China’s Shift to Debt Collector in Developing Countries—From Lender to Loan Shark
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Commentary
In the early 2000s, China played a modest role as a global lender. But through its Belt and Road Initiative, Beijing began funding the building of bridges, ports, and railways in the Global South, calling it “win-win cooperation.”
But fast forward to 2025, and for many of the poorest nations, Beijing no longer feels like a partner. It’s more like a relentless debt collector knocking on the door.
From Creditor to Dominant Lender
China’s rise to global development financial powerhouse was quick, to say the least. By the mid-2010s, it had ramped up dramatically, becoming the leading source of new bilateral credit to developing nations. At its peak, Chinese overseas lending exceeded the combined official lending from the IMF, World Bank, and Paris Club creditors..
By 2023, China had become the single largest bilateral creditor in more than 50 countries and held roughly 26 percent of all bilateral external debt in developing countries. In the most fragile economies, that share was even higher. Today, China remains among the top five holders in about three-quarters of all developing economies.
2025: A ‘Tidal Wave’ of Debt Owed
But with the ongoing decline in its domestic economic conditions due to the long-lasting impact of pandemic-era lockdowns, loss of direct foreign investment, and the Trump administration’s tariff-driven trade policies, China’s attitude toward its creditors has hardened. The impact on developing countries is significant.In 2025, developing countries are set to owe $35 billion in debt payments to China. Of that, around $22 billion is due from 75 of the world’s poorest nations.
The critical point is that these repayment obligations now outstrip new lending. Developing nations are now repaying more to their Chinese creditors than they are borrowing from them. A recent study estimates a net negative flow of $3.9 billion annually to Chinese creditors.
In short, China has gone from a capital provider to poorer nations to siphoning capital from them, leaving borrower nations in a fiscal bind.
China’s Loan Shark Terms
Of course, the key to any loan is its terms, and the structural features of its loans work in China’s favor. According to a recent study by the Lowy Institute, the loans often came with short grace periods (3 to 5 years) and maturities of 15 to 20 years. Those grace periods are now expiring, and many countries are entering the repayment phase just as global interest rates and commodity price pressures are hitting hard..
To make matters worse for many indebted nations, new loan commitments from China have collapsed. That means fewer incoming funds to help with development, making those repayment demands even heavier. What’s more, Chinese state-backed lenders also secure priority claims on cash flows—sometimes routing commodity export revenue into escrowed accounts or requiring collateral that puts them first in line on foreign currency receipts.
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In fact, about 60 percent of China’s overseas lending portfolio is now owed by distressed borrowers—countries already facing payment difficulties, defaults, or restructuring. That means China’s “foreign aid” model is actually an extractive collection process rather than a supportive development model. The upshot is that China’s control over debtor cash flows turns its aid into an enforcement and collection mechanism for the most vulnerable nations.
The Real Costs of Chinese Loans
For many of these countries, the toll is heavy indeed. Some are paying China as much as a quarter of their total debt service budget, higher than what they pay to multilateral institutions or private creditors. To put that in perspective, over the past 50 years or so, no other bilateral creditor in the past half-century has held so much leverage over so many nations’ finances..
Under such belligerent terms, Beijing holds an effective, high level of control over the assets of those nations. As payments to China rise, countries are forced to make painful tradeoffs: cutting health, education, climate programs, or even raising taxes to manage the burden. That undermines development momentum and amplifies fiscal fragility.
Capturing Resources From Poor Nations
China’s focus on low-development but resource-rich nations is no coincidence. Nations such as the Democratic Republic of Congo, Indonesia, and Brazil, among others, whose exports are closely linked to global trade cycles, are heavily indebted to China. Others are China’s neighbors or strategic partners—such as Pakistan, Mongolia, Kazakhstan—which continue to receive directed Chinese investment or loans even as general lending slows.Smaller, poorer countries that borrowed heavily in the mid-2010s when Chinese credit was easy are now essentially captive debtors to Beijing, especially as Western aid and trade support decline.
Western Aid Retreat and an Unbalanced World
Compounding the problem is that many Western governments are shifting their focus inward, cutting aid, or reprioritizing defense. Such policy shifts leave fewer alternative lenders with flexibility or concessional terms. Thus, even with some pushback, debtor nations are forced to accept terms that heavily favor China.The Lowy Institute study notes that the geopolitical effect is that the West’s ability to offer a counterweight to Chinese leverage is weakening, leaving China to fill the vacuum.
If that trend continues, we risk creating a world in which many poor nations are perpetually bound to one larger power’s financial orbit. Imagine BRICS or another China-led financial bloc gradually shifting global trade and debt settlement to the Chinese yuan, leaving weaker countries with no alternative but to borrow from or rely on China.
For those nations, Beijing will be their de facto feudal lord, resulting in a loss of negotiating power and much of their autonomy. In the future, countries seeking debt relief or restructuring from China will be less like diplomacy and more like begging a hard-nosed debt collector for leniency—an unlikely scenario when China’s own economy is floundering.
In a global context, with China dominating lending and currency, potential future scenarios don’t look any better, either.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
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