine the BRI and China’s cooperation with other nations in the developing sector under the new slogan “China is not helping in debt relief for poor nations”. This came after the first debt trap narrative was totally debunked by international researchers, including myself. The “Debt Trap 1.0” narrative alleged that China lends large sums of money for big infrastructure projects in poor countries knowing in advance that those countries won’t be able to repay that debt, and thus take advantage of them by seizing assets, natural resources, or geopolitically manipulating them. Nothing of that was ever proven, but the fake narrative spread globally thanks to massive well-financed media campaigns. Debt Trap 2.0 sounds “friendlier” but is more sinister in its implications. Zambia has been chosen as the “template” for this new narrative as Sri Lanka and the Port of Hambantota were selected by U.S. security operatives remolded as students in Harvard as the “template” for Debt-Trap 1.0 narrative in 2018.

Debt Trap 2.0 has three main features:

  1. It calls on China to “cooperate” with Western institutions to relieve the debt of the most affected nations by the current global financial-economic crisis that has nothing to do with China. The demand is that China does two things: First, cancel most of the debt of those affected nations; second provide cash to be added to the IMF rescue packages so those countries will be able to reschedule their debt. What this would mean practically is that China would finance the repayment of those countries’ debt owed largely to private Western bondholders and investment funds like BlackRock, Ashmore, and ABRDN, who own large amounts of the sovereign bonds of the affected nations. Those bond holders have emerged in the past 20 years as the largest creditors of developing countries, surpassing the Paris Club and China. The International Monetary Fund was very blunt in its report on what Sri Lanka should do to deserve support from the IMF, and that was that Sri Lanka must reach a reasonable repayment settlement with those private bond holders.
  2. It alleges falsely that China is the largest creditor to the most affected nations in Africa and Asia. The fallacy of composition used here is mixing China’s role as a state in bilateral credit arrangements with other individual states, where China is indeed the largest creditor as a state compared for example to the U.S. and Britain because the latter two never helped finance and build any meaningful infrastructure projects in Africa. But compared to international bond holders, China is a smaller creditor, as we showed in the case of Sri Lanka external liabilities where China’s share is 10% compared to 47% for the Western sovereign bond holders. So first, it is not true that China is the “largest creditor”, and second the narrative equates China’s efforts to finance on a long-term and low-interest basis the building of infrastructure in those countries to increase their productivity and rid them off poverty with the efforts of Western vulture funds who take advantage of nations in distress to make profit by buying their debt at high interest rates and on short-term basis. Here are some examples on how U.S. Treasury Secretary, Janet Yellen, personally made this narrative spread in global media. Talking about the difficulties of “debt-relief” efforts, she said in a meeting with the Finance Ministers of the EU in October 2022: “China is an important factor in why that’s not working. China is the biggest creditor in these countries and China is not participating constructively.”

Later in a news conference, follwoing a meeting of G-7 finance ministers with African counterparts, she said:

“We recognize the importance of making progress on having a better and more effective framework for resolving excessive debt,” she said, adding: “And really, the barrier to making greater progress is one important creditor country, namely China, so there has been much discussion of what we can do to bring China to the table and to foster a more effective resolution of their problems.”

China on the other hand has made it clear that it has made major efforts to help nations in distress, but in bilateral fashion. But the U.S. accusations are intended to set a precedent for a new mechanism to force a change in China’s cooperation with BRI member nations. The template used here is Zambia, that’s why much has depended on Zambia in this fight. “I consider the timely finalization of debt treatment for Zambia to be a top priority for the Treasury Department”, Yellen stressed in a press conference following her meeting with Minister of Finance of Zambia Situmbeko Musokotwane. “We will continue to press for all official bilateral and private sector creditors to meaningfully participate in debt relief for Zambia, especially China,” she added.

3. What is worse in this new Debt Trap 2.0 narrative is that BRI partners of China are pressured to abandon infrastructure project agreed upon with China and refrain from taking new loans for such infrastructure. They are urged to only accept projects as foreign direct investments. This was made clear in the IMF demands from Zambia, for example. This means that a key feature of the BRI will be eliminated. Zambia was pressured to do that in order to get emergency funding from the IMF. The reality is that without infrastructure, those countries will remail in perpetual poverty.

