Debt Relief with Chinese Characteristics
As China is poised to become the world’s largest creditor, concerns about debt sustainability have grown. Yet considerable confusion exists over what is likely to happen when a government runs into trouble repaying its Chinese loans.
The authors draw on data from the China Africa Research Initiative (CARI) to review the evidence on China’s debt cancellation and restructuring in Africa, in comparative and historical perspective. Cases from Sri Lanka, Iraq, Zimbabwe, Ethiopia, Angola, and the Republic of Congo, among others, point to patterns of debt relief with distinctly Chinese characteristics. In nearly all cases, China has offered debt write-offs only for zero-interest loans. There is no “China, Inc.”: for interest-bearing loans, treatment for inter-governmental debt and Chinese loans are negotiated separately, and often loan-by-loan rather than for the entire portfolio. While rescheduling by increasing the repayment period is common, changes in interest rates, reductions in principal, or refinancing are not. The authors found no “asset seizures” and despite contract clauses requiring arbitration, no evidence of the use of courts to enforce payments. Although Chinese lenders have applied Paris Club terms to some rescheduling, on the borrower’s request, Chinese lenders prefer to address restructuring quietly, on a bilateral basis, tailoring programs to each situation. Yet the lack of transparency fuels suspicion about Chinese intentions. These patterns are likely to play out as Chinese lenders and African borrowers grapple with the impact of COVID-19
