A recent study has revealed that the world’s poorest 75 nations are set to confront a staggering $22 billion in debt repayments to China in 2025. There are specific fears over China’s growing influence through its lending practices. This concern is most acute when viewing the Belt and Road Initiative (BRI), which has significantly changed the fiscal landscape for developing countries.
China emerged as the largest supplier of bilateral loans. In 2016, its lending exploded well beyond $50 billion to surpass that of all of the other Western creditors put together. What’s underneath this lending has set off alarm bells. In 2021, other specialists calculated that China was owed at least $385 billion in such “hidden debt.” They argue that this figure doesn’t even begin to represent the totality of China’s financial pledges under the Belt and Road Initiative (BRI).
China’s government has repeatedly rebutted claims that it has intentionally laid debt traps for at-risk countries. Since the BRI’s launch in 2008, the initiative has been straining China to invest around $240 billion into predatory debts. The program works with very strict secrecy. Many countries have changed their diplomatic recognition from Taiwan to China in recent months. They are taking big-ticket loans from China too, like Honduras, Nicaragua, and the Solomon Islands, among others.
The Lowy Institute’s report highlights a concerning trend: “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.” This observation underscores the plight of countries most heavily reliant on Chinese funding. Take for example, Laos, which today is facing a dire debt crisis from over-building for the energy sector, much of it funded by Chinese loans.
Now as 2025 nears, China has painted itself into a pretty difficult corner. Yet the country is under unparalleled domestic political pressure to call loans back in during its own economic crisis. Simultaneously, it struggles with foreign diplomatic pressures to reorganize unsustainable debt in affected countries. Whether this precarious balance will be enough to secure China as a continuing – if not expanding – lender to developing countries remains to be seen.
“Now, and for the rest of this decade, China will be more debt collector than banker to the developing world,” the Lowy report asserts. This shift could have significant implications for countries dependent on Chinese financing, especially those producing critical minerals and metals like Argentina, Brazil, and Indonesia.