Of the 68 countries identified as potential borrowers in the Belt and Road Initiative (BRI) — a sprawling plan aimed at connecting China with much of Asia, Europe, the Middle East and Africa — 23 were found to be already at a "quite high" risk of debt distress, according to the Washington-based Center for Global Development (CGD), a think tank.
Among those names was Sri Lanka, which made the news in December when it handed over control of Hambantota port — a facility built using Chinese loans — to China Merchants Port Holdings, a state-owned port operator.
The think tank determined that eight of those 23 countries would potentially face difficulties in servicing their debt because of future financing related to BRI projects. Those countries include Pakistan, Djibouti, the Maldives, Laos, Mongolia, Montenegro, Tajikistan and Kyrgyzstan.
Pakistan is a major part of the infrastructure scheme, playing home to the Gwadar Port, which is one of several notable developments in the region that make up the China-Pakistan Economic Corridor.
According to the think tank, these eight countries highlighted would see their levels of external debt owed to China and its bank rise "sometimes dramatically," thanks to the Belt and Road scheme, which plans to invest as much as $8 trillion in infrastructure projects across Asia, Europe and Africa.
Pakistan is by far the largest country at high risk, with China reportedly financing about 80 percent of its estimated US$62 billion in additional debt.
"Big-ticket BRI projects and the relatively high interest rates being charged by China add to Pakistan's risk of debt distress," CGD said.
China's Ministry of Foreign Affairs did not immediately respond to an emailed request for comment.
Another is Laos in Southeast Asia, which has several BRI-linked projects. This includes a $6.7 billion China-Laos railway which represents nearly half the country's GDP — leading the International Monetary Fund to warn that it might threaten the country's ability to service its debts, the think tank noted.
The elevated risks were in part due to China's record of dealing with debt relief in the past. CGD called its track record "problematic", saying: "Unlike the world's other leading government creditors, China has not signed on to a binding set of rules of the road when it comes to avoiding unsustainable lending and addressing debt problems when they arise."
The think tank stressed that its research has made clear China needs to improve its debt practices soon.
Currently, China is listed as an ad hoc participant of the Paris Club, a collection of creditor nations. The Paris Club's 22 permanent members, which do not include China, conduct negotiations with debtor countries that have difficulties repaying loans.
While the study acknowledged that on the whole, the initiative was "unlikely to cause a systemic debt problem," it still "significantly increased (the) risk of a sovereign debt default" in a number of countries, most of which were small and relatively poor.
"Belt and Road provides something that countries desperately want — financing for infrastructure. But when it comes to this type of lending, there can be too much of a good thing," John Hurley, one of the report's authors and a visiting fellow at the Center for Global Development, said in a statement.
Others have also acknowledged issues related to China's financing practices, but came across as more upbeat.
"There are certainly things to worry about, such as growing indebtedness of some of China's big clients ... But there are signs of evolution," David Dollar, senior fellow at the Brookings Institution, wrote in a conference paper presented in October.