A Record-Breaking Debt Burden
In 2025, the world’s 75 poorest and most vulnerable nations will owe a record $22 billion in debt repayments to China, marking a dramatic shift from lender to collector. This finding comes from a major report released by Australia’s Lowy Institute, a respected foreign policy think tank. The study warns that Beijing, once the largest financier of developing nations through its Belt and Road Initiative (BRI), is now extracting more money from the world’s weakest economies than it is lending.
Across all developing nations, debt payments to China will total $35 billion this year. For the poorest countries, these payments are crowding out critical government spending on health care, education, and climate adaptation. The report calls the situation a “tidal wave” of debt, and says that China has now fully transitioned into a net financial drain for much of the developing world.
From Generous Lender to Strategic Collector
China’s meteoric rise as a global lender began in the 2010s, when it poured billions into infrastructure projects across Asia, Africa, and Latin America. At its peak in 2016, Chinese state-backed banks disbursed over $50 billion in new loans—more than all Western countries combined.
But the lending frenzy came with strings. Many Chinese loans included only short grace periods and non-concessional terms, setting the stage for a sharp increase in repayments beginning in the early 2020s. With new Chinese loans plummeting to just $7 billion annually post-pandemic, these repayments now far outstrip incoming funds, turning China into the single largest bilateral creditor in 53 countries.
China is now extracting more debt payments than any other government lender in the last half-century. In more than 50% of the 120 countries tracked by the World Bank, debt service payments to China exceed those owed to the entire Paris Club—a group of traditional Western lenders like the U.S., U.K., and France.
Development Setbacks and Political Instability
The timing of these repayments couldn’t be worse. More than half of the poorest and most vulnerable countries are already considered at high risk of debt distress by the International Monetary Fund. Many of these governments are now spending more on interest payments than they do on health or education. According to the Lowy report, 3.3 billion people live in countries where debt obligations are crowding out basic services.
This situation is not just a financial crisis, but a political and humanitarian one. From Pakistan to Zambia, countries have experienced inflation, layoffs, and cuts to essential services. In Pakistan, foreign debt pressure led to power cuts that crippled industry and cost millions of jobs. In Sri Lanka, the country lost control of a key port to China after failing to meet loan terms.
The report emphasizes that Beijing’s retreat from new lending—especially during the COVID-19 crisis—only worsened these trends. While Western countries offered aid or loan suspensions, China’s lending became increasingly procyclical, meaning it fell precisely when support was most needed.
Strategic Targets: Minerals, Diplomacy, and Borders
Despite the broader pullback, China’s lending remains robust in countries that serve its strategic interests. It continues to extend credit to neighboring states such as Pakistan, Kazakhstan, and Mongolia, and to nations rich in critical minerals like Argentina, Brazil, and the Democratic Republic of Congo. These countries supply key resources for China’s manufacturing and energy needs.
The report also suggests a diplomatic dimension to this targeted lending. In several instances—Honduras, Nicaragua, Solomon Islands, and others—large-scale Chinese loans were announced within 18 months of the countries switching diplomatic recognition from Taiwan to Beijing. This practice indicates China is using loans as leverage to expand its political influence.
Is It a Deliberate Strategy?
While China denies pursuing “debt trap diplomacy,” the consequences of its lending are undeniable. The terms of many loans, often including secrecy clauses and collateral demands, have fueled suspicions that Beijing’s goal was always more about control than cooperation. In Sri Lanka, for example, failure to repay led to the forfeiture of the Hambantota Port to China.
Even if not by design, the outcome of China’s lending spree is a world where many of the poorest countries are economically dependent on a single creditor. China now holds more than 50% of bilateral external debt in the most vulnerable economies. Its refusal to participate in broader debt relief efforts has sparked frustration among international institutions, who say that without Chinese cooperation, many of these countries face prolonged economic pain.
The Bigger Picture
The West is not without blame. As China tightens its grip, the U.S. and Europe are slashing foreign aid and stepping back from multilateral development initiatives. This vacuum has allowed China to present itself as a reliable alternative—even as its loans generate serious long-term problems for borrowers.
China’s role in the G20’s Debt Service Suspension Initiative during the pandemic, while temporarily helpful, ultimately delayed repayments rather than reducing them. The result is a repayment spike that is peaking now, in 2025. China’s preference for extending deadlines instead of forgiving debt mirrors Western behavior during the debt crises of the 1980s, which culminated in a wave of economic stagnation in the Global South.
A Global Reckoning
Beijing now faces a dilemma of its own making. On one hand, insisting on full repayment risks pushing countries into default and damaging diplomatic relationships. On the other, China’s domestic banks and state-backed lenders are under pressure to recoup their investments, especially as China’s own economy slows.
The decisions China makes in the coming years—whether to forgive debt, restructure it, or enforce repayment—will shape its role on the global stage for decades. For now, China is reaping the benefits of a lending strategy that gave it leverage across continents, even if it has left much of the developing world on the brink of financial collapse.
As the Lowy Institute report concludes: “China will be more debt collector than banker to the developing world.” Whether this transformation was accidental or by design, the consequences are clear: billions of people now face a future shaped as much by repayment schedules as by development goals.
