Vulnerable nations face record debt repayments as Chinese lending boom reverses

SYDNEY, AUSTRALIA: The world’s most vulnerable nations are facing an impending “tidal wave” of debt repayments as a surge in Chinese lending begins to be called in, according to a new report. The Lowy Institute, an Australian thinktank specializing in foreign policy, published an analysis warning that in 2025, the poorest 75 countries will owe a record US$22 billion in debt to China. These countries’ debts make up the majority of the total $35 billion owed by developing nations that year.

The report emphasizes that China is shifting from being mainly a lender to a debt collector for the developing world, which is placing significant strain on their budgets for vital services like health, education, and climate change efforts. It notes that China’s lending activity has sharply declined precisely when these countries need financial support most, resulting in large net outflows of funds at a time of economic distress.

Historically, China has invested heavily in infrastructure projects through its Belt and Road Initiative (BRI), a state-led global infrastructure and investment program. From 2008 to 2021, China spent around $240 billion on BRI-related bailouts. The loans, primarily aimed at developing nations lacking access to private or other government funding, have financed a wide range of projects including schools, hospitals, bridges, roads, ports, and airports. At its peak in 2016, China’s bilateral lending surpassed $50 billion, exceeding the combined total of Western lenders.

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While the BRI has expanded China’s influence globally, it has also raised concerns about debt dependency and potential political leverage. Critics argue that some recipient countries have become trapped by unserviceable debt, exemplified by Laos, which recently faced a severe debt crisis partly due to over-investment in the energy sector financed by China. China denies intentionally creating debt traps, and recipient nations often defend China as a reliable partner that offers crucial funding when others refuse.

The report highlights that the mounting debt owed to China could be used for strategic political purposes, especially amid significant reductions in foreign aid by the Trump administration. Additionally, recent large loans to countries such as Honduras, Nicaragua, Solomon Islands, Burkina Faso, and the Dominican Republic occurred shortly after these nations switched diplomatic recognition from Taiwan to Beijing.

China continues to support strategic allies like Pakistan, Kazakhstan, Laos, and Mongolia, as well as countries rich in critical minerals, including Argentina, Brazil, and Indonesia. However, China faces a dilemma: it must balance diplomatic demands to restructure debt with its own economic challenges that have led to a downturn and calls to recall loans.

China provides limited data on its BRI lending, and the Lowy Institute estimates, relying on the World Bank, suggest that China’s actual lending may be significantly underestimated. AidData, in 2021, estimated that China’s ‘hidden debt’ could be around $385 billion.