China's lending to developing nations declines

Chart Spotlight: China's lending to developing nations declines

This analysis is based on a newly-created dashboard for lower- and middle-income country external sovereign debt, freely available for use and downloading data here.

After peaking at $188 billion in 2021, for the first time in two decades the stock of low- and middle-income country sovereign debt that China holds declined in 2022. At just under $181 billion, this is still more than the US, France, the UK, Germany, Italy, and Canada combined. Nevertheless, this reversal confirms China's pullback from its Belt and Road Initiative-driven lending that began in the early 2010s. It is also part of a broader global trend that saw LMICs' external debt stock dip by $43 billion, from $3.490 trillion in 2021 to $3.447 trillion in 2022. Higher global interest rates are certainly part of the story.

There has been no shortage of coverage in recent years on Chinese lenders holding off on new loans to emerging and developing economies. Indeed, Beijing has been reconsidering its Belt and Road Initiative even as its sovereign lenders grapple with the consequences of having such large exposures to EMDEs for the first time. Chief among these of course have been the debt restructurings of recent years, which have underscored how the preferences of Chinese creditors diverge from those of other lenders.

The sharpest drops in percentage terms came in other private lending, which includes trade finance, and in the bilateral concessional category. While we shouldn't read too deeply into this, I can't help but muse that decreasing export credits is consistent with worsening frictions between China and its trading partners. Similarly, the drop in concessional overseas lending shouldn't come as too much of a surprise in the context of domestic financial strains, as China's property crisis roils onward.

Among LMICs, low-income countries are already feeling quite the pinch at China's relative withdrawal. Chinese exposure to LICs has dropped by a full percentage point of GDP in just the space of a couple years. This is equivalent to a roughly 25% decline relative to output, as Chinese-held LIC debt has decreased from ~4% to ~3% of GDP since 2020.

Geographically, the outgoing Chinese tide is also affecting Africa. In 2022, China held less than $80 billion of African external debt, the lowest reading since 2018. While Sub-Saharan external debt actually increased in 2022, the pace has slowed compared to previous years. This reflects the lower exposure and significant weight of Chinese creditors, as they account for 1/6th of the $480 billion in global holdings of African external debt.

The World Bank's International Debt Statistics are one of the top resources in the sovereign debt space. The data is released with about a year's lag, meaning that full year data is currently only available through the end of 2022. But, as you can see, it's such fertile analytical ground. So feel free to use this dashboard for your own purposes. Also available here.

Headline Roundup

Sovereign Debt

• Global:

  • How to speed up sovereign debt restructuring

  • Can the IMF Use Its Balance Sheet More Effectively to Address Global Challenges?

  • EM sovereign bond issuance rose in May on stronger IG activity but HY leads June

• Argentina: IMF Expects China to Reschedule Billions in Argentina’s Debt

• Sri Lanka:

  • Sri Lanka Closes In on Debt Restructuring With Bilateral Lenders

  • IMF EB Concludes 2024 Article IV Consultation and Completes the Second Review Under the EFF

• Ghana: Ghana's bondholders to re-engage government next week on debt rework

• Zambia: Zambia Finally Seals Dollar Bond Revamp Yet Default Tag Sticks

• Kenya: Liquidity risks resolved but solvency risks remain

• New York: Greg Makoff on NY sovereign debt legislation 

• China: AidData launches new Geospatial Global Chinese Development Finance Dataset

• Africa: Euroclear and LSF partner to launch repo solution for African Eurobonds

• Tanzania: Fitch Affirms Tanzania at 'B+'; Outlook Stable

• Climate:

  • The climate and debt crises must be solved together

  • Preventing a Default on Development and Climate

Geoeconomic Fragmentation

• Global: Geopolitics Is Corroding Globalization

• US:

  • The U.S. and China: Trade and Trade Wars

  • America Isn’t Leading the World

• Russia:

  • Business as usual? US sanctions against Russia's financial market fail to incite panic

  • Russia, hit by new US sanctions, halts dollar and euro trade on main bourse

  • Russia overtook US as gas supplier to Europe in May

• Europe:

  • EU to impose multibillion-euro tariffs on Chinese electric cars

  • Europe’s real tourist trap 

• Ukraine: Reconstructing Ukraine at war: The journey to prosperity starts now

• US-Korea: The US and Korean CHIPS Acts are spurring investment but at a high cost

• Moldova: Moldova Arrests Officials For Helping Criminals Bypass Interpol Red Notices

• Australia: The Curious Case of Australia's (Brief?) Current Account Surplus

Global Electoral Calendar

Highlights

• Emerging markets: Why markets like to see new political faces

• South Africa: South Africa’s DA signs power-sharing deal with ANC

• India: India’s Modi Stays in Power, but Weakened

• Eastern Europe: Rise of far right in CEE's European elections is a worrying sign for the future

The Big Picture

Looking back

See the update for Q1 2024 electoral results here.

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