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In the secret world of government-to-government loans, 100 Chinese debt contracts offer a wealth of new information

  • Notice by Scott Morris (Washington DC)
  • Inter Press Service

Yet China’s inventory of lending activity has long been hampered by the lack of publicly available data on dimensions such as loan volumes and interest rates, not to mention more esoteric features like loan guarantees. loan or default contingencies.

The past year has brought new concerns about debt vulnerabilities exacerbated by the COVID crisis. This renewed focus in forums like the G20 and G7 has also brought advancements in publicly available information on basic loan data, with significant new data releases covering China and other major creditors by the World Bank.

This new report makes it clear why we should care about loans from China, as the main bilateral lender to more than 50 developing countries. But much of China’s relationship with its borrowers remains out of public view.

Importantly, the debt contracts themselves have rarely been made public and, therefore, have received little systematic review to date. A groundbreaking new study by AidData researchers at William & Mary, the Kiel Institute for the World Economy, the Peterson Institute for International Economics, Georgetown Law School and the Center for Global Development changes that.

This three-year project examines the contents of 100 Chinese loan contracts to understand the financing relationship between Chinese lenders like the China Exim Bank and the China Development Bank and their government borrowers in developing countries.

As a starting point, the public publication of this number of contracts in a single database is itself a step forward. In fact, a key feature of the contracts themselves is enforced secrecy – on the part of other creditors, the IMF, and the citizens and taxpayers of debtor and creditor countries, who ultimately bear the risks of these lending relationships.

Some other striking findings of the study: the prohibition on borrowers honoring “comparable treatment” terms in the event of Paris Club debt treatment; heavy use of escrow accounts and other forms of non-asset collateral; as well as the considerable flexing of the political and economic muscle with widely drafted cancellation and default clauses.

Obviously, there is a lot to be learned from this kind of scrutiny of public debt contracts. Which begs the question, why aren’t more of these contracts made public? And not just Chinese contracts.

The uncomfortable truth is that citizens of virtually any creditor or debtor country would find it very difficult to find their government’s debt contracts. This study, which focuses on one of the least transparent governments, only reinforces the universal argument that public debt should be public.

All eyes are on the growing list of conflicts between the United States and China these days, and the results of this study arguably lend themselves to criticism of China.

But the two countries could usefully embark on a new agenda aimed at contract transparency, so that US Exim Bank contracts can be scrutinized alongside those of China Exim Bank. Why should this be so controversial?

Read the article.

RELATED TOPICS:
Chinese development policy, Financing sustainable development

WARNING

CGD blog posts reflect the views of the authors, drawing on previous research and experience in their areas of expertise. The CGD is a non-partisan and independent organization and does not take institutional positions.

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© Inter Press Service (2021) – All rights reservedOriginal source: Inter Press Service




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