China's official external loans are not a "debt trap"? — New evidence from a risk study on Global South countries

Rethinking the "Risk-Financing" Paradigm in Emerging Markets

For a long time, emerging markets and countries of the Global South have faced a structural contradiction in international capital markets: on the one hand, they urgently need long-term, low-cost development financing to improve infrastructure, promote industrialization, and enhance public services; on the other hand, high sovereign risk and policy uncertainty often deter private capital, creating a cycle of "risk premium—underinvestment—developmental stagnation." Against this backdrop, the role of official development financing has once again become a focal point of discussions in international development economics and global capital allocation.

A recent study published in *Humanities and Social Sciences Communications* provides important new evidence on this issue: based on panel data analysis of 115 countries over a long time span, it shows that China's official external lending—including concessional loans, commercial loans, and other loans—significantly reduces the country risk of host countries. This finding does not merely rest at the macro-level correlation; it further identifies "economic growth" and "social stability" as two core mediating channels, and reveals heterogeneity in the effect: in low-skilled and low-income countries, the risk-mitigation effect is particularly prominent.

For Global South studies, the value of this paper lies not only in responding to the debate over the "debt trap narrative," but also in prompting us to rethink the logic of emerging-market financing: development finance does more than fill savings gaps; it may, at a deeper level, participate in restructuring the host country's risk governance architecture.

From "Risk Sensitivity" to "Risk Governance": The Evolving Role of China's Official Lending

Since the 1990s, China's official external lending has undergone a transformation from sporadic projects to systematic deployment. In 1990, China's average annual official external loan commitments were approximately $510 million, with an average of 33 transactions per year; by 2017, the average annual commitments had reached about $38 billion, with the number of transactions rising to 99. Even excluding volatility, the average annual growth rate of its scale still reached 17.3%. This geometric growth has objectively made China an important global official creditor, and the impact of its lending behavior on host countries' macro risk has become a research topic that cannot be ignored.

Conventional wisdom usually regards country risk as a "precondition" for foreign capital inflows—only countries with lower risk can attract more capital. However, this study demonstrates a reverse causal relationship: appropriate levels of official financing can proactively reduce a host country's long-term risk level by improving its economic fundamentals and social environment. The study finds that the allocation of China's official loans exhibits clear strategic selectivity and policy coordination: it tends to favor productive sectors with positive externalities, such as energy development and transport corridors, while also paying attention to livelihood projects in areas like health care, education, and culture. This combination of "productive + livelihood-oriented" projects corresponds precisely to the two transmission nodes of risk governance—economic growth and social stability.In other words, the role that Chinese official loans play in host countries has transcended the traditional "fund provider" and is more like a "participant in risk governance." Against the backdrop of limited fiscal space in some Global South governments and high risk aversion among private capital, this development-oriented financing arrangement provides a kind of implicit insurance for local macroeconomic stability and social resilience.

The Blind Spot of the "Debt Trap" Narrative: The Challenge of Empirical Evidence

The "debt trap" theory is an influential narrative in the international public opinion arena in recent years. It holds that China, by providing large amounts of loans to low-income countries, creates their debt dependence on China, thereby acquiring strategic assets or political influence. However, this narrative has repeatedly shown its fragility under rigorous empirical testing.

One of the core findings of this study is that the negative relationship between Chinese official loans and country risk is not linear and constant, but rather adjusts with changes in the host country's risk level: when the host country's risk is at a low quantile, the risk-mitigating effect is strongest; when the risk is at a high quantile, the risk-reducing effect of loans gradually weakens. This result is very important in practical policy implications—it means that Chinese official loans are not a tool of "profiteering from a fire," but rather closer to a mechanism of "providing fuel in snowy weather." At the same time, it also reminds us that for extremely fragile countries at high risk, external financing still has its limits, and loans alone cannot fundamentally reverse a high-risk trend.

For Global South studies, rejecting a flawed "theory" is not difficult; the difficulty lies in providing an alternative explanatory framework. By distinguishing financial risk, economic risk, and political risk, this study finds that Chinese official loans significantly reduce all three types of risk. This suggests that official development financing may systematically repair the risk profile of host countries through multiple channels, such as improving public financial management, enhancing infrastructure quality, promoting employment, and stabilizing social expectations.

Implications for the Global South: Rebalancing Development Finance and Long-term Resilience

From the long-term perspective of emerging market research, the empirical facts of Chinese official loans provide an important case: the utility of external financing should not be judged solely by short-term debt sustainability but should also incorporate its long-term risk-mitigating effects. For policymakers in regions such as Southeast Asia, Africa, and Latin America, this study holds practical reference significance.Firstly, it shows that, against the backdrop of a huge infrastructure financing gap, development-oriented official lending can serve as a tool for reducing host-country risk rather than a burden — provided that such lending is allocated more toward areas that enhance productivity and is attentive to integration with local social development. Secondly, the study also reveals the limitations of a "broad-spectrum" lending strategy: across countries at different income levels and with different skill endowments, the risk-mitigating effects of lending vary significantly, which calls for more finely calibrated country-specific design between borrowing and lending countries. Finally, from the perspective of the international capital landscape, the macroeconomic and social stability generated by Chinese official lending has, in objective terms, lowered the transaction costs for other capital to enter host countries. In other words, China's actions in the development-finance domain may have indirectly provided a "risk cushion" for global private capital.

As for the shifting of global growth centers, whether Global South countries can secure sufficient long-term financial support to reduce volatility will largely determine whether they can cross the "middle-income trap" and achieve sustainable growth. The chain of "lending → growth → stability → reduced risk" revealed by this study may become a new financing logic under the framework of South-South cooperation: one based neither on charity nor on plunder, but on cooperative mechanisms for jointly managing risk.

Of course, this does not mean that the Chinese official lending model is free of controversy. Issues such as debt transparency, loan conditionality, environmental and social safeguards, and multilateral coordination remain topics that require continued discussion. But at the very least, dismissing it with the catchphrase "debt trap" neither reveals the true picture nor helps Global South countries gain access to effective development knowledge.

In the 2020s, an era of increasingly volatile cross-border capital flows and intensifying geoeconomic competition, development financing in the Global South stands at a juncture of paradigm reconstruction. Judging from the risk-mitigation effects of Chinese official lending, what the international community may need to focus on is not "who is providing the financing," but rather "whether this financing genuinely promotes the long-term governance of risk." For many emerging economies that lack stable infrastructure and mature institutional frameworks, the answer may be more positive than one might expect.