Chinese debt renegotiations could be long and unpredictable
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Countries could face years of negotiations to rework their debt with China as a growing number of loans run into problems after decades of aggressive lending by the world’s largest official creditor.
Chinese lenders sometimes lack coordination and fail to meet standard debt relief terms to renegotiate debt, adding uncertainty to the outcome of talks to revise $ 28 billion in loans in a number of countries, according to a study by Rhodium Group, an economic organization based in New York. and policy advice.
An unprecedented global slowdown caused by the coronavirus pandemic is making it increasingly difficult for developing countries to repay Chinese private creditors and lenders.
In Africa, more than a dozen countries are in talks with China to freeze debt payments under a Debt Service Suspension Initiative (DSSI) agreed by the Group of 20 Major Economies in April . However, much of these negotiations are taking place behind closed doors, raising complaints from trade creditors worried that China will get better terms in the upcoming debt restructuring.
“Chinese banks do not post standard terms whether or not negotiations take place under the DSSI, which makes it difficult to predict future results,” Rhodium writes in the research note. “History suggests that some of these negotiations could take months, if not years, to complete.”
Chinese banks are unlikely to write off debts and may choose to delay principal repayments and extend maturities in an effort to preserve the net present value of the loan. More than half of past renegotiations resulted in deferred payment, according to Rhodium.
Although there is no evidence that China has seized assets or swapped debts for equity in projects in the event of non-payment, the prospect of access to resources may influence debt negotiations. , the consulting firm said.
After two decades of rapid loans, mainly to developing countries, a quarter of China’s overseas loans, or $ 94 billion, has come under scrutiny. The number of debt talks nearly doubled to 18 in 2020 compared to a year ago.
“The way Beijing handles renegotiations will be crucial for the recovery of emerging and border markets in 2020-2021,” according to Rhodium.