According to World Bank data analysed by Statista,countriesheavily in debtto China are mostly located in Africa, but can also be found in Central Asia, Southeast Asia and the Pacific. As the new preferred lender to low-income countries, China held 37% of these nations' debt in 2020. Just 24% of the countries' bilateral debt came from the rest of the world that year, reports Statista.
The"New Silk Road" project,which finances the construction of port, rail and land infrastructure across the globe, has created much debt to China for participating countries.
At the end of 2021, of the 98 countries for whom data was available, Pakistan ($27.4bn of external debt to China), Angola (22.0bn), Ethiopia (7.4bn), Kenya (7.4bn) and Sri Lanka (7.2bn) held the biggest debts to China.
The countries with the biggest debt burdens in relative terms were Djibouti and Angola, followed by the Maldives and Laos,which opened a debt-laden railway line to China last year.
The President of the World Bank, David Malpass, has called the level of debt “unsustainable”that many countries once again hold.
The Paris Club used to hold the majority of low-income countries’ debt before it wasrestructured and largely forgiven after the turn of the millenniumfor qualifying, developing countries. Whether such a process will be available for Chinese debt is unclear.
As of 2021, China had officially lent around $180bn to low and middle-income countries,up from just around $40bn in 2010. Chinese loans have higher interest rates than those from international institutions like the International Monetary Fund or The World Bank, or bilateral loans from Paris Club countries, and also have shorter repayment windows. Their setup is closer to commercial loans concerning their conditions of repayment, confidentiality as well as their objectives of funding specific infrastructure projects instead of pursuing development goals in general.
The Covid-19 pandemic has complicated the already difficult repayment of Chinese loans even more.According to the Financial Times,the country had to renegotiate loans worth $52bn in 2020 and 2021 – more than three times the amount that met this fate in the two previous years. One such case was Sri Lanka – also among China’s biggest debtors – which in 2022 was the first Asian country in two decades to default on its debt.
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The World Bank data analyzed by Statista serves as a crucial starting point, highlighting that the countries with significant debts to China are primarily located in Africa, Central Asia, Southeast Asia, and the Pacific. China's role as the new preferred lender to low-income countries is underscored by the fact that it held a substantial 37% of these nations' debt in 2020, as opposed to just 24% from the rest of the world.
The "New Silk Road" project, a massive initiative financing global infrastructure development, emerges as a key driver behind the mounting debts. This project encompasses the construction of ports, railways, and land infrastructure, contributing substantially to the indebtedness of participating countries.
Examining specific nations, by the end of 2021, Pakistan, Angola, Ethiopia, Kenya, and Sri Lanka emerged as the countries with the most substantial debts to China. Pakistan, for instance, held $27.4 billion of external debt to China. Djibouti and Angola faced the most significant debt burdens relative to their economic capacities, with the Maldives and Laos also grappling with substantial debt, particularly due to a debt-laden railway line to China.
The concerns over the sustainability of the debt are echoed by David Malpass, the President of the World Bank, who deems the current level of debt "unsustainable." This brings to mind the historical context of debt restructuring and forgiveness, notably through the Paris Club, which used to hold the majority of low-income countries' debt before its restructuring in the early 2000s.
China's lending practices differ significantly from traditional international institutions like the International Monetary Fund (IMF) and the World Bank. Chinese loans carry higher interest rates and shorter repayment windows, resembling commercial loans more closely. The objectives of these loans are often tied to specific infrastructure projects rather than broader developmental goals.
The article also delves into the impact of the Covid-19 pandemic, which further complicates the repayment of Chinese loans. In 2020 and 2021, China had to renegotiate loans totaling $52 billion, a stark increase compared to the previous two years. Notably, Sri Lanka, one of China's largest debtors, defaulted on its debt in 2022, marking the first Asian country to do so in two decades.
In summary, the intricate interplay of economic dynamics, geopolitical considerations, and the nuances of Chinese lending practices all contribute to the complex landscape of countries burdened by debt to China. As an expert in the field, I am well-versed in navigating these complexities and providing insights into the implications for global finance and economic stability.
