Report: Chinese loan terms hamper post-virus debt talks
BEIJING — China’s loans to poor countries in Africa and Asia impose unusual secrecy and repayment terms that are hurting their ability to renegotiate debts after the pandemic, a group of U.S. and German researchers said in a report released Wednesday.
It adds to warnings about problems from Chinese lending, which surged after Beijing launched its Belt and Road Initiative in 2012 to expand trade with Asia, Africa and the Middle East by building railways and other infrastructure.
China has become one of the biggest lenders, especially to developing countries, as the ruling Communist Party tries to expand its global influence to match the country’s status as the second-biggest economy.
State-owned Chinese banks, unlike most official lenders, require foreign borrowers to keep terms and sometimes even the existence of loans secret, according to the researchers at the College of William and Mary in Virginia, Germany’s Kiel Institute for the World Economy and the Peterson Institute for International Economics and the Center for Global Development in Washington.
Chinese banks insist on being repaid ahead of other creditors, which can disrupt debt talks with groups of lenders, their report said. It said borrowers are required to put oil or other revenue into foreign accounts that can be seized in the event of default.
The pandemic “sapped the repayment capacity of many borrowers,” but creditors are “reluctant to renegotiate” without knowing what is owed to Beijing, said one of the authors, Bradley Parks, executive director of AidData, a laboratory 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 its Chinese debts, according to the report.
The researchers looked at 100 contracts between Chinese lenders and government borrowers in 24 countries worth a total of $36.6 billion. The lenders for 84 of those were the Export-Import Bank of China or the China Development Bank. The researchers posted copies of contracts online for the public to read.
Leaders of poor countries welcome Beijing’s lending, but Belt and Road has led to complaints 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 railway.
The researchers hope to encourage “soul-searching” by Beijing about whether secrecy and other restrictions are needed, Parks said. He said they hope borrowers “get smart on the need to do their homework before they sign these contracts.”
Chinese officials received the report and responded with “detailed written comments” that emphasized their need to “mitigate risk” in lending to weak economies, Parks said.
Officials in charge of Belt and Road say the initiative benefits all countries involved and lending is on commercial terms, not aid.