Analysis: China’s debt restructuring policy under scrutiny as more countries seek relief

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Chinese President Xi Jinping, Senegalese President Macky Sall, Congolese President Felix Antoine Tshisekedi, Egyptian President Abdel Fattah al-Sisi, South African President Cyril Ramaphosa, United Nations (UN) Secretary General Antonio Guterres, President of the African Union Commission Moussa Faki Mahamat and Comoros? President Azali Assoumani attends the opening of the Forum on China-Africa Cooperation (FOCAC) via video link in Dakar, Senegal November 29, 2021. REUTERS/Cooper Inveen/File Photo

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  • China regularly waives interest-free loans to Africa
  • Chinese state banks toughen stance on other debt relief
  • Chinese lenders prefer longer repayment to haircuts

LONDON/BEIJING, Sept 8 (Reuters) – In August, China’s ambassador to Zambia took the stage at a new conference center in the capital Lusaka, which he called “a gift from the Chinese government to our Zambian friends “, to talk about loans to this debt-ridden southern African country.

China is the world’s largest bilateral lender, but discloses little on lending terms and also how it renegotiates with troubled borrowers, so interest in how it handles Zambian debt is intense, d especially as more and more countries like Sri Lanka are struggling to repay loans. Read more

Leaders of wealthy Group of Seven democracies specifically called on China to play a more active role in helping troubled countries restructure their debt burdens.

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Shortly after Ambassador Du Xiaohui’s speech in Lusaka, China confirmed that it had canceled 23 interest-free loans to 17 African countries, honoring a promise made by President Xi Jinping at the 2021 China-China Cooperation Forum. Africa (FOCAC). China said the loans had come due but gave no further details.

The announcement was welcome, but interest-free loans represent only a tiny fraction of China’s lending to the mainland. African governments treat them like subsidies anyway, so there were no surprises, according to the researchers and government officials.

This type of debt cancellation, which China has practiced for more than two decades, masks a tougher stance on restructuring the bulk of its loans to developing countries under its Belt and Road Initiative (BRI). launched in 2013, analysts said.

“It’s the lowest fruit,” said Hannah Ryder, chief executive of Development Reimagined, an African-owned development consultancy headquartered in Beijing.

“There is more China could do.”

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China generally does not disclose loan terms, while debt relief usually comes through maturity extensions or new loans rather than write-downs.

“China has long provided various types of assistance, including interest-free loans, to Africa within its capacity, and has actively supported the economic and social development of African countries,” a spokesperson told Reuters. -spoken by the Chinese Ministry of Foreign Affairs in a written statement. He did not answer a question about the total value of the 23 canceled loans.

Interest-free loans account for less than 5% of the $843 billion in Chinese loan commitments to 165 governments around the world between 2000 and 2017 tracked by research lab AidData.

ZAMBIA INDICES

Progress got off to a frosty start in restructuring Zambia’s $17 billion external debt – Africa’s first pandemic-era default – thanks to the common framework put in place by the Group of 20 major economies in 2020. Sources involved in the process blamed China for the delay. Read more

The Chinese Foreign Ministry denied this, saying it “does not correspond to the facts”.

“China played a positive role in Zambia’s debt restructuring. It was thanks to China’s promotion that the creditors’ committee was able to successfully hold two meetings,” he said in a statement. written response to Reuters.

The second meeting resulted in a restructuring commitment and paved the way for IMF approval of a $1.3 billion lending program. However, the relief offered by each creditor is still being negotiated. Read more

China may seek long-term extensions of its $6 billion in loans to Zambia rather than accept write-downs, a source familiar with the negotiations said.

“The choice between haircuts and extending the repayment period…is a matter of negotiations,” Zambian Finance Minister Situmbeko Musokotwane said at a press conference last week, declining to comment specifically on the issue. role of China. Read more

Some creditors “will choose to get their money faster” while others will opt for no haircut but repayment over a longer period, Musokotwane added.

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“In dealing with the debt problem, the principle of ‘joint action and just burden’ should be followed,” China’s foreign ministry said in its statement responding to criticism that it delayed the restructuring.

There is, however, uncertainty as to whether China will adopt a multilateral approach for other indebted countries, such as crisis-stricken Sri Lanka, which defaulted on its external debt which reached $47 billion at the end of the year. ‘last year.

Tokyo said in late August it would coordinate with other creditor nations, including India and China – Sri Lanka’s biggest bilateral creditor – and called for joint restructuring talks. Read more

“We are ready to work with relevant countries and international financial institutions,” Chinese Foreign Ministry spokesman Zhao Lijian said in response last week.

“LASER FOCUSED”

Between 2000 and 2020, Chinese lenders, mostly state-owned banks, agreed to lend $160 billion to African countries, according to Boston University.

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China canceled at least $3.4 billion in debt between 2000 and 2019, nearly all interest-free loans to African countries, while state lenders independently restructured or refinanced $15 billion, according to the Initiative China-Africa Research Center (CARI) at Johns Hopkins University.

China’s state-owned banks were “laser-focused” on repayment, said Brad Parks of AidData, noting that the Republic of Congo renegotiated $1.3 billion in loans from China Eximbank in 2019 by extending maturities and increasing interest rates. The debt amounted to $1.6 billion.

Beijing’s ambassador to Zambia said in his August speech, “we didn’t want to get into the G20 creditors’ committee, the Common Framework”, adding that friendly bilateral cooperation was “the best way to manage debt between two friends.

Du added, however, that an “important” May 31 call between the Zambian and Chinese presidents convinced Beijing to join the multilateral talks. Read more

“China is engaged in a series of real and healthy deliberations on how to handle its first-ever gigantic debt crisis and it should be applauded for its deliberations,” said Kevin Gallagher, professor of global development policy at the University of Boston.

“But if they don’t act quickly, it will only get worse.”

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Reporting by Rachel Savage in London and Martin Quin Pollard and Yew Lun Tian in Beijing; Additional reporting by Tetsushi Kajimoto in Tokyo, Jorgelina do Rosario and Marc Jones in London and Chris Mfula in Lusaka; Editing by Karin Strohecker and Alexandra Hudson

Our standards: The Thomson Reuters Trust Principles.

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