Will Chinese loan terms hamper post-virus debt talks in Africa and Asia?
In a report released this week, a group of American and German researchers warns that the terms under which China has granted loans to poor countries in Africa and Asia are hampering the ability of some governments to renegotiate debt as a result of the coronavirus epidemic.
The report, titled “How China Lends – A Rare Look into 100 Debt Contracts with Foreign Governments” echoed warnings about problems with Chinese lending, which increased dramatically after Beijing launched its Belt and Road Initiative (BRI) of trillion dollars in 2012 to build extensive infrastructure. projects on the Eurasian continent, Africa and the Middle East.
China has emerged as one of the biggest lenders, especially to developing countries, as the ruling Communist Party strives to expand its global influence to match the country’s status as the world’s second-largest economy.
Unlike financial entities such as the World Bank, Chinese state banks require foreign borrowers to keep the terms and sometimes even the existence of loans secret, researchers from the College of William and Mary in Virginia, say. the German Institute for the World Economy in Kiel, the Peterson Institute for International Economics and the Center for Global Development in Washington.
Reluctant to negotiate
Chinese banks insist on being repaid before other creditors, which may disrupt debt negotiations with groups of lenders, according to their report. He added that borrowers are required to pay oil or other income into foreign accounts that can be foreclosed in the event of default.
The pandemic “has undermined the repayment capacity of many borrowers,” but creditors are “reluctant to renegotiate” without knowing what is owed Beijing, said Bradley C. Parks, executive director of AidData, a lab at the College of William and Mary in Virginia. .
Zambia in southern Africa is deadlocked in talks with bondholders who refuse to negotiate until they know about its Chinese debts, according to the report.
âThe stakes are pretty high,â Parks said. “If China is not at the table when these countries try to renegotiate, it is very difficult for countries in repayment difficulty to come out of this situation.”
Too much debt
The researchers looked at 100 contracts between Chinese lenders and government borrowers in 24 countries with a total value of $ 36.6 billion. The lender of 84 of them was the Export-Import Bank of China or the China Development Bank.
Leaders in poor countries welcome Beijing’s loans, but Belt and Road has sparked complaints that they are left with too much debt. Kenyan gas station operators went on strike in 2018 after a fuel tax was imposed to repay Chinese loans for a railroad.
Researchers hope to encourage Beijing’s âsoul-searchingâ into whether secrecy and other restrictions are needed, Parks said. He said they hope borrowers “will be smart about the need to do their homework before signing these contracts.”
Chinese officials received a copy of the report ahead of its publication and responded with “detailed written comments” that underscored their need to “mitigate risk” by lending to weak economies, Parks said.
Human rights standards
“There has been no request that we change anything,” he said. “They wanted to make sure their point of view was understood.”
China’s official secrecy has fueled complaints that its aid and loans could support corrupt regimes or undermine environmental and human rights standards that Western donors are trying to uphold.
Belt and Road officials say the initiative benefits all affected countries and the loans are on commercial terms, not aid.
Chinese leaders have written off interest owed by some Belt and Road borrowers and say they want to keep the debt manageable. Wednesday’s report, however, noted that Chinese bankers had reminded Ecuador of its confidentiality terms and said future loans could be jeopardized following leaks of loan details.
Researchers led by AidData published their first report in 2013 focusing on Chinese funding in Africa.
In 2017, a report found that China was on track to match the United States as a source of official grants and loans, but said it largely served Beijing’s economic interests rather than those of the United States. beneficiaries. A 2018 report found that China’s-funded railways in Africa and Asia are helping to reduce economic inequalities between regions in countries.