The terms of China’s loan agreements with developing countries are unusually secretive and require borrowers to prioritize repayment of Chinese state-owned banks before other creditors, a study of a cache of such contracts has shown.
The dataset – compiled over three years by AidData, a US-based research lab at the College of William & Mary – includes 100 Chinese loan deals with 24 low- and middle-income countries, some of which are struggling with growing debt amid the economic fallout from the COVID-19 pandemic.
Researchers and economists have looked to the role of China, which is the world’s largest creditor, accounting for 65% of official bilateral debt worth hundreds of billions of dollars in Africa, Europe and Africa. East, Latin America and Asia.
“China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of its loans,” wrote the authors, including Anna Gelpern, professor of law at Georgetown University in the United States. United, in their article.
Researchers from AidData, the Washington-based Center for Global Development (CGD), the German Institute in Kiel, and the Peterson Institute for International Economics compared Chinese loan contracts with those of other major lenders to produce the first systematic assessment of legal loan conditions, according to CGD.
Their analysis revealed several unusual features of the agreements that expanded standard contractual tools to increase the chances of repayment, they said in the 77-page report.
‘No Paris Club’
These include confidentiality clauses that prevent borrowers from revealing loan terms, informal collateral agreements that benefit Chinese lenders over other creditors, and promises to keep debt away from corporate restructurings – qualified by the authors of clauses “without Paris club”, according to the report told me.
the Paris Club is a group of 22 countries, mostly developed, that have agreed to act in concert with debtor countries. China is not one of them. One of its principles is that members exchange information on the situation of debtor countries and that borrowers are treated on a comparable basis.
China’s insistence that borrowers adhere to confidentiality agreements differs from contracts with state-backed lenders in other countries, which tend to impose confidentiality primarily on the lender. Such clauses mean that “citizens of lending and borrowing countries cannot hold their governments accountable,” according to the report.
However, the lack of transparency in sovereign debt agreements is not limited to China, according to the report, with almost no state-backed lender publicly releasing the text of their loan agreements.
“Disclosure of all debt contracts, however politically difficult it may be, should become the norm rather than the exception,” he said. “Public debt must be public”.
AidData’s report also says that China’s contracts with debtors leave substantial leeway for China to cancel loans or speed up repayment.
Scott Morris, a senior CGD researcher and co-author of the report, said the findings raised questions about China’s role as one of the major G20 economy groups that agreed on a “common framework” designed to help the poorest countries cope with the financial pressure of COVID-19 by enabling them to review the debt burden.
“ A very striking ban ”
The framework calls for comparable treatment of all creditors, including private lenders, but said most of the contracts reviewed prohibited countries from restructuring such loans on equal terms and in coordination with other creditors.
“This is a very striking ban, and it seems to go against the commitments made by the Chinese at the G20,” Morris told Reuters news agency, adding that it was possible that China could not he simply does not enforce these clauses in his loan agreements. .
China’s Foreign Ministry did not immediately respond to a request for comment from Reuters.
China has said in the past that its financial institutions, and not just the country’s official creditors, are working to help ease the debt problems of African countries.
He also said in November that he had granted debt relief to developing countries worth a total of $ 2.1 billion under the G20 program, the highest among the group in terms amount carried forward.
Even before the pandemic devastated economies around the world, China had been more cautious about lending to Africa. Chinese funding to Africa fell below $ 9 billion for the first time in nearly 10 years in 2019, according to a separate study from Johns Hopkins University released this week.
The material reviewed by the researchers for the study includes 23 contracts with Cameroon, 10 with Serbia and Argentina, and eight with Ecuador.
In January, the World Bank warned that several countries were in urgent need of debt relief due to the severity of the global recession caused by the COVID-19 pandemic.