DAKAR (Reuters) – The terms of China’s loan deals with developing countries are unusually secretive and require borrowers to prioritise repayment of Chinese state-owned banks ahead of other creditors, a study of a cache of such contracts showed on Wednesday.
The dataset – compiled over three years by AidData, a U.S. research lab at the College of William & Mary – comprises 100 Chinese loan contracts with 24 low- and middle-income countries, a number of which are struggling under mounting debt burdens amid the economic fallout from the COVID-10 pandemic.
Much focus has turned to the role of China, which is the world’s biggest creditor, accounting for 65% of official bilateral debt worth hundreds of billions of dollars across Africa, Eastern Europe, Latin America and Asia.
“China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of its lending,” the authors, including Anna Gelpern, a law professor at Georgetown University in the United States, wrote in their paper.
The researchers at AidData, the Washington-based Center for Global Development (CGD), Germany’s Kiel Institute and the Peterson Institute for International Economics compared Chinese loan contracts with those of other major lenders to produce the first systematic evaluation of the legal terms of China’s foreign lending, according to CGD.
Their analysis uncovered several unusual features to the agreements that expanded standard contract tools to boost the chances of repayment, they said in the 77-page report.
How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments
Mar 31, 2021
Authors
Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, Christoph Trebesch
Citation
Gelpern, A., Horn, S., Morris, S., Parks, B., & Trebesch, C. (2021). How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments. Peterson Institute for International Economics, Kiel Institute for the World Economy, Center for Global Development, and AidData at William & Mary.
Abstract
China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of its lending. Very few contracts between Chinese lenders and their government borrowers have ever been published or studied. This paper is the first systematic analysis of the legal terms of China’s foreign lending. We collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania, and compare them with those of other bilateral, multilateral, and commercial creditors. Three main insights emerge. First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially-savvy lender to the developing world.
Bradley C.?Parks
Executive Director
FULL REPORT
How_China_Lends__A_Rare_Look_into_100_Debt_Contracts_with_Foreign_Governments
