- In 2025, the poorest 75 countries will owe China a record $22 billion in debt repayments, mostly from loans under the Belt and Road Initiative (BRI).
- Rising debt payments are forcing developing nations to cut spending on vital health and education services, risking setbacks in poverty reduction and social welfare.
- China is shifting from being a major lender to these countries to becoming their largest debt collector, creating financial and diplomatic challenges.
In 2025, the world’s most vulnerable and poorest nations are expected to face an unprecedented financial burden, with debt repayments to China reaching historic levels. According to a recent report by Australia’s Lowy Institute, developing countries will collectively repay about $35 billion to China, with $22 billion of that coming from the 75 poorest nations.
These debts largely stem from loans extended during the 2010s under China’s ambitious Belt and Road Initiative (BRI), which aimed to build infrastructure and strengthen trade links across Asia, Europe, and Africa.
The Belt and Road Initiative: Economic Promise and Debt Challenges
Launched in 2013 by Chinese President Xi Jinping, the BRI sought to finance massive infrastructure projects such as ports, railways, and roads to enhance connectivity and economic growth.
The World Bank and other economic analyses have highlighted the initiative’s potential benefits: by 2040, the BRI could increase global GDP by up to $7.1 trillion and reduce trade costs worldwide by around 2.2 percent.
The initiative is also projected to lift millions out of poverty—potentially 7.6 million from extreme poverty and 32 million from moderate poverty—while boosting labor incomes more than capital returns in participating countries.
However, these economic gains come with significant costs. The loans that funded BRI projects often carried grace periods that are now expiring, forcing countries to begin substantial repayments. This has led to a “tidal wave” of debt repayments, particularly affecting the poorest nations whose economies are less resilient. The financial strain from these repayments is increasingly crowding out government spending on essential public services such as healthcare and education.
Impact on Social Services and Poverty
The rising debt payments to China are forcing many developing countries to divert funds away from critical sectors. Currently, about 3.3 billion people live in countries where governments spend more on debt interest than on health or education.
This financial squeeze threatens to reverse progress made in improving social welfare, particularly in vulnerable economies where health spending has a strong positive effect on household consumption and poverty reduction.
Cutbacks in health funding are especially harmful. Studies show that government health expenditure can have a multiplier effect on urban household consumption—for example, in China, every yuan spent on healthcare generates roughly two yuan in consumption.
Reduced health spending, combined with the burden of medical debt, increases poverty risks and worsens mental health outcomes, especially among lower-income populations.
China’s Changing Role: From Lender to Debt Collector
China’s role in global development finance has shifted dramatically over the past decade. Once the largest source of new loans to developing countries, China is now becoming their biggest debt collector.
In 54 out of 120 developing countries analyzed, repayments to China exceed those owed to the Paris Club—a group of major Western bilateral lenders. This change stems from the structure of Chinese loans, which included grace periods that are now ending, leading to a surge in repayment obligations.
Riley Duke, the report’s author, explains that for the remainder of this decade, China will act more as a debt collector than a lender to developing nations. This creates a diplomatic balancing act for Beijing, which faces pressure to restructure unsustainable debts while also needing to recover loans, especially from quasi-commercial Chinese institutions.
Despite an overall decline in new lending, China continues to provide financing to strategic partners and resource-rich countries, particularly those with critical minerals like Indonesia and Brazil. Read More: Canada’s Economy: Inflation Slows Down, But Core Prices Paint a Different Picture
Broader Implications and Geopolitical Concerns
The debt crisis has broader implications beyond economics. The Lowy Institute warns that as China assumes the role of debt collector, Western governments are increasingly inward-looking, reducing aid and multilateral support. This combination raises risks of development setbacks and potential instability in many vulnerable countries.
Moreover, there are concerns that China might leverage these debts for geopolitical influence, especially in countries that have recently shifted diplomatic recognition from Taiwan to China, such as Honduras and the Solomon Islands. This dynamic adds complexity to international relations and development financing in the coming years. Read More: FTC Sues Pharmacy Benefit Managers Over High Insulin Prices
Conclusion
The legacy of China’s Belt and Road Initiative is a double-edged sword. While it has the potential to significantly boost global economic growth and reduce poverty, it has also left many developing countries burdened with heavy debt repayments.
In 2025, these repayments will reach record levels, threatening essential public services and social progress. As China transitions from lender to debt collector, the international community faces new challenges in supporting sustainable development and managing geopolitical tensions in the developing world.