China’s foreign lending has increased dramatically over the past two decades
By the end of 2023, more than 25% of the world’s bilateral external debt was owed to China, making the country the largest debt collector. Twenty years ago the country rarely borrowed money; Japan lent the highest amount, followed by Germany, France, the United States and the United Kingdom.
Moreover, over the past two decades, as China’s foreign credit has increased dramatically, the size of countries’ bilateral foreign debt has also increased exponentially. In other words, China is largely responsible for the rapid increase in foreign debt in many countries over the past two decades.
Bilateral foreign debt is a country’s debt to foreign governments. This analysis only takes into account bilateral debts and not debts to institutions such as the International Monetary Fund and bondholders.
Chart 1 shows the bilateral external debt owed to all countries and specifically to China over time. It also shows (in %) China’s share of total bilateral external debt. The external debt is the debt that a country owes to non-residents and is repayable in currency, goods or services. It is the sum of all public, government-guaranteed and private non-guaranteed long-term and short-term debt.
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External debt to all countries increased from $49.5 billion to $741.4 billion between 1973 and 2023. Foreign debt to China rose from $1 billion to $193.1 billion in the same period. In percentage terms, the share of debt owed to China remained around 1% until 2003, then rose to 16.6% in 2013 and to 26% in 2023.
Chart 2 shows the share of external debt owed to major lenders during the period 1973 to 2023. In late 1973 and 1983 the US was the largest lender. The US was later surpassed by Japan, which remained the largest lender in late 1993, 2003 and 2013.
Foreign debt to the US fell drastically from 36% in 1973 to just 4% in 2023. Strikingly, the Netherlands was the third largest lender at the end of 2023, after China and Japan.
Chart 3 shows the foreign debt owed by all countries to China, both in absolute terms and in percentage terms. For example, at the end of 2023, Pakistan owed China $22 billion, which is almost 60% of all the country’s bilateral debts. The further to the right a country is, the higher the share of its bilateral debts to China in 2023. The larger the size of the bubble, the higher its debts to China in absolute terms.
It is striking that many countries to which China lent money were in a financial crisis that then worsened or later fell into a financial crisis. For example, Laos, one of the poorest countries in Asia, owed China $6 billion in 2023, amounting to more than 75% of bilateral foreign debt.
The country’s economic situation became difficult with persistently high inflation, currency depreciation and slow growth. In 2021, China opened a high-speed rail line with Laos as part of its Belt and Road initiative.
Angola, the second-largest oil producer in sub-Saharan Africa, owed $17 billion to China, amounting to about 58% of its external debt. In fact, sixteen sub-Saharan countries owe more than 50% of their foreign debt to China.
According to the New York Times, 15 of the 19 cobalt-producing mines in the Democratic Republic of Congo were owned or financed by Chinese companies. The country owes 88% of its bilateral debts to China.
Sri Lanka, which owes China $8 billion, about 50% of its bilateral debt, has struggled to repay its debts and handed over the main port of Hambantota to China in 2017.
vignesh.r@thehindu.co.in
nitika.evangeline@thehindu.co.in
Published – Dec 20, 2024 10:38 AM IST
