‘Tidal wave': How 75 nations face Chinese debt crisis in 2025

Al Jazeera

4 days ago

Many of the world's poorest countries are due to make record debt repayments to China in 2025 on loans extended a decade ago, at the peak of Beijing's Belt and Road Initiative, a report by the Sydney-based Lowy Institute think tank has found.
Under the Belt and Road Initiative (BRI), a state-backed infrastructure investment programme launched in 2013, Beijing lent billions of dollars to build ports, highways and railroads to connect Asia, Africa and the Americas.
But new lending is drying up. In 2025, debt repayments owed to China by developing countries will amount to $35bn. Of that, $22bn is set to be paid by 75 of the world's poorest countries, putting health and education spending at risk, Lowy concluded.
'For the rest of this decade, China will be more debt collector than banker to the developing world,' said Riley Duke, the report's author.
'Developing countries are grappling with a tidal wave of debt repayments and interest costs to China,' Duke said.
China's BRI, the biggest multilateral development programme ever undertaken by a single country, is one of President Xi Jinping's hallmark foreign policy initiatives.
It focuses primarily on developing country infrastructure projects like power plants, roads and ports, which struggle to receive financial backing from Western financial institutions.
The BRI has turned China into the largest global supplier of bilateral loans, peaking at about $50bn in 2016 – more than all Western creditors combined.
According to the Lowy report, however, paying off these debts is now jeopardising public spending.
'Pressure from Chinese state lending, along with surging repayments to a range of international private creditors, is putting enormous financial strain on developing economies.'
High debt servicing costs can suffocate spending on public services like education and healthcare, and limit their ability to respond to economic and climate shocks.
The 46 least developed countries (LDCs) spent a significant share – about 20 percent – of their tax revenues on external public debt in 2023. Lowy's report implies this will increase even more this year.
For context, Germany used 8.4 percent of its budget to repay debt in 2023.
Lowy also raised questions about whether China will use these debts for 'geopolitical leverage' in the Global South, especially with Washington slashing foreign aid under President Donald Trump.
'As Beijing shifts into the role of debt collector, Western governments remain internally focused, with aid declining and multilateral support waning,' the report said.
While Chinese lending is also beginning to slow down across the developing world, the report said there were two areas that seemed to be bucking the trend.
The first was in nations such as Honduras, Burkina Faso and Solomon Islands, which received massive new loans after switching diplomatic recognition from Taiwan to China.
The other was in countries such as Indonesia and Brazil, where China has signed new loan deals to secure critical minerals and metals for electric batteries.
Beijing's Ministry of Foreign Affairs said it was 'not aware of the specifics' of the report but that 'China's investment and financing cooperation with developing countries abides by international conventions'.
Ministry spokesperson Mao Ning said 'a small number of countries' sought to blame Beijing for miring developing nations in debt but that 'falsehoods cannot cover up the truth'.
For years, the BRI has been criticised by Western commentators as a way for Beijing to entrap countries with unserviceable debt.
An often-cited example is the Hambantota port – located along vital east-west international shipping routes – in southern Sri Lanka.
Unable to repay a $1.4bn loan for the port's construction, Colombo was forced to lease the facility to a Chinese firm for 99 years in 2017.
China's government has denied accusations it deliberately creates debt traps, and recipient nations have also pushed back, saying China was often a more reliable partner than the West and offered crucial loans when others refused.
Still, China publishes little data on its BRI scheme, and the Lowy Institute said its estimates, based on World Bank data, may underestimate the full scale of China's lending.
In 2021, AidData – a US-based international development research lab – estimated that China was owed a 'hidden debt' of about $385bn.
Challenging the 'debt-trap' narrative, the Rhodium consulting group looked at 38 Chinese debt renegotiations with 24 developing countries in 2019 and concluded that Beijing's leverage was limited, with many of the renegotiations resolved in favour of the borrower.
According to Rhodium, developing countries had restructured roughly $50bn of Chinese loans in the decade before its 2019 study was published, with loan extensions, cheaper financing and debt forgiveness the most frequent outcomes.
Elsewhere, a 2020 study by the China Africa Research Initiative at Johns Hopkins University found that, between 2000 and 2019, China cancelled $3.4bn of debt in Africa and a further $15bn was refinanced. No assets were seized.
Meanwhile, many developing countries remain in hock to Western institutions.
In 2022, the Debt Justice Group estimated that African governments owed three times more to private financial groups than to China, charging double the interest in the process.
'Developing country debt to China is less than what is owed to both private bondholders and multilateral development banks (MDBs),' says Kevin Gallagher, director of the Boston University Global Development Policy Center.
'So, Lowy's focus on China lacks context. The truth is, even if you remove China from the creditor picture, lots of poor countries would still be in debt distress,' Gallagher told Al Jazeera.
Following the COVID-19 pandemic and Russia's invasion of Ukraine, inflation prompted the United States Federal Reserve, as well as other leading central banks, to hike interest rates.
Attracted to higher yields in the US, investors withdrew their funds from developing country financial assets, raising yield costs and depreciating currencies. Debt repayment costs soared.
Global interest rates have since come down slightly. But according to the UN, developing country borrowing costs are, on average, two to four times higher than in the US and six to 12 times higher than in Germany.
'A crucial aspect about Chinese lending,' said Gallagher, 'is that it tends to be long-term and growth enhancing. That's precisely why a lot of it is focused on infrastructure investment. Western lenders tend to get in and out faster and charge higher rates.'