It is important to note here that the Zambian leadership has continued its cordial dialog with the Chinese leadership, and the Zambian President visited China twice this year to reaffirm his government’s commitment to cooperation with China. However, as we reported in our article “Debt-Trap 2.0: British Companies Loot Zambia, The U.S. Blames China!”, Zambia has already been forced to cancel several crucial infrastructure projects loan-financed by Chia.

The Belt and Road Initiative is the Solution, not the problem!

The Belt and Road Initiative (BRI), launched by President Xi Jinping in 2013, has evolved into the greatest development initiative in history. The BRI provides a model of trans-boundary economic cooperation that has been missing since the end of the Bretton Woods system in 1971. The emphasis on the common goals of development of nations, transcending political, cultural, and ideological differences, is a unique feature of the BRI that ensures the respect of sovereignty and dignity of the respective nations participating in it, this is an important addition to the system of global governance.

Especially with respect to financing development, the BRI has presented an effective and coordinated way of development financing, based on long-term results rather than immediate monetary benefits, and on real economic development through large-scale infrastructure building rather than “aid” which tends to perpetuate poverty rather than ending it.

China and the BRI are the solution to the financial crises in many countries. Debt pressure is a result of a real debt-trap those nations fell into long time ago due to multiple crises that have nothing to do with China. Civil wars, famines, epidemics, terrorism, exploitation by former colonial masters in the West of their natural resources, and policies devised by the IMF and World Bank are among the main reasons of the debt crisis in those countries. Our research in the cases of Sri Lanka, Zambia, and Pakistan makes this point very clear. What China is doing through the BRI is actually a form of “debt relief”. When China builds infrastructure in those countries it increases their productivity in many sectors. For example providing transport and electricity for industries. The increase of productivity helps generate greater national income, which in turn helps those nations to repay their debt. In contrast, debt from Western institutions is often incurred to resolve trade and fiscal deficits, which means it is not used in anything productive but simply to pay old liabilities. That is the real debt trap.

As economist Jeffrey Sachs has argued repeatedly in recent months, African nations need to borrow much more now to fill the huge gap in infrastructure deficit. Although I disagree with the notion that “money” makes the economy move rather than intentions and aspirations of nations, I agree on certain matters with Sachs. Without infrastructure (including education and healthcare), industrialization and modernization will be impossible. Without industrialization it is impossible to eliminate poverty. However, the loans for infrastrcuture must be long term (25-30 years maturity) and at interest rates lower than 4%. Chinese loans for infrastructure are often only 2%, such as in the case of the Chinese Ex-Im Bank loan to Montenegro (**) to build a highway agreed upon in 2014. What this long-term, low interest rate credit makes possible is the increase in the productivity and the ration of growth of the GDP of these nations. By the time these loans mature, the return, based on the increased productivity generated by the infrastructure projects, will be many times higher than the original loan. The current misleading use of the notion of “financial sustainability” by certain Western institutions as a prerequisite for any financing of infrastructure in developing nations is a suicidal recipe. Most nations of the world have large debt burdens, but the solution is not killing the physical economies of these nations through the typical austerity demands by the IMF, but by increasing their productivity. This means investing more resources into building modern infrastructure.

But it is very importnat to shed light on one of the main fallacies used in the debt trap narratives, which is the focus on a single major infrastructure project to calculate the cost and financial return upon its investment. One single railway project, such as the Mombasa-Nairobi railway, cannot be seen as a thing in itself. It must be seen as part of a larger economic development process that includes power generation, roads, water management, agricultural and industrial projects, and education and healthcare. All these together make the national development of a country possible. Therefore, calculating the cost and benefit of one single railway does not make sense for a whole nation’s economic processes. As American economist Lyndon H LaRouche Jr. argued against the paradigm shift in trans-Atlantic economic and financial thinking to neo-liberalism already more than three decades ago, calculating the feasibility or cost and benefit of a single major infrastructure project in isolation from the rest of the economy is like expecting to generate profit from the foundation of a building before the building as a whole is completed.

Ethiopia today is a good example of an emerging developing nation where multiple projects have been underway simultaneously and are lifting the whole economy together. Chinese loan-financed projects play an important role in that process. But it is the Ethiopian government and people, through several five-year plans, who have played the key role in the development process that needs to be enhanced even more to meet all challenges.


