A recent study by the Lowy Institute indicates that the People’s Republic of China is positioned to collect $22 billion in interest on debt from nations classified by the United Nations as most vulnerable. This sum surpasses the amount of new loans issued to these countries. In 54 nations, China’s bilateral debt interest exceeds the combined holdings of all Paris Club member countries. The findings also carry weight considering Pope Francis’s appeal for debt cancellation during the Jubilee.

The debt burden of developing countries has become a focal point, especially highlighted by Pope Francis’s call for wealthy nations to forgive debts that are impossible to repay. The Pontifical Academy of Social Sciences is scheduled to present a report in Rome on June 20,led by prof. Jospeh Stiglitz, addressing reforms to the global financial system to tackle this issue.

The Lowy Institute’s report sheds light on China’s notable role in the debt of developing countries. The study points out that China now receives more in debt interest from these nations than it provides in new loans annually. The lack of openness from the People’s Republic of China regarding these financial operations makes precise figures challenging to obtain. The Lowy Institute’s research relies on data reported by debtor countries to international organizations.

The report estimates that China will collect $35 billion in debt interest in 2025,with $22 billion coming from loans to the 75 most vulnerable countries,as classified by the United Nations. This contrasts with china’s advancement financing commitment, which has decreased since the pandemic to around $7 billion in new loans per year.

The Lowy Institute suggests that China is currently in the peak phase of debt interest collection, as loans from the Belt and Road Initiative era have reached maturity. In 2016, China allocated $50 billion in loans, exceeding the combined amount from all Western countries that year. according to the Australian Think Thank, quoting World Bank data, “China today is the largest interest holder on the bilateral debt of poor countries, with a 30% share of these payments for 2025”. This situation is unprecedented for individual bilateral creditors in the last 50 years. In 54 of the 120 countries with available estimates, “interests on debt due to China… exceed the sum of those due to the countries of the Paris club”. China is also among the top five creditors in three-quarters of developing countries.

Furthermore, the proportion of debt held by private investors in developing countries has increased, with banks and investment funds now holding 61% of the total debt, while bilateral debt has fallen to 14%, according to a UNCTAD study.Greater transparency from Beijing is crucial for a clearer understanding of the situation.

China’s Lending Strategies

China today is the largest interest holder on the bilateral debt of poor countries, with a 30% share of these payments for 2025.

The Lowy Institute report also examines China’s lending strategies, noting that loans have been concentrated in neighboring countries such as Laos, Pakistan, Mongolia, Myanmar, Kazakhstan, Kirgizistan and Tagikistan. Strategic countries for the “One China Policy” regarding Taiwan, including Dominican Republic, Burkina Faso, Solomon Islands, nicaragua and Honduras, have also received loans from Beijing. Additionally, countries strategic for raw material and mineral supply, such as Argentina, Brazil, the Democratic Republic of the Congo and Indonesia, have been targeted.

China’s position on the debt of developing countries is at a crossroads, according to the Lowy Institute. There is a political interest in easing the debt burden to strengthen ties with the global South, especially given the United States’ shift towards isolationism. However, China’s financial system faces pressure to recover these credits due to internal economic challenges.

So far,Chinese authorities have opted to extend payment terms rather than offer amnesty,as seen in agreements with Zambia,Laos,and the Democratic Republic of the Congo. Though, this approach may only postpone the problems and perhaps worsen them.

In public statements, Beijing downplays the issue. The spokesman for the Ministry of Foreign Affairs Mao Ning stated that “China’s cooperation in the field of investments and funding with developing countries follows international practices, market principles and the principle of debt sustainability… Multilateral financial and commercial creditors of developed countries are the main creditors of developing countries and the main source of pressure for the refund of debt.”