China Lent $1.34 Trillion from 2000 to 2021, Shift in Focus from Belt and Road to Rescue Finance – Report by Reuters

By Rachel Savage and Clare Baldwin

JOHANNESBURG/HONG KONG – Chinese financial institutions provided $1.34 trillion in loans to developing nations from 2000 to 2021, according to a report from researchers at AidData, which highlights a shift from infrastructure investments to rescue lending by the world’s largest bilateral lender.

While lending commitments reached a peak of nearly $136 billion in 2016, China still pledged close to $80 billion in loans and grants in 2021. This data encompasses almost 21,000 projects across 165 low and middle-income countries, making it one of the most comprehensive datasets on the topic.

China’s overseas financing strategy has helped it cultivate allies among developing nations, though it has faced criticism from Western countries and some recipient nations, such as Sri Lanka and Zambia, which argue that the infrastructure projects funded by China have led to unsustainable debt levels.

The data reveals significant shifts in both the sources and focus of China’s overseas financing. In 2013, when President Xi Jinping introduced the Belt and Road Initiative aimed at enhancing global infrastructure, policy banks dominated lending, constituting more than half of total financing. By 2021, their share had declining to 22%.

Instead, in 2021, the People’s Bank of China and the State Administration of Foreign Exchange accounted for over 50% of total lending, primarily in the form of bailouts. AidData’s report highlights that "Beijing is navigating an unfamiliar and uncomfortable role as the world’s largest official debt collector."

The trend toward increasing rescue lending is evident in the shift towards loans denominated in Chinese currency, which surpassed those in U.S. dollars in 2020. Furthermore, overdue payments to Chinese creditors have been rising.

To manage repayment risks, China has been using foreign currency cash escrow accounts, which it controls. This practice is controversial, as it gives China precedence over other creditors, including multilateral development banks, during coordinated debt relief efforts.

In June 2023, AidData identified 15 countries, mainly in Africa, that collectively had escrow accounts totaling about $2.5 billion at their peak. Brad Parks, the lead author of the study, noted that while they could not identify every such account—since they are typically kept confidential—they had tracked collateralized loans worth $614 billion, implying that the actual amount in escrow accounts could be significantly larger.

Additionally, China is increasingly collaborating with multilateral lenders and Western commercial banks. In 2021, half of its non-emergency loans were syndicated, with 80% of that amount issued alongside Western financial institutions.

The trends in the destinations of Chinese loans have also evolved. Commitments to African nations dropped from comprising 31% of the total in 2018 to just 12% in 2021, while lending to European countries nearly quadrupled to 23%. Another dataset indicated that commitments to African nations fell to a 20-year low in 2022.