Monday, May 6, 2019

How China Deals with Bad Debt on Its Loans

The Rhodium Group, an independent China research and advisory firm, published on 29 April 2019 a study titled "New Data on the 'Debt Trap' Question" by Agatha Kratz, Allen Feng, and Logan Wright.

The authors reviewed 40 cases of China's external debt renegotiation with 24 countries, including 12 in Africa. They concluded that the sheer volume of debt renegotiation points to legitimate concerns about the sustainability of China's external lending. Asset seizures, however, are a rare occurrence with the only known case in Sri Lanka and possibly one in Tajikistan. Debt renegotiation usually involves a more balanced outcome between lender and borrower, ranging from extension of loan terms and repayment deadlines to explicit refinancing, and partial or even total debt forgiveness. Debt forgiveness, however, usually represents a mere fraction of the total debt due to China and rarely serves to reduce significantly a country's indebtedness to China.

African countries looked at in this report are Angola, Botswana, Cameroon, Congo, Djibouti, Ethiopia, Ghana, Lesotho, Mozambique, Sudan, Zambia, and Zimbabwe.