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Report: China Lacks Comprehensive Debt Relief Strategy

Source: State Administration of Foreign Exchange (SAFE) of China and authors’ depiction

A new report by the International Institute of Green Finance (IIGF) at the Central University of Economics and Finance in Beijing appears to echo some of the same themes that emerged from Boston University’s Overseas Chinese Lending Database, specifically related to an apparent sharp decline in Chinese lending to countries along the Belt and Road Initiative (BRI).

The paper, written by researchers Yue Mengdi and Christoph Nedopil Wang, concluded that since 2018, “China’s newly-issued loans to the rest of the world have decreased significantly” and confirm that borrowers are finding it increasingly difficult to service existing loans.

Key Highlights of the IIGF’s New Report About Chinese Debt Along the Belt and Road

  • CHINA’S RISK APPETITE: “One remarkable feature of China’s loans is that since 2013, the majority of Chinese loans announced (but not necessarily disbursed) are for countries with the highest risk rating according to the OECD, such as Pakistan (about USD38 billion), Iran (about USD30 billion), or Venezuela (about USD24 billion).”
  • SHORT TERM SOLUTIONS:  “China’s exposure to sovereign debt default in the BRI is increasing, especially in the aftermath of Covid-19 and in the several high-risk countries identified in the analysis above. China’s current strategies for dealing with debt relief requests, such as write-offs, terms renegotiation, deferment or asset seizure might work, but they create little value other than postponing the credit risks to the future.”

Read the full report on the International Institute of Green Finance website.

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