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China’s external lending increased massively over the last two decades

Over 25% of the world’s bilateral external debt was owed to China by the end of 2023, making the country the leading debt collector. Two decades ago, the country rarely lent money; Japan lent the highest amount, followed by Germany, France, the United States and the United Kingdom.

Further, over the last two decades, when China’s external lending increased massively, the amount of bilateral external debt owed by countries surged exponentially too. In other words, China is majorly responsible for the rapid rise in external debt in many countries in the last 20 years.

Bilateral external debt is a country’s debt to foreign governments. In this analysis, only bilateral debt is considered and not debt owed to agencies such as the International Monetary Fund and bondholders.

Chart 1 shows the bilateral external debt stocks owed to all countries and to China specifically over time. It also shows (in %) China’s share in the total bilateral external debt stock owed. External debt stock is the debt owed by a country to non-residents repayable in currency, goods, or services. It is the sum of all public, publicly guaranteed, and private non-guaranteed long-term debt and short-term debt.

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The external debt stock owed to all countries increased from $49.5 billion to $741.4 billion between 1973 and 2023. The external debt stock owed to China increased from $1 billion to $193.1 billion in the same period. In percentage terms, the share of debt owed to China remained around the 1% mark until 2003, surged to 16.6% by 2013, and to 26% by 2023.

Chart 2 shows the share of external debt stock owed to top lenders in the 1973 to 2023 period. By the end of 1973 and 1983, the U.S. was the top lender. The U.S. was later surpassed by Japan, which remained the top lender by the end of 1993, 2003, and 2013.

External debt stock owed to the U.S. drastically reduced from 36% in 1973 to just 4% in 2023. Notably, by the end of 2023, the Netherlands was the third biggest lender after China and Japan.

Chart 3 shows the external debt owed by all countries to China in absolute terms and percentage terms. For instance, Pakistan owed $22 billion to China by the end of 2023, which is close to 60% of all the bilateral debt owed by the country. The farther a nation is to the right, the higher the share of its bilateral debt owed to China by 2023. The bigger the size of the bubble, the higher the debt owed to China in absolute terms.

Notably, many countries to which China loaned money were either in a financial crisis which then worsened or later descended into a financial crisis. For instance, Laos, one of the poorest nations in Asia, owed $6 billion to China in 2023, which was over 75% of its bilateral external debt.

The nation’s economic situation turned difficult with persistent high inflation, currency depreciation, and slow growth. In 2021, China opened a high-speed rail line with Laos as a part of its Belt and Road initiative.

Angola, the second largest oil producer in sub-Saharan Africa, owed $17 billion to China, which was about 58% of its external debt. In fact, 16 sub-Saharan nations owe over 50% of their external 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 firms. The nation owes 88% of its bilateral debt to China.

Sri Lanka, which owes $8 billion to China, about 50% of its bilateral debt, was struggling to repay its debt and handed over the major port of Hambantota to China in 2017.

vignesh.r@thehindu.co.in

nitika.evangeline@thehindu.co.in