What happens if China suddenly turns off the financial tap? Risk analyst warns of chaos

For two decades, China's trillion-dollar lending spree reshaped nations, built cities, and transformed geopolitical landscapes. Highways cut through mountains, ports buzzed with trade, and railways promised economic miracles—until repayments stalled. Now, as debts spiral out of control and nations wobble on the edge of collapse, risk analyst Hardik Joshi asks an unsettling question: What happens if China suddenly turns off the financial tap?

"For the last two decades, China has been one of the biggest lenders in global finance, but that might be changing," Joshi writes, pointing to China's ambitious Belt and Road Initiative (BRI), which has pumped over $1 trillion into developing nations for infrastructure. But the reality now is stark: many countries can no longer pay back these massive loans.

Sri Lanka defaulted on Chinese debt in 2022, triggering an economic crisis still felt today. Pakistan hovers on the brink of financial ruin under immense loan burdens, while African nations like Zambia and Kenya find themselves billions in debt without clear paths to repayment. Joshi warns this debt spiral could escalate dramatically: "If China stops lending, these nations may run out of funds for critical infrastructure projects, leading to economic slowdowns or even collapses."

He further highlights that if China's lending stalls, its geopolitical influence could quickly erode. Countries borrowing from China often align with Beijing at global forums and grant exclusive operational rights to Chinese firms. "If China reduces its lending, its influence over global politics and trade will weaken," says Joshi, creating space for powers like the US, EU, and India to expand their global footprint.

But there's more at stake than politics. Joshi emphasizes the broader economic fallout: "China’s loans aren’t just about politics—they fuel global growth." Asian and African economies depend heavily on Chinese-funded projects. If funding dries up, economies could stall, causing job losses and slower growth. China's own banks might feel the strain of mass defaults, risking a financial contagion reminiscent of the 2008 global crisis.

Joshi also sees implications for global currencies. China's loans, often given in yuan, aimed at reducing reliance on the US dollar. But without continued Chinese lending, struggling nations might turn to Western institutions like the IMF and World Bank, reinforcing the dollar's dominance and reshaping financial power back to the West.

Joshi predicts three potential outcomes: China slowing but not completely stopping lending; widespread defaults triggering broader financial crises; and the US and India stepping up to replace China's financial influence. His pressing question remains: "If China stops lending money to the world, are we heading towards a global financial crisis?"