Do China’s official external lending and its components reduce host country national risks?—Empirical evidence from borrowing and non-borrowing countries

Yanxi Li, Shu Shang () and Yuchen Sun
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Yanxi Li: Dalian University of Technology
Shu Shang: Dalian University of Technology
Yuchen Sun: Dalian University of Technology

Humanities and Social Sciences Communications, 2025, vol. 12, issue 1, 1-16

Abstract: Abstract As the negative impacts of country risk on macroeconomic stability and social development become increasingly prominent, effectively reducing country risk has become a crucial issue. China’s official external lending, as an important source of international development finance, provides opportunities for reducing host countries’ country risk. This paper utilizes panel data from 115 countries to investigate the impact of China’s official external lending and its components on the country risk of host countries. The research findings indicate that China’s official external lending, preferential lending, and commercial and other lending have significantly reduced the country risk of host countries. Among these, economic growth and social stability channels play an intermediary role between China’s official external lending and its components and the country risk of host countries. Heterogeneity tests indicate that the effects of China’s official external lending and its components on host countries’ country risk are heterogeneous, showing more pronounced effects in low-skilled and low-income countries. Further research finds that China’s official external lending and its components can effectively reduce host countries’ financial, economic, and political risks. Moreover, as the quantiles of host countries’ country risk increase, the risk-reducing effects of China’s official external lending and its components gradually weaken. This paper offers new insights and evidence on the use of China’s official external lending to mitigate host countries’ country risk, while refuting the “debt trap theory.”

Date: 2025
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DOI: 10.1057/s41599-025-06059-1

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