By IndraStra Global Editorial Team
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| Cover Image Attribute: On October 28, 2024, a train carrying 28 newly manufactured China-made new energy buses departed from the Dulaying International Land-Sea Logistics Port in Guiyang, Guizhou Province, heading to Vientiane, Laos. /Source: CFP/CGTN |
In the mid-2010s, China emerged as a financial titan, extending vast sums through its Belt and Road Initiative to fuel infrastructure and development across the Global South. It was a moment of unparalleled ambition, with Beijing positioning itself as the developing world’s primary capital provider. By 2016, new Chinese state-backed loans reached over $50 billion, surpassing the combined lending of all Western creditors that year. Yet, a decade later, the tide has turned dramatically. As detailed in a recent Lowy Institute analysis by Riley Duke, titled Peak repayment: China’s global lending, China has transitioned from a generous financier to the world’s largest single destination for developing country debt repayments. In 2025, developing nations will owe China a staggering $35 billion in debt service, with $22 billion of that burden falling on the world’s poorest and most vulnerable economies. This seismic shift raises profound questions about China’s global role, the sustainability of developing country finances, and the broader geopolitical landscape as Western aid and trade recede.
The roots of this transformation lie in the structure and scale of China’s lending during its Belt and Road heyday. From the early 2000s to the mid-2010s, China’s lending grew exponentially, particularly in low-income and high-vulnerability countries with limited access to international private capital. By 2015, China held over 40% of external debt in these economies, up from less than 5% a decade earlier. The terms of these loans, often extended by Chinese policy banks like the Export-Import Bank of China (EXIM), typically included 3-5 year grace periods and 15-20 year maturities, as noted in a study cited in the Lowy report: “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments.” These terms, less concessional than those of other bilateral or multilateral creditors, ensured that repayments would spike in the early 2020s as grace periods expired. “China’s earlier lending boom, combined with the structure of its loans, made a surge in debt servicing costs inevitable,” Duke observes, pinpointing the mid-2020s as the “crunch period” for debtor nations.
The scale of this repayment wave is staggering. In 2025, the world’s poorest countries—those eligible for concessional financing from the World Bank’s International Development Association—will pay China $22 billion, a quarter of their total debt service costs. Across all developing countries, China accounts for over 30% of bilateral debt service payments, outstripping multilateral lenders and private creditors. In 54 of 120 developing countries with available data, debt repayments to China exceed those to the Paris Club, a group encompassing major Western bilateral lenders. This dominance spans regions from Africa to South Asia, Central Asia, Southeast Asia, South America, and the Pacific Islands, with only Eastern Europe, Central America, and the Middle East still owing more to Paris Club creditors. By 2023, China held 26% of external bilateral debt across developing nations and over half in the poorest economies, cementing its outsized influence over their debt sustainability.
This shift from capital provider to net financial drain has been rapid and stark. In 2012, China was a net drain on the finances of only 18 developing countries; by 2023, that number had ballooned to 60. New loan commitments have plummeted from $50 billion at their 2016 peak to just $7 billion annually since 2023, a level not seen since the late 2000s. As a result, repayments now far exceed disbursements, with net flows to developing countries dropping to negative $34 billion in 2024. This reversal is particularly acute for the poorest nations, which rely heavily on bilateral and multilateral loans. While Paris Club countries ramped up concessional financing during the COVID-19 pandemic, offering countercyclical support, China’s lending has been sharply procyclical, collapsing when it was most needed. “China’s lending has collapsed exactly when it is needed most, instead creating large net financial outflows when countries are already under intense economic pressure,” the Lowy report notes, highlighting the strain on already fragile economies.
China’s participation in the G20 Debt Service Suspension Initiative (DSSI) from 2020 to 2021, which provided $4.2 billion in temporary relief to eligible countries, briefly paused this repayment surge. However, by deferring payments, the DSSI amplified the current spike, though the report clarifies that the repayment wave would have crested in 2024-25 regardless. The broader implications are dire. With debt service consuming a growing share of government revenues—doubling since 2011—developing countries are forced to divert funds from critical areas like health, education, poverty reduction, and climate adaptation. The Lowy analysis cites UNCTAD’s 2024 report, A World of Debt, noting that 3.3 billion people live in countries where interest payments exceed spending on health or education. The International Monetary Fund classifies over half of the world’s poorest countries as at high risk of or already in debt distress, with global poverty reduction stalling since 2019 and only 16% of the UN’s Sustainable Development Goals on track for 2030.
