Historical patterns in lending cycles

China became the world's largest bilateral creditor to developing countries over two decades, and for most of that time the scale of what it was doing was effectively a state secret. Its state-owned banks lent close to $1 trillion to developing-country governments, structured roughly half those loans against commodity export revenues held in offshore accounts, and concentrated the riskiest lending in countries such as Venezuela, Angola, and Russia. Net financial flows turned negative in 2019, and the countries that borrowed now repay more to China than they receive in new lending.

Sebastian Horn of the Kiel Institute tells Tim Phillips that despite the opacity and the distinctive collateral structures, we’ve seen this movie before, in the 1920s and 1980s: in the bust, serial short-term extensions of grace periods that defer payments without resolving the underlying debt, while affected countries cut spending to stay current. What Horn calls a "silent crisis" is underway in a cluster of highly indebted developing countries, too small to trigger global contagion but large enough to matter profoundly for the people living through it.

The challenge is whether China's lenders, debtor governments, and the broader international financial architecture can coordinate the kind of relief that will make a difference.

The research behind this episode:

Horn, Sebastian, Carmen M. Reinhart, and Christoph Trebesch. 2025. "China's Lending to Developing Countries: From Boom to Bust." Journal of Economic Perspectives 39 (4).

To cite this episode:

Phillips, Tim, and Sebastian Horn. 2026. "China's Lending to Developing Countries: From Boom to Bust." VoxDev Talk (podcast).

Assign this as extra listening: the citation above is formatted and ready for a reading list or VLE.

About Sebastian Horn

Sebastian Horn is a professor of economics at the Kiel Institute for the World Economy and at the University of Hamburg, where his research focuses on international finance, sovereign debt, and China's role as a global creditor. 

Research cited in this episode

AidData. 2021. AidData's Global Chinese Development Finance Dataset, Version 3.0. AidData, William & Mary. A comprehensive public dataset tracing Chinese government-backed lending and grants to 165 countries between 2000 and 2017, built from embassy records, parliamentary gazettes, central bank reports, and news sources. Much of the quantitative evidence in the episode depends on it, since China has never published a consolidated balance sheet of its overseas lending.

More VoxDev Talks on this topic

Is debt leading to the unsustainable exploitation of natural resources?: Tim Phillips speaks with Pushpam Kumar about how sovereign debt obligations shape governments' incentives to extract natural resources more intensively, and what that means for the long-run sustainability of resource-dependent developing economies.

Related reading on VoxDev

Navigating Senegal's unexpected debt crisis: how a country widely regarded as a model of fiscal prudence found itself in acute debt distress, and what the episode reveals about the vulnerabilities facing developing-country borrowers in the current environment.

Chinese development finance and public opinion: evidence on how Chinese-funded infrastructure projects affect attitudes towards China in recipient countries, with implications for understanding the political economy of China's overseas lending strategy.