Report: Chinese loan terms hamper post-virus debt talks

A new report says 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 coronavirus pandemic

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 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 C. 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 stakes are quite high,” Parks said. “If China is not at the table when these countries are trying to renegotiate, it is very difficult for countries in repayment distress to get out of that situation.”

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 filling 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 a copy of the report before its release and responded with “detailed written comments” that emphasized their need to “mitigate risk” in lending to weak economies, Parks said.

“There were no requests that we change anything,” he said. “They wanted to make sure their perspective was understood.”

China’s official secretiveness has fueled complaints its aid and lending might prop up corrupt regimes or undercut environmental and human rights standards Western donors are trying to enforce.

Officials in charge of Belt and Road say the initiative benefits all countries involved and lending is on commercial terms, not aid.

Chinese leaders have forgiven interest owed by some Belt and Road borrowers and say they want to keep debt manageable. Wednesday’s report noted, however, that Ecuador was reminded by Chinese bankers about its secrecy terms and told future lending might be jeopardized following leaks of loan details.

Researchers led by AidData released their first report in 2013 focusing on Chinese financing to Africa.

In 2017, a report found China was close to matching the United States as a source of official grants and loans but said much of that served Beijing’s economic interests instead of those of the recipients. A 2018 report found Chinese-financed railways in Africa and Asia were helping to reduce economic inequality between regions within countries.


Copies of Chinese loan contracts: