China became the world’s largest official creditor as of 2017. Yet, China’s international lending is marked by acute data limitations. Even though the scope and scale of its capital  exports have grown exponentially,  China’s government does not provide adequate information on their outstanding overseas debt claims. As such, traditional reporting platforms, which have made substantial progress in recent year (see here), have not always been successful in fully capturing the extent of China’s international lending. Using granular, loan-level data, this study provides the most comprehensive assessment of  China’s overseas lending so far, detailing not only the size, terms, and destinations of its official lending but also  estimates the outstanding debt stocks of recipient countries. 

The data. The researchers construct a unified dataset that spans the years 1949 to 2017, covering a total of 2,151 loans and 2,824 grants by China’s state-owned creditors to 146 emerging or developing countries with total commitments of $564 billion. Their data collection is based on a broad range of data sources, including international treaties, debt contracts, policy reports, historical archives, and the work of other academics, as the table below summarizes. 

Data sources on China’s foreign lending, 1950–2018; commitments in current USD

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Researchers also estimated the outstanding debt stock for the 108 recipient countries for each year from 2000 to 2017 by estimating the repayment histories of each individual loan and then aggregating them at the country level. Researchers quantified the size of the “hidden” debt by comparing their own data, gathered on a loan-by-loan basis, to official debt statistics that recipient countries regularly report to the World Bank. Finally, using their newly collected data, the researchers also revisited the debt and default trends in developing countries and emerging markets, thereby shedding light on China’s position as a critically important official creditor on the world stage.    

China’s role as international lender. As of 2017, China surpassed the outstanding claims of the World Bank, IMF, or all 22 Paris Club governments combined. Unlike other major economies, much of China's external lending is official, meaning that it is undertaken by China’s government, state-owned policy banks, or other state-owned entities. The lending terms of China's official overseas loans, however, resemble commercial lending transactions in that most loans have short maturities and relatively high interest rates. For example, in low-income countries, China's loans typically have interest rates of 2 to 3%, in contrast to comparable grants by multilateral creditors, which tend to be interest-free. The interest and principal repayments are also often secured either in the form of commodity export proceeds (e.g., raw materials and agricultural products) or through the proceeds from financed projects. The research team notes that no other official lender systematically collateralizes its international loans in this way.  

Hidden debt. Researchers further explain that a substantial portion of China’s overseas lending had gone severely underreported until more recently. Comparing their own data collection of China’s loan commitments against the World Bank’s Debtor Reporting System to which developing debtor countries regularly report, the research team concludes that recipient countries underreported approximately 50% of China’s official lending commitments as of 2018. According to this analysis, the amount of “hidden” lending from China to developing countries grew to more than 200 billion USD as of the end of 2016.    

China’s official commitments not reported to World Bank

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Growing debt burdens in developing countries.  The rapid growth of China’s overseas lending has resulted in the buildup of high debt burdens in the developing world. More than two dozen countries now owe more than 10% of their GDP to China’s state-owned creditors. On average, for the top 50 most indebted recipients of direct loans from China, debt to China has increased from less than 1% of GDP of the debtor countries in 2005 to more than 15% of their respective GDPs in 2017.   

Debt to China, as percent of GDP

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Missing defaults on China’s overseas loans. The authors of this study construct their own database of debt restructuring episodes since 2000 involving China’s state-owned creditors. The research team demonstrates how, even prior to the COVID-19 health crisis, developing countries exhibited elevated levels of default events that standard international sources (e.g., credit rating agencies like Moody’s) miss because they solely measure sovereign default as credit events on debt to private creditors. This research team deduces from their new database that the number of credit events on China’s international loans now surpass the number of restructurings towards foreign bondholders and private banks. Once the researchers accounted for sovereign credit events with China, they identified more than 150 credit events by governments and public entities of developing and emerging countries. The number of countries in default also more than doubled after 2016, exceeding 10% of all independent countries. 

Transparency key to understanding global capital flows and external indebtedness. Although China’s state-owned creditors together comprise the world’s largest official lender, this study finds that nearly half of China’s lending to developing countries went unaccounted for in traditional reporting platforms until more recently. Debt sustainability analyses and risk pricing are hampered if a recipient country’s true debt burden remains unknown. The study’s authors therefore emphasize that the research community must continue to work towards better incorporating the lending statistics of a systemically important creditor: China.