Imminent financial crisis? China demands repayment of huge debts!

In developing economies, the debt owed to China amounts to at least $1.1 trillion, according to a recent data analysis published on Monday. This study reveals that over half of the thousands of loans granted by China over two decades are about to expire, putting debtors under significant strain.

Late loan repayments to Chinese creditors are increasing significantly. AidData, a university research lab at William & Mary University in Virginia, has found that nearly 80% of China’s loan portfolio in the developing world is currently supporting financially troubled countries.

For years, Beijing has directed its financial resources towards financing infrastructure in the poorest countries, including an effort that Chinese leader Xi Jinping has dubbed his flagship initiative, the Belt and Road Initiative, launched ten years ago.

This initiative has funded roads, airports, railways, and power plants from Latin America to Southeast Asia, contributing to the economic growth of indebted nations. Along the way, it has brought many governments closer to Beijing, making China the world’s largest creditor and also raising accusations of irresponsible lending.

Now, 55% of China’s official sector loans to developing countries have entered the repayment period. These debts are about to expire in a new and challenging financial context characterized by high interest rates, struggling local currencies, and a slowing global growth.

“Much of these loans were granted during the Belt and Road Initiative period, which started in 2013, and grace periods of five, six, or seven years were provided,” said Brad Parks, executive director of AidData and author of the report. “Subsequently, international efforts to suspend debt during the pandemic added an additional two years of grace period in which debtors did not have to make repayments.”

AidData’s figures are based on a database that tracks loan commitments and grants totaling $1.34 trillion by the Chinese government and state creditors to public and private enterprises in low- and middle-income countries between 2000 and 2021.

Researchers also cited data reported by creditors to the Bank for International Settlements based in Switzerland, which stated that debtors in developing countries owe China at least $1.1 trillion and up to $1.5 trillion by 2021.

AidData highlights that Beijing had never dealt with more than 10 countries facing financial difficulties with unpaid debts until 2008. But in 2021, there were at least 57 countries with outstanding debts to financially troubled Chinese state creditors, according to the data.