The World’s Largest Creditor Is Owed Over $1 Trillion By Developing Countries

55% of China’s official sector loans to developing countries have entered their repayment periods

Developing countries owe Chinese lenders at least $1.1 trillion, according to a new data analysis, which says more than half of the thousands of loans China has doled out over two decades are due as many borrowers struggle financially.

The Overdue loan repayments to Chinese are going up, according to AidData, a university research lab at William & Mary in Virginia, which found that nearly 80% of China’s lending portfolio in the developing world is currently supporting countries in financial distress.

For years, Beijing marshalled its finances toward funding infrastructure across poorer countries – including under an effort that Chinese leader Xi Jinping branded as his flagship “Belt and Road Initiative,” which launched a decade ago this fall.

That funding flowed liberally into roads, airports, railways and power plants from Latin America to Southeast Asia and helped power economic growth among borrowing countries. Along the way, it drew many governments closer to Beijing and made China the world’s largest creditor, while also sparking accusations of irresponsible lending.

Now, 55% of China’s official sector loans to developing countries have entered their repayment periods, according to the analysis of more than two decades of China’s overseas funding across 165 countries released by AidData.

According to AidData executive director and report author Brad Parks,

“A lot of these loans were issued during [the Belt and Road period starting in 2013] and they came with five- or six- or seven-year grace periods … and then [international debt suspension efforts during the pandemic] tacked on two additional years of grace where borrowers didn’t have to repay”

“Now the story is changing … for the last decade or so China was the world’s largest official creditor, and now we’re at this pivot point where it’s really about (China) as the world’s largest official debt collector,” he said.

AidData’s figures are based on its database tracking what amounts to $1.34 trillion in loan and grant commitments from China’s government and state-owned creditors to public and private sector borrowers in low- and middle-income countries between 2000 and 2021.

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That dataset, built through collecting official and public source information about the individual loans and grants, provides one of the widest windows available into what are notoriously opaque Chinese funding activities.

The researchers also cited data reported by lenders to the Switzerland-headquartered Bank of International Settlements, which they said indicates developing country borrowers owe Chinese lenders at least $1.1 trillion and up to $1.5 trillion as of 2021.

AidData says Beijing never had to deal with more than 10 financially-distressed countries with unpaid debts until 2008. But, by 2021, there were at least 57 countries with outstanding debt to Chinese state-owned creditors that were in financial distress, its data shows.

Funding for the big-ticket infrastructure projects that had earned Beijing goodwill across the developing world are in sharp retreat. Instead, China is providing substantial numbers of emergency rescue loans, according to AidData.

Chinese lending isn’t bottoming out though. China remains the world’s single largest official source of development finance and continues to out-fund any single Group of Seven (G7) developed economy as well as multilateral lenders, the researchers say.

China has joined other lenders in joint negotiations on debt relief for troubled borrowers such as Zambia and Ghana, but AidData researchers suggest it may have also undermined efforts for coordinated relief by “muscling its way to the front of the repayment line by demanding that borrowers provide recourse to cash collateral that others lack.”

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