Debunking the "debt trap" myth: The truth you may not know

Editor's note: Mei Xin is an observer of international affairs. The article reflects the author's opinions and not necessarily the views of CGTN.

Narratives about the debt crisis in the Global South often cast China as the biggest creditor and primary cause of the distress. But fact-checking shows that this is not true. Recent reports by some international non-governmental organizations (NGOs) and international financial organizations offer new insights into the issue, countering the "debt trap" narrative with hard evidence.

Debt structure: China is not the biggest creditor

Contrary to the narrative, the largest lenders to the Global South are not Chinese but non-Chinese private lenders and multilateral financial institutions. A recent study of 88 lower-income countries by the UK-based campaigning organization Debt Justice finds that between 2020 and 2025, 39 percent of their external debt payments are to commercial lenders, 34 percent to multilateral institutions and only 13 percent to Chinese public and private lenders.

Similarly, the World Bank's International Debt Report 2024 shows that in 2023, the public debt of low and middle-income countries was 56 percent owed to private creditors, 30 percent to multilateral lenders and 14 percent to bilateral lenders, while debt to China accounted for just 5 percent.

Borrowing costs: Western lenders charge higher rates

Borrowing from Western commercial lenders often comes at a steep price. The UN Conference on Trade and Development's World of Debt 2025 report notes that since 2020, developing countries have faced borrowing costs 2 to 4 times higher than those of the United States. In 2024, they paid $921 billion in net interest on public debt – a 10 percent increase from the previous year.

Moreover, the U.S. Federal Reserve's aggressive rate hikes since March 2022 have amplified repayment burdens for dollar-denominated debt. In the same year, the International Monetary Fund warned that tighter financial conditions and a strong dollar had pushed 25 percent of emerging economies into or near debt distress, while more than 60 percent of low-income countries were facing severe debt challenges.

A welcome alternative: Chinese loans offer more favorable terms

Chinese loans generally offer lower rates and longer maturities, making them a preferred option for many developing nations. With an average interest rate of 2.7 percent – roughly half that of Western commercial lenders – Chinese financing is helping fellow developing countries meet development needs.

For example, China lent $944 million at 2 percent to finance Montenegro's Bar-Boljare highway and provided loans for the China-Laos Railway. Lao President Thongloun Sisoulith commented that the railway has helped transform Laos from a "landlocked country" into a "land-linked country." South African President Cyril Ramaphosa described China's investments in Africa as part of a mutually beneficial relationship that does not create the so-called debt trap.

Christopher Mutsvangwa, Zimbabwe's ruling Zimbabwe African National Union-Patriotic Front (ZANU PF) party Politburo member and the party's secretary for information and publicity, stated that Western countries have been the creators of every "debt trap" in Africa, and that before China offered assistance, African nations had no choice but to seek funding from the U.S., France, or the UK at exorbitant costs.

Debt relief: China has been a responsive partner

China is committed to easing developing countries' debt burdens and supporting their sustainable development on the principles of equal consultation and mutual benefit. According to the Debt Justice report, during the COVID-19 pandemic, China provided payment relief to low-income countries while many Western commercial lenders continued to collect repayments in full.

China has also been an active participant in the Group of Twenty (G20) debt relief initiatives and has been the largest contributor among G20 members. Under the G20's Debt Service Suspension Initiative (May 2020to December 2021), which deferred a total of $12.9 billion in debt payments, China alone suspended around $5.7 billion – more than any other G20 member and exceeding the $4.6 billion deferred by Paris Club creditors combined.

In fact, no borrowing country has endorsed the "debt trap" accusation against China. Conducted in line with international norms and market principles, Chinese financing is often directed toward infrastructure and productive sectors in recipient countries and is broadly welcomed as a high-quality source of funding that helps close funding gaps and drive growth. Leaders of many countries have remarked that China shows up where and when Western actors cannot or will not, making it a genuine partner for the Global South.

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