Poorest 750 nations face ‘tidal wave’ of debt repayments to China in 2025, study warns

A Lowy Institute report indicates that 75 of the world's poorest nations face a record $22 billion in debt repayments to China in 2025, part of a larger $35 billion owed by developing countries, largely stemming from loans issued under the Belt and Road Initiative; this shift positions China more as a debt collector than a banker, potentially straining local funding and creating political leverage, even as China faces its own economic pressures and scrutiny over its lending practices.

Analysis

A new report from the Lowy Institute highlights a significant emerging market risk, with 75 of the world's poorest nations facing record debt repayments of US$22 billion to China in 2025, forming the bulk of a total US$35 billion owed by developing countries. This surge in obligations stems largely from China's Belt and Road Initiative (BRI), which saw lending peak at over $50 billion in 2016, positioning China as a "debt collector" rather than a "banker" to the developing world, according to the report. This debt burden is reportedly straining local funding for essential services like health and education, as well as climate change mitigation efforts in these vulnerable nations. Furthermore, the report suggests China could use this financial leverage for "political leverage", noting new large-scale loans to countries that recently switched diplomatic recognition from Taiwan to Beijing. China itself faces a complex dilemma, balancing international diplomatic pressure to restructure unsustainable debts against domestic economic pressures to recall loans amid its own economic downturn. The situation is compounded by a lack of transparency in BRI lending; the Lowy Institute's estimates, based on World Bank data, likely underestimate the full scale, and AidData previously estimated a "hidden debt" of about $385 billion owed to China in 2021, all contributing to the "strongly negative" sentiment and "pessimistic" tone identified in the associated data signals.

Key Decisions for Investors

• Investors should exercise heightened caution regarding exposure to emerging market sovereign debt and assets in countries with significant BRI-related obligations to China, given the impending 'tidal wave' of repayments and the strongly negative sentiment.
• Closely monitor China's evolving policies on debt restructuring and collection, as shifts could significantly impact the fiscal stability of numerous developing nations, potentially creating differentiated risks and opportunities, especially in countries of strategic importance or those producing critical minerals.
• Assess potential contagion risks and increased volatility across emerging markets, as widespread debt distress could impact investor confidence, currency stability, and funding for infrastructure, potentially influencing commodity markets linked to these nations.