The terms of China’s large-scale lending
China Trade News
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China is the world’s largest government lender. This is not just because of its huge reserves of U.S. Treasuries.
For most of the past decade, Beijing has been trying to fill the huge infrastructure funding gaps on many continents through the “Belt and Road” initiative. In addition to increasing global influence, its primary goal is to upgrade the transportation links on the old Silk Road, making trade between the Far East and its western regions possible.Although Beijing recently Control expensesBetween 2008 and 2019, the China Development Bank and the Export-Import Bank of China lent US$462 billion. In terms of background, according to data from Boston University, this is not much different from the US$467 billion loan provided by the World Bank in the same period of time.
However, the terms of these loans to sovereign borrowers have been kept confidential. Until now.
Owned by the Peterson Institute for International Finance, a Washington-based think tank Charming paper This week, the report compiled the findings of 100 contracts with sovereign creditors mainly in Africa and South America. The lenders are the China Development Bank and the Export-Import Bank of China, as well as a few commercial banks and the Chinese government itself.The research was conducted with other think tanks and the AidData team at the College of William and Mary, which owns a data set here For those who want to study in depth.
Although the researchers pointed out that this 100 sample size only accounts for 5% of the contracts signed by Chinese lenders and foreign governments since the early 2000s, it is still sufficient in terms of standardization to draw some findings and conclusions about the nature of lending behavior , China “is a strong and business-minded lender.”
We recommend that you read this paper in its entirety. For those who don’t have time, here are some highlights.
First, these contracts do not appear to be very different from those offered by other sovereign creditors. Especially when these creditors (which often happens here) lend to low-income countries. However, these contracts are unique in that they reflect that China did not participate in collective restructuring agreements such as the Paris Club because of the deterioration of its sovereign debt.
This is at odds with what you might expect to be listed in contracts with import/export or development banks located elsewhere. For example, researchers consider these contracts to be a strange mixture of private and public sector lending standards. If things get worse, this may give more power to the Chinese authorities. For example, the inclusion of clauses that imply that the sovereign state changes policies and laws can be counted as a reason for cancellation and immediate loan repayment. The document pointed out that although such clauses have “nothing special in commercial debt contracts” formulated by private sector participants, they may “have different meanings and new effects in government-to-government loan arrangements.” In the case of countries that owe large amounts of cash, it does seem to give Beijing a lot of influence in domestic decision-making.
The extent to which Beijing will deviate from international agreements in providing debt relief is very important to us—especially when the current epidemic has left many countries. Developing economies China is seen as a troubled borrower country.
There is also the issue of implementation. The contracts (except for most of the written contracts with China Development Bank, which adopt English law) follow Chinese law. They also insist that dispute resolution takes place in China. Although researchers are unwilling to make judgments about the substance of Chinese laws or China’s commercial dispute resolution mechanism, we do not want to have the opportunity to argue our case under such a legal framework.