Chinese lenders ‘reluctant’ to offer African countries further debt relief

21-Sep-2021 Intellasia | South China Morning Post | 5:02 AM Print This Post

Chinese lenders may not be willing to throw good money after bad and have reportedly declined to approve a further freeze on debt repayment for some countries.

China, the largest bilateral lender in Africa, has said its commercial lenders should not be forced to provide debt relief and criticised the International Monetary Fund and the World Bank for not doing enough to ease the debt burden.

Some Chinese lenders have also said they are disadvantaged compared with those from other countries especially in the Group of 20′s Debt Service Suspension Initiative (DSSI), which was introduced last year to help poor nations fight Covid-19.

Deborah Brautigam, a professor of international political economy at Johns Hopkins University and founding director of the China Africa Research Initiative, cited the case of Kenya, where she said the Export-Import Bank of China (Eximbank) is “reluctant to keep disbursing new money into a country that says it can’t make payments on existing loans”.

The country had benefited from a six-month debt freeze worth $378 million under the scheme and wanted to extend it further when the agreement expired in June.

But the request encountered resistance from Eximbank, which had lent money to fund a railway and was due to start receiving payments in January.

“China Eximbank loan contracts specify that if a borrower stops or suspends repayment to any of its creditors, then China Eximbank may stop the disbursement of its loans and even call them in,” Brautigam said.

“I would guess that once Kenya assured China Eximbank that it could make payments on the loans, and withdrew the DSSI request, the disbursement tap was turned back on,” she added.

Beijing provided at least $12.1 billion in global debt relief in 2020 and 2021 to dozens of countries ravaged by the coronavirus pandemic, but only four have officially released information on their G20 debt relief from Chinese lenders the Maldives (US$25 million), Tajikistan (US$40 million), Zambia (US$110 million), and Kenya (US$378 million) according to the China Africa Research Initiative.

Beijing is also said to have cancelled interest-free loan debts due to mature at the end of 2020 for 15 African countries. The cancellations announced for seven of these total at least $113.8 million, the initiative found.

Brautigam said, “We saw in our research that in the past, Chinese banks did not do debt negotiations on the entire portfolio but rather loan by loan, or project by project, looking at the situation facing each investment. There are some hints (again in Kenya) that this principle is at work again, although it is too early to be sure”.

The Chinese have so far been reluctant to publicly state a clear line on debt relief to developing countries, according to Mark Bohlund, senior credit research analyst at REDD Intelligence.

He said while China has signed up for the DSSI, it has taken the line that commercial lending by China Development Bank and China Eximbank should not be covered by this commitment.

Bohlund said: “This touches on a sore point of the Chinese feeling that they have been asked to accept a suspension of payments on bilateral lending at generally concessional rates, while developing countries have been expected to continue to service more expensive loans to commercial creditors, generally from G7 countries, with lesser or no developmental impact”.

He added this perceived injustice has probably increased the Chinese perception that traditional international institutions are not working in the country’s favour “although the IMF’s recent Special Drawing Rights (SDR) issuance can be seen as a small victory for China, which has been supportive of such a move”.

Wu Peng, director general of the Chinese foreign ministry’s department of African affairs, told China Africa Project this month that China has signed agreements on debt suspension with 19 African countries.

“Chinese official creditors have made great contributions to the implementation of the DSSI,” Wu said.

However, he said the international community needs to provide debt relief and financing support to these countries. China has been pushing for the allocation of more special drawing rights (SDR) quotas to Africa by the IMF to help countries address their liquidity problems.

“It is not enough to get SDR quotas only, it’s just quotas, if the IMF does not change its strict terms and very complicated procedures, it will still be difficult for African countries to get money,” Wu said. “The IMF needs some reforms so that it can provide financial assistance to Africa in a more timely manner.”

Benjamin Barton, an assistant professor at the University of Nottingham’s Malaysia campus, said the Chinese government “has been quite coy in its public statements regarding the many requests [from Africa]… to revisit bilateral debt structures”.

It will always prefer to keep such controversial matters out of the public sphere, for fear of undermining its strategic negotiating position, he said.

“This does not mean that African countries cannot individually attempt to secure a renegotiation towards new terms which may be advantageous to them. China and Xi [Jinping] have proven to be flexible on occasion, especially where strong interpersonal connections exist with specific African leaders,” he said.

However, the continent’s bargaining power would be so much stronger if it was able to negotiate as a whole, rather than separately and secretively, he said.

Yun Sun, director of the China programme at the Stimson Centre in Washington, said there are at least two reasons why Beijing sees itself as disadvantaged.

It wants to protect its political relationship with African countries, so cannot push for the harshest terms, and cannot unilaterally enforce a decision on resource or commodity-backed loans.

“The nature of many of the projects are equity-intensive, meaning they are infrastructure projects or natural resource projects that cannot be moved away from the recipient country. Therefore, China is not in the best position coming to renegotiations,” Sun said.

Nevertheless, there is a fair amount of leeway, Yunnan Chen, a senior research officer at the London-based Overseas Development Institute think tank, said.

“Chinese banks often have a strong incentive to work with borrowers when they come into risks around debt default or repayment issues. There is a long-term patient stance that Chinese creditors take in comparison to, for example, private creditors or Western commercial banks,” Chen said.

But she said there were limits to what they could offer.

“If there is a top-down political signal given for authorisation from the State Council or above, then we usually do see some significant concessions around debt relief or restructuring.

“But in general debt cancellation is not a thing in the context of Chinese official commercial lenders. It is very difficult to erase the debt, only in general defer it or to extend the terms or extend the maturity period,” Chen said.


Category: China

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