These are not terms of endearment.
Late last week we saw at the Sydney Morning Herald "Samoa’s new leader scraps Belt and Road port deal" This was the third or fourth project that has been cancelled, including one in Australia, another in Malaysia, a $14 billion project in Bangladesh, a plea for debt forgiveness in Pakistan and the rumored plan of Tanzania's President John Magufuli to cancel a $10 billion BRI project. He died suddenly of Covid-19 in March and China expressed condolences and noted the new President was said to be much more agreeable to the project.
Part of the reason this countries want out from under are the terms of the contracts that China presents.
Here is Claire Jones at FT Alphaville with some insight:
The terms of China’s massive loan spree
New research looks at how the world’s largest sovereign creditor lends.
China is the world’s biggest lender to governments. And that’s not just because of its gigantic stockpile of US Treasuries.
For much of the past decade Beijing has sought to plug massive infrastructure funding gaps across multiple continents through its Belt and Road Initiative. The overarching aim, other than to bolster global influence, is to upgrade transport links on the old silk road routes which enabled trade between the Far East and what lay to the west of it. While Beijing has recently reined in spending, between 2008 and 2019 the China Development Bank and the Export-Import Bank of China lent $462bn. For context, that’s just short of the $467bn loaned by the World Bank over the same timeframe, according to the Boston University data.
Yet the terms of these loans to sovereign borrowers have been shrouded in secrecy. Until now.
The Peterson Institute for International Finance, a DC-based think-tank, has a fascinating paper out this week which pulls together findings based on 100 contracts made to sovereign creditors mainly in Africa and South America. The lenders are the China Development Bank and the Export-Import Bank of China, along with a handful of commercial banks and the Chinese government itself. The research was carried out with other think tanks and the College of William & Mary’s AidData team, which has a data set here for those that want to delve deeper.
While the researchers point out that this sample size of 100 represents just 5 per cent of the contracts the Chinese lenders have extended to foreign governments since the early 2000s, there’s still enough in terms of standardisation to draw some findings about the nature of the lending practices and come to the conclusion that China “is a muscular and commercially-savvy lender”.
We’d recommend reading the paper in full. For those who haven’t got the time, here are a few highlights.
First, the contracts don’t appear vastly different from those offered by other sovereign creditors. Especially when those creditors — as is often the case here — are lending to lower income countries. However, the contracts are unique in that they reflect China does not participate in collective restructuring agreements, such as the Paris Club, for sovereign debt gone bad.
This creates divergence with what you might expect to see listed in a contract with an export-import, or development, bank located elsewhere. For instance, the contracts are judged by the researchers to be a somewhat odd hybrid of private and public-sector lending standards. This has the potential to hand much more power to the Chinese authorities in the event of things turning sour....
....MUCH MORE, including Peterson link.