It is therefore very important that China, not only continues its productive credit policy and increase it and make it the norm globally, refuses to accept the “debt relief” plans pushed by the U.S. and its allies in the G-7. At the same time, officials, scholars, and mass media personalities should explain the enormous differences between China’s financing methods through the BRI and the real debt trap that many nations in the developing sector have been living within for decades with no connection to China nor the BRI. Furthermore, as I report in a recent article, it should be emphasized that China alone cannot provide all the credit necessary to fill the infrastructure deficit gap which is huge. Other players must get involved in the next 10 years of the building of the BRI.

As for Zambia and other developing nations, they need to take control over their natural resources and economic policy designs. Many nations, including Zambia, are still under a neocolonial system in which their mineral wealth is controlled by corporations from former colonial powers. The IMF, World Bank, and other Western institutions have reinforced this neocolonial exploitation system through so-called “structural reform” plans and aid policies. This is where their financial problems stem from to a large extent. Zambia has been selected as the battle ground and the template for this new policy of undermining the BRI and China-Africa cooperation due to its small size and fragile economic and political structure. But it is here that this whole scheme might collapse.


How to expose the “Belt and Road debt-trap 1.0” narrative?

There are three exposable fallacies in the “debt-trap 1.0” narrative used by Western media and politicians to smear China and the Belt and Road Initiative. When examined closely, as I did in my research in the case studies of Sri Lanka, Pakistan, and Zambia, the three fallacies stick out:

  1. The cause of the debt crisis: Countries in debt distress today were often in a debt trap before China and the Belt and Road came on the scene. The reasons for these traps start with economic and financial crises caused by natural disasters, terrorism, wars or civil wars, epidemics / pandemics, and global financial and currency crises. These countries are forced to borrow heavily, mostly from international bond markets, in a desperate attempt to survive socially and politically., kicking the ball of the repayment of the debt into the future. The situation is then aggravated by the mismanagement of the finances often in cooperation with the International Monetary Fund and the World Bank. Solutions proposed have conditionalities attached such as austerity, reducing public investment in infrastructure, and privatization of state assets and utilities. This worsens the situation because the new resources are not allocated to address the root cause of the economic problem, which is the backwardness of the infrastructure, the lack of skilled labour and low productivity.
  2. To whom the debt is owed? My research showed that 80% of Sri Lanka’s, 70% of Pakistan’s, and 77% of Zambia’s external debt is owned by Western private and public institutions. China’s share in 2022 was 10%, 15%, and 17% respectively for the three countries. Both Sri Lanka and Zambia defaulted upon payments of “sovereign bonds” owned by Western private corporations and investment fund managers like American Blackrock, and British Ashmore and Abrdn, and others, not Chinese loans.
  3. The nature of the debt incurred: Chinese loans to developing countries are long-term and low interest credits contributing to improved infrastructure which in turn leads to increased productivity and economic growth, thus to greater wealth and income for these countries enabling them to service their debt comfortably. Western loans are often short term with high interest rates desperately taken by these countries in emergency situations to solve fiscal and trade deficits without benefit for the productive economy. These loans accumulate and lead to unsustainable cycle of indebtedness (debt trap). Therefore, there is a “qualitative” difference between Chinese and Western loans that have to be emphasized.

For reference, see case study Sri Lanka!

(*) In this speech and Q&A session, Councelor to the US Treasury Brent Neiman lays out in detail the whole scheme of the attack on China, the BRI, and how Zambia will become the decisive battleground and the template to be used in other parts of Africa and the world against China and the BRI.

(**) The loan to Montenegro by the Chinese Ex-Im bank, whose contract was made public by the government of Montengro, is a very interesting case study of how lenient Chinese loan conditions are. The loan contract of US$ 944 million to build a section of the Bar-Boljare Highway by China Communications Construction Company signed on February 26, 2014, included a 6-year grace period and a 20-year repayment schedule! No collateral was included as a guarrantee contrary to what many fake news reports in Western media alleged. The first repayment was scheduled for June 2021, consitsting of a mere US$ 40 million, not the whole sum of US$ 944 million as the Western media alleged at the time. That year, Montenegro had fallen into a deep financial crisis due to the COVID-19 pandemic. As is known, a great part of Montengro’s national income is reliant on tourism, a major Achilles heel which was hit by the pandemic in 2020 and 2021. China agreed to postpone the repayment of the first tranche one year. For any corporate loan of this type, an analyst would say about this case that the lender (China) is in disadvantage here, and that the borrower (Montenegro) is the winner.