The tussle between China and the United States over who should fund debtor nations has reshaped the global lending landscape. The People’s Republic of China has risen to become the world’s largest creditor to developing countries, a shift that could prolong financial stress for borrowing nations. This assessment draws on insights from World Bank economists and the AidData research project at the College of William and Mary, with additional context from Harvard University and the Kiel Institute for the World Economy.
China uses its sizeable central bank reserves as a primary source of loans to developing economies. The article notes that the People’s Bank of China maintains monetary reserves estimated at about 3.3 trillion dollars that can be deployed for lending and related financial activities.
Observers say a new global system for cross-border lending is emerging, one that competes with the traditional US-led framework that has shaped international finance since the 1940s. Over roughly the last twenty years, the People’s Bank of China has signed swap agreements totaling around 580 billion dollars with more than forty countries and regional groupings, signaling a broad and growing network of financial ties.
From 2016 to 2021, at least a couple of China’s debtor countries faced repayment difficulties with Beijing, a problem compounded by the economic disruptions caused by the coronavirus pandemic. In the same interval, the International Monetary Fund allocated about 144 billion dollars to aid developing economies, highlighting a shift in the relative scale and speed of aid and lending among major institutions.
In a recent report to the United States Senate, lawmakers discussed a bill that would bar the World Bank from extending lending to China. The rationale cited emphasizes a duty for American authorities to ensure that their financial resources support the nations most in need, rather than channeling funds to Beijing’s projects. The discussion reflects broader concerns about how competing lending power centers influence global development outcomes and the distribution of aid across vulnerable economies.