Analysis - China Debt Restructuring Policy Under Scrutiny As More Countries Demand Relief - Reuters

5/10/22, 0:39 Analysis: China debt restructuring policy under scrutiny as more countries demand relief | Reuters
5 minute readSeptember 8, 20228:03 AM GMT-3Last Updated a month ago
Analysis: China debt restructuring policy under

scrutiny as more countries demand relief
By Rachel Savage, Martin Quin Pollard and Yew Lun Tian
https://www.reuters.com/world/china/china-debt-restructuring-policy-under-scrutiny-more-countries-demand-relief-2022-09-08/ 1/12
China's President Xi Jinping, Senegal's President Macky Sall, Congo's President Felix Antoine Tshisekedi, Egypt's President Abdel
Fattah al-Sisi, South Africa's President Cyril Ramaphosa, United Nations (UN) Secretary General Antonio Guterres, Chairman of the
African Union Commission Moussa Faki Mahamat and Comoros? President Azali Assoumani attend the opening of the forum Forum
on China-Africa Cooperation, (FOCAC) via video link in Dakar, Senegal November 29, 2021. REUTERS/Cooper Inveen/File Photo
Summary
China regularly forgives interest-free loans to Africa
Chinese state banks take tougher stance on other debt relief
Chinese lenders prefer longer repayment over haircuts
LONDON/BEIJING, Sept 8 (Reuters) - In August, China's ambassador to Zambia took to the stage at a new
conference centre in the capital Lusaka, which he called "a gift from the Chinese government to our
Zambian friends", to speak about lending to the debt-laden southern African country.
China is the world's largest bilateral lender but discloses little on lending conditions and also on how it
renegotiates with borrowers in distress, so interest in how it handles Zambian debt is intense, particularly as
more countries such as Sri Lanka struggle to repay loans. read more
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Leaders of the Group of Seven rich democracies have called on China specifically to take a more active role
in helping strained countries overhaul their debt burdens.
Shortly after ambassador Du Xiaohui's Lusaka speech, China confirmed it had forgiven 23 interest-free
loans to 17 African countries, making good on a pledge by President Xi Jinping at the 2021 Forum on
China-Africa Cooperation (FOCAC). China said the loans had matured but did not give further detail.
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The announcement was welcome, but interest-free loans make up a tiny portion of China's lending to the
continent. African governments treat them like grants anyway so there was little surprise, according to
researchers and government officials.
This kind of debt forgiveness, which China has done for more than two decades, masks a harder stance on
restructuring for the bulk of its lending to developing nations under its Belt and Road Initiative (BRI)
launched in 2013, said analysts.
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"It's the lowest hanging fruit," said Hannah Ryder, chief executive of Development Reimagined, an African-
owned development consultancy headquartered in Beijing.
"There is more that China could do."
Reuters Graphics Reuters Graphics
China generally does not disclose lending terms, while debt relief usually comes through maturity extension
or new lending rather than write downs.
"China has long provided various kinds of assistance, including interest-free loans, to Africa within its
capacity, and actively supported the economic and social development of African countries," a Chinese
foreign ministry spokesperson told Reuters in a written statement. It did not respond to a question on how
much the 23 forgiven loans were worth in total.
Interest-free loans account for less than 5% of the $843 billion in Chinese loan commitments to 165
governments globally between 2000 and 2017 tracked by research lab AidData.
CLUES FROM ZAMBIA
Progress got off to a glacial start on restructuring Zambia's $17 billion of external debt - Africa's first
pandemic era default - through the Common Framework set up by the Group of 20 major economies in
2020. Sources involved in the process have blamed China for the delay. read more
China's foreign ministry denied this, saying it "does not correspond to the facts".
"China has played a positive role in Zambia's debt restructuring. It was through China's promotion that the
creditors committee was able to successfully hold two meetings," it said in a written response to Reuters.
The second meeting resulted in a restructuring commitment and paving the way for the IMF to sign off on a
$1.3 billion lending programme. However, relief offered by each creditor is still being negotiated. read more
China may push for long maturity extensions to its $6 billions of loans to Zambia rather than accepting
writedowns, a source with knowledge of the negotiations said.
"The choice between haircuts and stretching the repayment period... is a matter of negotiations," Zambia's
finance minister Situmbeko Musokotwane told a news conference last week, declining to comment on
China's role specifically. read more
Some creditors "will choose to have their money faster" while others would opt for no haircut but repayment
over a longer period, Musokotwane added.
"In dealing with the debt problem, the principle of "common action and fair burden" should be followed,"
China's foreign ministry said, in its statement responding to criticism that it delayed the restructuring.
There is uncertainty however over whether China would adopt a multilateral approach for other indebted
countries, such as crisis-hit Sri Lanka, which defaulted on external debt that reached $47 billion at the end
of last year.
Tokyo said in late August it would coordinate with other creditor nations, including India and China - Sri
Lanka's largest bilateral creditor - and urged 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.
China wrote off at least $3.4 billion of debt between 2000 and 2019, almost all interest-free loans to African
countries, while independently, state-owned lenders restructured or refinanced $15 billion, according to
Johns Hopkins University's China Africa Research Initiative (CARI).
Chinese state-owned banks were "laser-focused" on getting repaid, said AidData's Brad Parks, noting that
Congo Republic renegotiated $1.3 billion of loans from China Eximbank in 2019 by lengthening maturities
and increasing interest rates. The debt rose to $1.6 billion.
Beijing's ambassador to Zambia said in his August speech, "we didn't want to go into the G20 creditors
committee, the Common Framework," adding friendly bilateral cooperation was "the best way to deal with
debt between two friends."
Du added, however, that an "important" May 31 call between Zambia's and China's presidents convinced
Beijing to join multilateral talks. read more
"China is having a real, healthy set of deliberations on how to deal with their first ever mammoth debt crisis
and they should be applauded for their deliberations," said Kevin Gallagher, professor of global
development policy at Boston University.
"But if they don't act quick, it'll only get worse."
(This story corrects name of Johns Hopkins University in chart 2, corrects to read "bln" (not m) in charts 1
and 3)
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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5/10/22, 0:39 Analysis: China debt restructuring policy under scrutiny as more countries demand relief | Reuters

5 minute readSeptember 8, 20228:03 AM GMT-3Last Updated a month ago

Analysis: China debt restructuring policy under

China regularly forgives interest-free loans to Africa

Chinese state banks take tougher stance on other debt relief

Chinese lenders prefer longer repayment over haircuts

Advertisement · Scroll to continue

Advertisement · Scroll to continue

"There is more that China could do."

Reuters Graphics Reuters Graphics

CLUES FROM ZAMBIA

Reuters Graphics Reuters Graphics

Reuters Graphics Reuters Graphics

"But if they don't act quick, it'll only get worse."

Our Standards: The Thomson Reuters Trust Principles.

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