Despite this broad retrenchment, China continues to lend selectively to two key groups: strategically significant neighbors and critical mineral exporters. Countries like Pakistan, Kazakhstan, Mongolia, Laos, Myanmar, Kyrgyzstan, and Tajikistan—seven of China’s nine land neighbors with available data—remain major recipients, accounting for a quarter of disbursements since 2018. New loans also serve diplomatic ends, with countries like Honduras, Nicaragua, Solomon Islands, Burkina Faso, and the Dominican Republic receiving significant financing after recognizing the “One China” policy. Meanwhile, mineral-rich nations such as Argentina, Brazil, Congo DR, and Indonesia received $8 billion in 2023, 36% of China’s total loan outflows that year. These priorities reflect Beijing’s strategic calculus, balancing geopolitical influence with access to resources critical for its industrial and technological ambitions.
Yet, China faces a dilemma of its own making. Domestic pressure to recover outstanding debts, particularly from quasi-commercial institutions like the China Development Bank (CDB), clashes with diplomatic imperatives to maintain goodwill. Pushing too hard for repayments risks alienating partners, undermining Beijing’s narrative of South-South cooperation. The Lowy report notes that many African governments hesitate to challenge China, fearing loss of future financing, trade, or investment. Conversely, leniency through debt restructuring could signal weakness or invite further defaults. China’s approach often mirrors the “extend and pretend” tactics of Western lenders during the 1980s Lost Decade, a period that culminated in sweeping debt restructurings in the 1990s. Recent restructurings in Ghana, Suriname, and Zambia suggest some willingness to engage, but internal disincentives, such as reputational concerns among loan officers, hinder debt forgiveness. The opacity of China’s lending—marked by confidentiality clauses and incomplete reporting—further complicates restructuring efforts, as debtor countries struggle to provide comprehensive data to the World Bank’s International Debt Statistics.
The broader geopolitical context exacerbates these challenges. “An increasingly isolationist United States and a distracted Europe are withdrawing or sharply cutting their aid support,” Duke observes, leaving developing countries with fewer alternatives. New trade-war shocks and potential U.S. tariffs, as highlighted in a 2025 Center for Global Development blog, threaten to further strain these economies. This retrenchment squanders potential Western geopolitical leverage, as China appears a more consistent partner to many political elites from the Pacific Islands to Latin America. A Wall Street Journal article from November 2024 notes, “China capitalized on US indifference in Latin America,” underscoring Beijing’s ability to fill voids left by Western disengagement. Yet, accusations of “debt-trap diplomacy,” as raised in a 2017 Project Syndicate piece by Brahma Chellaney, lack robust evidence, as Deborah Brautigam’s 2019 analysis argues. Instead, China’s lending has inadvertently fueled debt sustainability issues, with countries like Laos, Congo DR, and Zambia facing distress where China is the largest bilateral creditor.
The implications for developing countries are profound. High debt burdens threaten economic and political stability, hampering poverty reduction and development progress. The Lowy report warns that without fresh concessional financing or coordinated relief, budget squeezes will deepen, heightening instability risks. China’s shift to debt collector status raises questions about its global reputation. Will it leverage repayments for geopolitical concessions, or will it soften its stance to preserve diplomatic ties? The answer depends on how Beijing navigates its dual role as creditor and development partner. For now, the data is clear: the Belt and Road Initiative’s peak has passed, and the mid-2020s mark the era of peak repayment. “Now, and for the rest of this decade, China will be more debt collector than banker to the developing world,” Duke concludes, encapsulating a pivotal shift in global finance.
This reckoning is not just China’s but the world’s. Developing nations face a precarious future, caught between Beijing’s repayment demands and a retreating West. The path forward requires delicate balancing—China must weigh its financial and diplomatic priorities, while debtor nations need sustainable solutions to avoid prolonged economic stagnation. The international community, including Western creditors, must also step up, lest the Global South’s development aspirations falter under the weight of unpayable debts. The stakes could not be higher, as the choices made now will shape economic stability, geopolitical alignments, and the global fight against poverty for decades to come.
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