Global S&T Development Trend Analysis Platform of Resources and Environment
Testimony on China’s Lending Practices and the International Debt Architecture | |
admin | |
2021-05-18 | |
发布年 | 2021 |
语种 | 英语 |
国家 | 加拿大 |
领域 | 地球科学 |
正文(英文) | On May 18, 2021, CGD Senior Fellow Scott Morris testified before the House Committee on Financial Services Subcommittee on National Security, International Development and Monetary Policy at a hearing on “Examining Belt and Road: The Lending Practices of the People’s Republic of China and Impact on the International Debt Architecture.” Thank you Chairman Himes and Ranking Member Hill for the opportunity to testify today. Twenty-five years ago, this committee was instrumental in putting forward the Heavily Indebted Poor Country initiative (or “HIPC”) to relieve the debt burdens of 37 poor countries when it became clear that they could no longer sustainably service this debt. At the time, the United States agreed to forgive nearly $2.5 billion in debt owed to US government agencies, making it one of the largest of the 55 creditor countries to participate. Little noticed at the time: Costa Rica was a bigger creditor to poor countries than was China. Today, nearly all the low-income HIPC countries are again at risk of debt distress, with debt vulnerabilities that have been greatly exacerbated by the economic shock of the COVID pandemic. But on the creditor side, the picture has changed dramatically. The United States government today is one of the smallest creditors to low-income countries, with just $370 million in outstanding claims. China, on the other hand, with over $31 billion in outstanding claims to the HIPC countries, is a bigger creditor than all other government creditors combined. And that picture holds true well beyond the poorest countries. China today is by far the largest official creditor in the world, with estimates of outstanding claims on the order of $350 billion. So, when we consider how best to address a potential widescale debt crisis in developing countries, we must grapple with China’s dominant position. That starts with an understanding of not just how much China lends but how China lends—not just lending volumes and interest rates, but the full array of conditions that Chinese lenders might attach to their loans. I would like to focus the balance of my remarks on the findings of a new report that I co-authored with Anna Gelpern and Sebastian Horn (both also on the panel today), as well as Brad Parks and Christoph Trebesch.[1] This report, submitted along with my testimony, was published jointly by AidData, the Center for Global Development, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics. We assessed the provisions of 100 Chinese debt contracts, the first assemblage or study of Chinese contracts on this scale. Our findings have implications for the debt relief agenda, which I will address at the end of my statement. And while there are other important factors when it comes to debt vulnerabilities in the developing world, including the increased role of commercial creditors, I will limit my remarks to the behavior of Chinese government lenders, as evidenced by their debt contracts. Four main insights emerge from our research: First, Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. In commercial loan contracts, confidentiality provisions are typically aimed at protecting sensitive information about the borrower, with non-disclosure restrictions imposed on the lender. But what we see in the Chinese contracts are clear non-disclosure requirements imposed on borrower governments. Importantly, these restrictions are waived when they conflict with domestic laws. But should no domestic reporting requirements exist in the borrowing country (and they typically don’t), borrowing governments are bound by the terms of the contract, which could include restrictions on reporting to the IMF, the World Bank, the Paris Club, or any other creditor groups. These non-disclosure restrictions are problematic: they hide government borrowing from the taxpayers who are bound to repay it; they impede budget transparency and sound fiscal management; they hide the borrower’s true financial condition from its other creditors; and they can serve as an obstacle to timely and orderly debt restructurings, which depend on a full accounting of a debtor government’s obligations to all its creditors. Second, Chinese lenders seek advantage over other creditors through collateral arrangements such as lender-controlled revenue accounts. Chinese lenders appear to use escrow accounts and other formal and informal collateral arrangements far more frequently than other lenders, government or commercial. Chinese lenders use such arrangements to mitigate risk of non-payment in otherwise risky lending environments. But it’s important to recognize the problems these arrangements can pose for the borrowers, particularly in distressed environments. Cash accounts of this sort encumber scarce foreign exchange and fiscal resources of developing country governments. And when the accounts are hidden through strict non-disclosure requirements, they can distort the overall economic picture for a country in the eyes of the IMF and other creditors. Revenues that are assumed to be flowing to the developing country government are in fact flowing to an offshore account controlled by the Chinese lender. Again, such arrangements may serve as a barrier to timely and efficient debt restructurings. Third, Chinese lenders also seek advantage over other creditors through requirements to keep the debt out of collective restructuring efforts by the Paris Club of creditors or any other multilateral arrangements. We have dubbed this contract feature the “no Paris Club” clause, and no other lender we are aware of, private or government, employs it. The clause unambiguously seeks to set Chinese creditors apart from, and ahead of, other creditors in restructuring situations. The provision prohibits the borrower from seeking any debt restructuring from the Chinese lender on terms that are comparable to those obtained through the Paris Club of creditors, a forum the United States and other governments established nearly 70 years ago to coordinate debt restructurings. A core principle of the Paris Club is that a debtor government, in exchange for obtaining relief from the United States and other club members, must commit to seeking comparable relief from its other creditors. By prohibiting such comparable relief in its contracts, China is putting debtor governments in an impossible position should they need debt relief—either violate the terms of the Chinese debt contract or violate their commitment to the Paris Club. Importantly, China itself is not a member of the Paris Club, but it has signed onto the G20’s Common Framework for Debt Treatments[2], which adopts key Paris Club principles, including the requirement for comparable treatment. Fourth, cancellation, acceleration, and stabilization clauses in Chinese contracts have broad scope and imply significant policy leverage over the borrowing country. These provisions, which enable the Chinese lender to accelerate payment or cancel a loan, are broadly written, giving the lender substantial leverage across a wide array of policy issues. Cross-default clauses also reinforce ties across Chinese government lenders. As we observe in the case of Ecuador, China Development Bank is empowered to accelerate or cancel its $1 billion loan facility due to any harm experienced by any Chinese government entity in Ecuador. Given the scale of financing, this amounts to considerable leverage with extraordinary reach across Chinese entities and policy issues. With these findings in mind, I would like to turn to the US government’s policy agenda. As you consider appropriate responses to China’s lending behavior, I would urge you to keep the interests of developing countries and their citizens in mind, particularly during the current crisis. The poorest populations in the poorest countries are also the most vulnerable to the COVID pandemic. And as we have heard repeatedly from public health experts, their vulnerability is ultimately our vulnerability. These countries need extraordinary support right now, and I would urge you to make that your leading objective in considering how best to respond to China’s lending in the months ahead. That means:
Thank you. [1] Gelpern, A., Horn, S., Morris, S., Parks, B., & Trebesch, C. (2021). How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments. Peterson Institute for International Economics, Kiel Institute for the World Economy, Center for Global Development, and AidData at William & Mary. [2] “Common Framework for Debt Treatments beyond the DSSI,” G20 Finance Ministers and Central Bank Governors, November 13, 2020. |
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来源平台 | Canadian Institute of Mining, Metallurgy and Petroleum |
文献类型 | 新闻 |
条目标识符 | http://119.78.100.173/C666/handle/2XK7JSWQ/326651 |
专题 | 地球科学 |
推荐引用方式 GB/T 7714 | admin. Testimony on China’s Lending Practices and the International Debt Architecture. 2021. |
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