Countries heavily in debt to China are mostly located in Africa, but can also be found in Central Asia, Southeast Asia and the Pacific, data from The World Bank shows. China is currently the preferred lender to the world’s low-income countries, which owe 37% of their debt to China in 2022, compared to just 24% in bilateral debt to the rest of the world.
The Chinese “New Silk Road” project, a program to finance the construction of port, rail and land infrastructure across the globe, has been a major source of debt to China for participating countries. At the end of 2020, of the 97 countries for which data was available, those with the highest external debt to China were all involved in the project, namely Pakistan ($77.3 billion of external debt to China), Angola (36.3 billion), Ethiopia (7.9 billion), Kenya (7.4 billion) and Sri Lanka (6.8 billion).
This chart shows external debt to China as a percentage of gross national income (2020).
The countries with the biggest debt burdens in relative terms were Djibouti and Angola, where debt to China exceeded 40% of gross national income, an indicator similar to GDP but also including income from overseas sources. The equivalent of 30% of GNI or more in Chinese debt affect the Maldives and Laos, with the latter just having opened a railway line to China which is already causing debt issues for the country.
Chinese loans to developing nations have higher interest rates than bilateral loans from Paris Club countries or international institutions like the International Monetary Fund or The World Bank and also have shorter repayment windows. Their setup is therefore closer to commercial loans concerning their conditions of repayment and confidentiality but also their objectives of funding very specific infrastructure projects instead of pursuing more generalized developmental goals.
Debt forgiveness from China?
The Paris Club used to hold the majority of low-income countries’ debt, which was ultimately restructured and largely forgiven after the turn of the millennium for those nations that were unable to make payments and qualified for debt relief. Whether such a process will be available for Chinese debt is unclear. The President of the World Bank, David Malpass, called the level of debt many countries once again hold “unsustainable” in January.
The Covid-19 pandemic has made it even harder for countries to pay back debt they accumulated before the virus caused economies to crash. As of 2020, China had officially lent around $170 billion to low and middle-income countries, up from just around $40 billion in 2010. According to the BBC, the actual figure might be twice as high as China is funneling funds through state-owned or private institutions and companies, which keeps them off the government balance sheet.
The idea that China could gain significant leverage over countries and their infrastructure in the case of repayment issues has been cited often, like in the case of a troubled Sri Lankan port that was built with Chinese funds and that China ultimately took a 70% stake in. The Laotian railway that has been burdening the country with debt is also 70% Chinese-owned. However, in the case of Sri Lanka, UK think tank Chatham House has pointed out that the partial ownership takeover has so far been largely symbolic. Still, such ownership structures could be used to China’s advantage in the future.
Sri Lanka in May was the first APAC country in two decades to default on its sovereign debt. Chinese debt to Sri Lanka was the fifth-highest overall in late 2020 and amounted up to 9% of the country’s GNI. According to the Financial Times, which called the development in Sri Lanka and elsewhere China’s first overseas debt crisis, the country had to renegotiate loans worth $52 billion in 2020 and 2021—more than three times the amount that met this fate in the two previous years.
—
Charted by Statista
