n this article, we look at 20 countries most in debt to China. If you want to skip our detailed analysis, you can go directly to the 5 Countries Most in Debt to China.
The Situation of International External Debt
The external debt situation for low and middle-income countries (LMICs) has changed drastically over the last decade and is out-pacing the economic growth of these countries, thereby raising serious concerns. The situation is even worse for poor countries where external debt stocks have risen at the fastest pace as compared to other LMICs. Moreover, the debt vulnerabilities exacerbated in many low-income countries eligible for International Development Association (IDA) resources. The debt accumulation in these countries has increased to the extent that more than 60% of IDA-eligible countries were marked to be at high risk of debt distress in 2023. According to the International Debt Report 2023 by the World Bank, the external debt stocks for LMICs decreased marginally by 3.4% from $9.3 trillion in 2021 to $9.0 trillion in 2022. However, it increased by 2.7% for IDA-eligible countries during the same year, reaching an all-time high of $1.1 trillion. To read more about highly indebted regions you can look at 20 Countries Most in Debt to IMF and 15 Cities with the Highest Debt in the US.
China: The Largest Bilateral Creditor to Low and Middle Income Countries
China has been one of the fastest-growing economies over the past two decades, with its annual average gross national income growth averaging over 13%. China finds itself at an interesting spot in the international external debt landscape. On the one hand, it is characterized as the largest bilateral creditor to LMICs, but on the other hand, it is also the largest borrower amongst the same group. China received approximately 40% of the total net financial inflows to LMICs from 2012 to 2022. The total financial net inflows from external creditors to China during this period amounted to $4 trillion, with 32% of this amount as debt-creating flows and the remaining 68% as equity inflows consisting of portfolio equity and foreign direct investment. To read more about China, you can look at 15 Countries with the Highest Exports to China.
On the contrary, China became the largest creditor to LMICs, with the group’s combined public and publicly guaranteed external debt to China amounting to $180 billion in 2022. A greater proportion of this debt went to large infrastructure projects and extraction industries in African countries, with the region accounting for 44% of the LMIC’s total debt to China. Moreover, in South Asia, the external debt to China went up approximately sevenfold from $6.4 billion in 2012 to $42.9 billion in 2022, with Pakistan alone accounting for two-thirds of the increase. According to the report, China’s major lending is directed to three major avenues: oil-producing countries
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