The author of the report said if China pushed too hard for repayment, it could ‘undermine its diplomatic goals’ in key parts of the world.
“Debt service flows to China from developing countries will total $35 billion in 2025 and are set to remain elevated for the rest of this decade,” the Sydney-based Lowy Institute, which receives funding from the Australian Department of Foreign Affairs and Trade, said in the report. “The bulk of this debt service, some $22 billion, is owed by 75 of the world’s poorest and most vulnerable countries.”
The Peruvian government said Fei Dongbin, head of the China National Railway Administration, and several other Chinese Communist Party (CCP) representatives were also present at the meeting.
The proposed railway would connect Brazil to Chancay, on Peru’s Pacific coast, creating a trade route that would avoid Chinese ships having to travel through the Panama Canal, or around the southern tip of South America.
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China has given huge loans for infrastructure projects in many parts of the world, under Chinese leader Xi Jinping’s Belt and Road Initiative (BRI).
The Lowy Institute said, “Now, and for the rest of this decade, China will be more debt collector than banker to the developing world.”
The report said that Beijing has transitioned from capital provider to net financial drainer on developing country budgets as debt servicing costs on BRI projects from the 2010s now far outstrip new loan disbursements.
The Paris Club is owed a total of $616 billion by 102 countries.
The report said China was prioritizing funding for neighbors such as Pakistan, Mongolia, and Kazakhstan, and also countries that provided important raw materials, such as the Democratic Republic of Congo, Indonesia, Brazil, and Argentina.
“Beijing faces a dilemma: pushing too hard for repayment could damage bilateral ties and undermine its diplomatic goals. At the same time, China’s lending arms, particularly its quasi-commercial institutions, face mounting pressure to recover outstanding debts,” the author of the report, research fellow Riley Duke, said.
“How China’s shift to chief debt collector will impact its reputation as a development partner and its broader messaging around South-South cooperation remains to be seen.”
He said highly indebted African states were often wary of rocking the boat and risking the loss of access to Chinese financing and trade.
“An increasingly transactional United States and distracted Europe have also likely fed a narrowed sense of their potential future economic pathways,” Duke added.
The report pointed out that BRI loans often seemed to come with strings attached, especially when it came to adhering to the CCP’s “One China” policy.
Honduras, Nicaragua, the Dominican Republic, Burkina Faso, and the Solomon Islands all received big loans within 18 months of dropping diplomatic recognition of Taiwan.
With China increasingly reining in BRI loans, Peru might find it harder to secure funding for the CFBC, which Lima described as a “megaproject that would redefine South American regional integration.”
Reyes said, “We are willing to co-finance our part of the tranche.”
The CFBC would link Lima with the city of Pucallpa in the Peruvian interior, and then across the border to Cruzeiro do Sul in Brazil, and via Vilhena, to the major metropolises of Sao Paulo and Rio de Janeiro.
