A growing global private-credit market meltdown threatens to impact China, the world's largest creditor to developing countries, due to its significant lending exposure.

As war in the Middle East escalates, the financial fallout extends beyond energy price and supply-chain disruptions. Vulnerabilities in the US$3 trillion-plus global private-credit market are accelerating, driving investors to safe havens, while global finance undergoes a rapid transformation. China, the world’s largest creditor to developing countries, will feel the repercussions. This is the first real stress test confronting the vast lending empire. A meltdown was inevitable; only the timing....