China’s role as a major financier to developing nations has shifted over the past decade, with new loans to poorer countries dropping sharply while debt repayments continue to rise.
- Between 2014 and recent years, China transitioned from being a net lender to receiving net repayments from poorer countries, totaling $22.1 billion in the past five years.
- Multilateral institutions have increased their financing by 124% during the same period.
- This financial shift impacts African nations significantly, potentially increasing domestic accountability amidst reduced reliance on external aid.
China’s role as a major financier to developing nations has shifted over the past decade, with new loans to poorer countries dropping sharply while debt repayments continue to rise, according to a new analysis by ONE Data for the Development Finance Observatory.
The world’s second-biggest economy went from providing $30.4 billion in net funding flows in the five years through 2014 to receiving $22.1 billion in net repayments over the past five years.
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The report found that many low- and middle-income countries, particularly in Africa, are now sending more funds to China in debt payments than they are receiving in fresh financing from the world’s second-largest economy.
This trend has coincided with a surge in net financing from multilateral institutions, which have become the primary source of development finance once debt-service outflows are factored in.
Between 2020 and 2024, multilateral lenders increased net financing by 124%, providing 56% of net flows, equivalent to $379 billion over the period.
While the trend represents “a net negative” for African nations, making it harder for governments to fund public services and investments, it could also promote domestic accountability as countries rely less on external financing.
The report further highlighted a broader decline in bilateral finance flows and private external debt, trends likely to worsen with aid reductions from 2025 onward.
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Yuan gains ground in Africa
Meanwhile, China’s engagement with Africa is increasingly emphasising financial integration, particularly through the use of the Chinese yuan.
Although the yuan still accounts for less than 2% of global reserves, Africa is becoming a key testing ground for Beijing’s efforts to expand the currency’s international role and reduce reliance on the U.S. dollar.
In December, Zambia became the first African country to officially accept the yuan for mining taxes and royalties. In October, Kenya converted three major Chinese railway loans from U.S. dollars to yuan to reduce interest costs, while Ethiopia began discussions with China about converting part of its U.S. dollar-denominated debt into yuan.
