Contribution
China’s Overseas Lending and the Looming Developing Country Debt Crisis
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Economic & Financial Crises
- The Covid-19 pandemic is wreaking havoc on the global economy but its most severe consequences are likely to be felt in the developing world. Deep recession, depressed commodity prices, collapsing cross-border trade, and a flight to safety in financial markets has set the stage for debt servicing problems in dozens of countries, including many that are heavily indebted to China.
- We show that developing countries owe much higher debts to China than previously known, based on a new dataset on 5000 Chinese grants and loans. China is the largest official lender worldwide and the largest single external creditor to about 30 countries. In many countries, the “hidden debts” to China and the general lack of transparency on Chinese lending are a challenge for policy surveillance, risk pricing, and debt sustainability.
- Our main policy recommendation is an encompassing debt standstill, meaning a moratorium on external public debt payments of developing countries, involving both private and official creditors. Any effort to provide such debt relief must encompass the debts owed to China. Indeed, it must be warranted that debt relief granted by multilaterals and other creditors is channeled to confront the Covid-19 pandemic and not to repay pre-existing debts to China.
