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Home Market Research Economy

China’s Debt-Trap Diplomacy | Armstrong Economics

by TheAdviserMagazine
5 months ago
in Economy
Reading Time: 2 mins read
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China’s Debt-Trap Diplomacy | Armstrong Economics
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Think-tank the Lowly Institute found that the poorest 75 nations in the world are highly indebted to China, and the bill is almost past due. “Now, and for the rest of this decade, China will be more debt collector than banker to the developing world,” the report said. Of the $35 billion owed to China, around $22 billion must be repaid from the 75 poorest countries.

President Xi Jinping signed the majority of these loans under the Belt and Road Investment Program (BRI). China became the largest supplier of bilateral loans back in 2016, with a high of $50 billion in loans, surmounting to more than all creditors in the West combined. This was intentional as the BRI sought to gain influence in developing nations. Some estimates believe that China is owed a “hidden debt” of $385 billion through BRI initiatives, but China denies creating debt traps for nations it knew would likely be unable to repay their loans.

Argentina, Brazil, Congo DR, Mongolia, Indonesia, and others all have one major common factor—they are rich in natural resources. They also have limited access to international private capital and were more likely to turn to China for aid. In 2005, China held less than 5% of external debt, but that figure rose to 40% once the BRI was introduced.

The World Bank found that China is the largest supplier of bilateral debt for developing nations, accounting for over 30% of all loans in 2025. Out of 120 developing nations, 54 are indebted to China, with repayments exceeding the combined amount owed to the Paris Club bloc that factors in all major Western bilateral lenders. In 2023, 26% of all bilateral debt in developing nations was owed to China.

China offered these nations a >5-year grace period on repayments that would mature in 15-20 years, and since the bulk of these loans were granted in the mid-2010s, the bill is now due. The International Monetary Fund found that over 50% of the poorest and most vulnerable nations are debt-distressed. Servicing these massive debts has become unsustainable. As noted by the Lowly Institute, 3.3 billion people live in nations that spend more on servicing debt than on education or health care.

China is engaged in “debt-trap diplomacy,” whereby its loans have pushed nations into such severe debt that China now has significant influence over their geopolitical affairs. If nations cannot repay with cash, they can repay with military bases, access to valuable infrastructure such as ports and railways, minerals and mines, trade deals, and more. All of these nations will accept and adopt the One China policy. Pakistan has defaulted on debt numerous times, but China gave them money for strategic purpose. Debt is leverage and power, and China now has immense influence over most of the developing world.



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Tags: ArmstrongChinasDebtTrapdiplomacyEconomics
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