Beijing, May 27 (PTI) — China is transitioning from being a major capital provider to a leading debt collector for 75 developing nations, many among the world's poorest and most vulnerable. This shift comes as these countries face a record $22 billion in loan repayments to Beijing this year, based on data from Australia's Lowy Institute.
The research indicates that China has emerged as the principal debt collector among developing countries, after years as a net capital provider. This change is a result of significant Belt and Road Initiative (BRI) loans from the 2010s now exceeding the volume of new loan disbursements. According to the Lowy Institute, around 75 of the poorest and most vulnerable countries will make "record high debt repayments" of $22 billion to China in 2025, reflecting peak loan commitments made from 2012 to 2018.
China is confronted with a complicated dilemma: the need to restructure unsustainable debt due to growing international diplomatic pressure, and the pressing internal demand from quasi-commercial entities to collect outstanding debts, as stated in a report by Riley Duke. He noted that this research is timely, as the BRI lending peak of the mid-2010s is now seeing its grace periods expire, creating a "crunch period" in the early 2020s for repayment by developing countries.
The Hong Kong-based South China Morning Post cited Duke, questioning how China's pivot from development partner to chief debt collector might affect its international reputation.
When asked about the report, the Chinese Foreign Ministry attempted to downplay its significance, with spokesperson Mao Ning asserting that only a few countries are spreading ungrounded rumors about Chinese financial assistance to developing nations. She emphasized that China's cooperative investments and financing align with international norms, market practices, and debt sustainability principles.
Mao Ning further claimed that criticisms overlook the greater role of multilateral institutions as the primary creditors to developing countries, which necessitate debt repayments.
China's BRI, initiated by President Xi Jinping, has committed billions to infrastructure projects across developing countries, aiming to extend its geopolitical influence. However, these investments have faced scrutiny, being labeled as debt traps. A notable case involved China acquiring Sri Lanka's Hambantota port under a 99-year lease in a debt swap.
The pandemic-induced economic crisis and questionable project viability have strained several countries' ability to repay these loans. Out of 120 developing countries with available data, 54 are now servicing debt payments to China that exceed their combined obligations to the Paris Club, which comprises major Western bilateral lenders.
Research highlights China as the largest bilateral lender in seven of its nine neighboring nations: Laos, Pakistan, Mongolia, Myanmar, Kazakhstan, Kyrgyzstan, and Tajikistan. Many of these countries have secured new Chinese loans since 2019, collectively accounting for 25% of all disbursements after the downturn of China's lending in 2018.
In 2022, China became the major creditor of Pakistan, a steadfast ally, with nearly $29 billion in loans, according to the World Bank. China holds the largest share of Pakistan's debt at 22% ($28.786 billion), surpassing the World Bank's 18% ($23.55 billion) and the Asian Development Bank's 15% ($19.63 billion).
This year, Pakistan faces significant debt rollover and repayment requirements, with external debt maturing estimated between $22 billion and over $30 billion. In March, China agreed to roll over a $2 billion loan for Pakistan, amidst a series of similar rollovers in recent years.
Concurrently, China is experiencing an economic slowdown and has scaled down future BRI investments, shifting focus from grand-scale endeavors to more modest "small but beautiful" projects.
China launched the BRI in 2013 to establish a trade and infrastructure network linking Asia, Europe, Africa, and beyond.
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