Database Reveals Secrets of China’s Lending to Developing Countries, Study Says

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DAKAR (Reuters) – The terms of China’s credit deals with developing countries are extremely secretive and require borrowers to prioritize payments to Chinese state-owned banks over other lenders, a study of the cache of such contracts showed Wednesday.

The Chinese national flag visible in Beijing, China, April 29, 2020 REUTERS / Thomas Peter

The dataset, compiled over three years by the American College of William and Mary Research Laboratory AidData, includes 100 Chinese loan agreements with 24 low- and middle-income countries, several of which are struggling with growing debt burdens amid the economic fallout from the COVID-10 pandemic.

Much attention was paid to the role of China, which is the largest creditor in the world, accounting for 65% of the official bilateral debt of hundreds of billions of dollars in Africa, Eastern Europe, Latin America and Asia.

“China is the largest official lender in the world, but we are missing basic facts about the terms of its lending,” wrote the authors in their article, including Anna Gelpern, professor of law at Georgetown University in the United States.

Researchers at AidData, the Washington Center for Global Development (CGD), the Kiel Institute of Germany, and the Peterson Institute for International Economics have compared Chinese loan contracts with those of other major lenders to produce the first systematic assessment of the legal terms of Chinese foreign loans. lending according to CGD.

Their analysis revealed several unusual features of the agreements, extending standard contracting tools to improve the odds of repayment, the 77-page report said.

These include confidentiality clauses that prevent borrowers from disclosing the terms of loans, informal collateral arrangements that benefit Chinese lenders over other lenders, and promises to prevent collective debt restructuring, which the authors call Paris Club ban clauses, the report said. … said. The contracts also give China considerable leeway to cancel loans or speed up repayment, he added.

Scott Morris, senior fellow at CGD and co-author of the report, said the findings raised questions about China’s role as one of the largest economies in the G20, which agreed on a “common framework” to help poor countries cope with financial problems. COVID-19 pressure, allowing them to rethink their debt burden.

The framework requires a comparable treatment of all lenders, including private lenders, but he said that most of the contracts reviewed prohibit countries from restructuring these loans on an equal basis and in coordination with other lenders.

“This is a very startling ban and it seems to be in conflict with the commitments the Chinese are making in the G20,” Morris told Reuters, although he added that perhaps China simply will not enforce these clauses in its loan contracts.

The Chinese Foreign Ministry did not immediately respond to a request for comment.

China has said in the past that its financial institutions, not just the country’s official creditors, are working to ease the debt problems of African countries.

In November, he also announced that he provided developing countries with a total of $ 2.1 billion in debt relief under the G20 program, the highest deferred amount among members of the group.

The material studied by the researchers for the study includes 23 contracts with Cameroon, 10 with Serbia and Argentina, and eight with Ecuador.

The World Bank warned in January that several countries are in urgent need of debt relief due to the severity of the global recession caused by the COVID-19 pandemic.

Report by Alessandra Prentice and Karin Strohecker; Additional report by Andrea Shalal; Edited by Muralikumar Anantaraman

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