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FT Article Sparks a Lot of Excitement About Chinese Debt Restructuring Deals But Details Still Remain Sparse

An FT story published over the weekend injected a burst of rare optimism into the African debt relief discussion. The article by U.S.-based Markets Correspondent Camilla Hodgson reported on last Tuesday’s remarks by Chinese foreign ministry spokesman Zhao Lijian that Beijing had reached debt relief settlements with half of the countries who’ve applied for relief under the G20’s Debt Service Suspension Initiative. “Now we have received debt relief requests from over 20 countries, and have reached an agreement with more than 10 of them by the end of July,” said Zhao at his regular press briefing.

This is potentially a significant breakthrough in a process that has moved much slower than African leaders and other stakeholders had hoped. While the news that China has concluded agreements with ten countries is widely seen as progress, it’s nonetheless hard to tell for sure since other than Zhao’s brief, and quite general comments on the issue last week Beijing’s failed to provide any other details.

Here are the important unanswered questions:

  • With which ten countries China has reached agreements?
  • What are the terms of the agreements and are they focused merely or suspending debt repayments per the DSSI or have the loans actually been restructured?
  • What about Angola?

That last question is particularly important, given that Angola represents a disproportionate share of China’s lending in Africa. Currently, the Angolan government owes $49 billion to foreign creditors with about 45% due to China alone, according to the central bank in Luanda.

Analysts like Greg Smith, an emerging markets strategist at M&G Investments, say it’s critical that details of any agreement between China and Angola are revealed because it will likely set a precedent for other DSSI-eligible countries and possibly inform how the IMF responds to debt relief requests.

To date, international creditors like the IMF and the World Bank have been reluctant to finalize any large-scale debt restructuring deals with African countries until agreements with Chinese creditors have been finalized. International financial institutions want to avoid having their funds used to repay Chinese loans.

Perspectives on China’s Purported DSSI Agreements

  • THE LIST OF UNKNOWNS: “The issues all investors wrestle with are: we don’t know the official size, we don’t know what is ‘officially official’ and what is not, and we don’t know what the terms are going in or what the terms are going out.” — Eric Baurmeister, head of emerging markets fixed income at Morgan Stanley Investment Management

ANGOLA IS CRITICAL: “You really can’t overstate the importance of Angola in the [DSSI], which also ties into the general international response to the impact of Covid-19 in the developing world. [Under the DSSI] a lot of the burden essentially falls on China.” — Mark Bohlund, senior analyst at Redd Intelligence

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