From lead bilateral banker to chief debt collector: China’s shifting role in global lending

Developing countries are grappling with a tidal wave of debt repayments and interest costs to China, as bills come due from its Belt and Road lending surge in the 2010s, new Lowy Institute analysis reveals.

The Data Snapshot by Riley Duke, entitled Peak repayment: China’s global lending, shows that China, once the developing world’s largest source of new finance, is now the world’s largest single destination for developing country debt payments.

In 54 of 120 developing countries with available data, debt service payments to China now exceed the combined repayments owed to the Paris Club — a bloc that includes all major Western bilateral lenders.

China’s net lending position has shifted rapidly — in 2012, China was a net drain on the finances of only 18 developing countries, by 2023 that count had risen to 60.

“China’s earlier lending boom, combined with the structure of its loans, made a surge in debt servicing costs inevitable,” said Riley Duke.

“Because China’s Belt and Road lending spree peaked in the mid-2010s, those grace periods began expiring in the early 2020s — it was always likely to be a crunch period for developing country repayments to China.”

Duke said the high debt burden facing developing countries will hamper poverty reduction and slow development progress while stoking economic and political instability risks.

“The burden from Chinese debts coming due is also part of a broader set of severe headwinds, particularly for the poorest and most vulnerable economies,” he said.

“An increasingly isolationist United States and a distracted Europe are withdrawing or sharply cutting their aid support.

“Developing economies must also grapple with the impact of new trade war shocks and the spectre of punitive US tariffs being levelled against them.

“The Belt and Road Initiative hit its peak in the mid-2010s; peak repayment was reached in the mid-2020s. Now, and for the rest of this decade, China will be more debt collector than banker to the developing world,” Duke concluded.

KEY FINDINGS

• In 2025, the world’s poorest and most vulnerable countries will make record high debt repayments totalling $22 billion to China. Beijing has transitioned from capital provider to net financial drain on developing country budgets as debt servicing costs on Belt and Road Initiative projects from the 2010s now far outstrip new loan disbursements.
• China continues to finance strategic and resource-critical partners despite a broader collapse in its global lending. The largest recipients of new lending include immediate neighbours, Pakistan, Kazakhstan, and Mongolia, and developing countries that are critical mineral or battery metal exporters, such as Argentina, Brazil, Congo DR, and Indonesia.
• China is grappling with a dilemma of its own making: it faces growing diplomatic pressure to restructure unsustainable debt, and mounting domestic pressure to recover outstanding debts, particularly from its quasi-commercial institutions. But a retrenchment in Western aid and trade is compounding difficulties for developing countries while squandering any geopolitical advantage for the West.

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