The Price of Development: The Growing Burden of Chinese Debt on Poor Countries

Gabriele Iuvinale
4 giu
Tempo di lettura: 6 min

The Lowy Institute has released a crucial report, "Peak repayment: China's global lending," marking a turning point in China's international financial relations. Forget the image of Beijing as the generous provider of capital for infrastructure projects; we are now entering an era where China is the primary global debt collector.

What's Happening?

For years, China extended massive loans to developing countries, especially through its Belt and Road Initiative (BRI). But things have changed drastically. Since 2016, new Chinese lending has significantly decreased, stabilizing at around $7 billion annually after the pandemic. This decline is due to both the sustainability issues of many projects and a slowdown in China's domestic economy.

The report's core concept is "peak repayment." This means that, for the first time, money flows have reversed. In 2025, developing countries are projected to repay China a record $35 billion. Of this, a staggering $22 billion will come from the 75 poorest and most vulnerable countries worldwide. Essentially, China is no longer injecting fresh capital but is absorbing resources from these nations' budgets.

The consequences of this shift are twofold:

International and Domestic Pressure: China is under increasing diplomatic pressure to restructure unsustainable debts. Simultaneously, there's strong internal demand to recover loans, driven by Chinese banks and state-owned enterprises.
Impact on Debtor Countries: Poorer nations will bear the brunt of these repayments. Less available money means cutting essential spending on public services like healthcare, education, and poverty reduction, jeopardizing the achievement of Sustainable Development Goals (SDGs).

This shift also has significant geopolitical implications. It reshapes global power dynamics, poses new challenges to international cooperation on debt management, and raises questions about the long-term sustainability of the BRI itself.

In short, the Lowy Institute's report shows us a China that is transforming from a large-scale investor to an actor focused on debt recovery, with profound and complex impacts on the global economy and international relations.

The Great Reversal: China Shifts from Bridge-Builder to Global Debt Collector

The world is witnessing a fundamental shift in China's role on the international financial stage. The recent report from the Lowy Institute, "Peak repayment: China's global lending," isn't just a numerical analysis; it's a stark warning, signaling a crucial turnaround: China is no longer primarily a capital provider, but has become the largest debt collector in the developing world. This transformation has profound implications for global economic stability, international diplomacy, and the very future of the Belt and Road Initiative (BRI).

"Peak Repayment": Numbers That Speak Volumes

Until recently, China was known for its penchant for funding ambitious infrastructure projects across Africa, Asia, and Latin America, often through bilateral loans that bypassed traditional multilateral financial institutions. The BRI, launched in 2013, exponentially amplified this trend, promising connectivity and development.

However, the Lowy Institute report reveals we've entered a new era: that of "peak repayment." What does this mean? It means money flows are reversing course. China is no longer disbursing billions of dollars; instead, developing countries are obligated to pay them back. The figures are striking:

It's estimated that in 2025, developing countries will repay China a record $35 billion.
Of this, a staggering $22 billion will come from the 75 most vulnerable low-income countries, often those with the least capacity to handle additional financial burdens.

Why this reversal? Several factors have contributed to this shift. After a peak in new lending in 2016, China's commitments have drastically declined, stabilizing at around $7 billion annually since the end of the pandemic. This drop is partly due to:

Internal Economic Slowdown: China itself faces domestic economic challenges, including a real estate crisis and the need to consolidate its own financial risks. This has made Chinese banks and financial institutions more cautious about issuing new loans abroad.
Project Sustainability Issues: Many BRI projects, though ambitious, haven't generated the expected economic returns, making it difficult for debtor countries to repay their loans.
International Criticism: Accusations of "debt-trap diplomacy" and pressure from institutions like the IMF and World Bank for greater Chinese transparency and participation in debt restructuring mechanisms have likely led to increased caution.

Cross-Pressures: Diplomacy Meets Domestic Necessity

China now finds itself caught between two fires:

External Diplomatic Pressure: There's a growing expectation from the international community that Beijing play a more constructive role in debt restructuring. Many countries, such as Sri Lanka, Zambia, or Pakistan, are in severe financial distress, with a significant portion of their foreign debt owed to China. China's lack of coordination with traditional creditors (like the Paris Club) has often hindered debt relief efforts, prolonging crises. There's a strong demand for greater transparency regarding loan terms and a greater willingness to negotiate realistic restructurings.
Internal Pressure for Recovery: But the pressure isn't just external. Chinese financial institutions and state-owned enterprises that issued these loans are under pressure to recover outstanding debts. This isn't merely a balance sheet issue for individual entities; it also reflects a broader concern in Beijing about protecting state assets and the profitability of overseas investments. In a slowing economy, every recoverable dollar counts.

Profound Implications for the Global South

This shift in China's role has direct and often dramatic consequences for developing countries:

Drainage of Essential Resources: Instead of receiving capital for new projects or to stimulate growth, these countries' budgets are now subject to a net drain of resources. This means less funding available for:
- Fundamental Public Services: Healthcare, education, clean water, and sanitation, all essential for population well-being.
- Social Investments: Poverty reduction programs, food security, and social safety nets.
- Maintenance of Existing Infrastructure: Many of the infrastructures built with Chinese loans require ongoing maintenance, which is now at risk of being compromised if resources are diverted for debt repayment.
Risk of Political and Social Instability: The burden of debt can exacerbate inequalities and fuel social discontent, potentially leading to political instability.
Compromising Sustainable Development Goals (SDGs): Countries' ability to achieve the UN's SDGs is severely threatened, as resources are diverted from crucial long-term development investments.

Geopolitics and the Future of the Belt and Road Initiative

China's transition to a "debt collector" also has profound geopolitical ramifications:

Complex Diplomatic Engagements: Debt restructuring negotiations will increasingly be central to bilateral relations between China and debtor countries, potentially offering Beijing a new diplomatic leverage.
Relations with Other Creditors: China's stance will influence coordination among major global creditors. If China doesn't fully integrate into multilateral debt relief mechanisms, efforts by countries like the United States, Europe, and Japan to assist indebted nations could be undermined.
The BRI's New Phase: The Belt and Road Initiative, once hailed as the flagship of China's global projection, may undergo a transformation. It's likely to shift towards smaller, more sustainable, and commercially viable projects, or focus more on supporting and managing existing infrastructure rather than building new ones. We might see a greater emphasis on a "green BRI" or a "digital BRI" as attempts to redefine the initiative in a more cautious context.

Towards a Future of Greater Transparency and Cooperation?

The Lowy Institute's analysis underscores an urgent need for greater transparency in bilateral lending. Without clear and comprehensive data, it's almost impossible to assess the true extent of debt and plan effective restructuring strategies.

Furthermore, the report reinforces the call for more robust multilateral cooperation. The debt crisis is a global problem that requires a global solution. China, as the largest bilateral creditor, has both the responsibility and the opportunity to play a more proactive and collaborative role in international forums.

This "peak repayment" marks a turning point. It's not just a matter of debts and credits; it's a matter of human development, economic stability, and how major powers choose to wield their influence in the world. The ball is in China's court, but the repercussions will be felt in every corner of the globe.