China Guards the Keys to an Empire of Debt


This commentary originally appeared in Barron’s on 5/6/20


The coronavirus pandemic is bringing out the best and worst in political leadership. For China, it’s the latter. While first to confront the disease, the government initially failed to inform the global community, preferring instead to hoard supplies and information. By the time authorities gave the World Health Organization access to the country, it was too late. The virus had already spread around the world.

This pattern of official obfuscation also applies to China’s international lending practices. For years, the details of China’s bilateral deals have been closely guarded, including the terms of repayment and collateral required. Now developing countries that were eager for easy money are asking how they can possibly make debt payments amid a public health emergency. They’re not hearing answers.  

The Covid-19 outbreak will cripple their economies. And while the Chinese government wants to be seen as taking the lead in the global response to the pandemic, no amount of medical supplies will assuage concerns over economic collapse.

Many of these countries face an impossible choice: Enforce a lockdown they cannot afford to stem the spread, or remain open to sustain business activity that could drive further infections. Either way, they won’t be able to pay what they no longer have.


View the full op-ed at Barron’s (outside the paywall)


China’s Loans at Risk as Coronavirus Spreads to Developing Countries

Illustration: Craig Stephens


A looming crisis in the developing world has caught the attention of major international lenders, including the Group of Seven, Paris Club and the World Bank, with a notable addition – China. For years, Beijing has resisted efforts to coordinate its lending with international financial institutions. And yet consensus has formed that temporary financial relief is essential for developing countries facing a mountain of debt, the spreading Covid-19 pandemic, and an impending global recession.

The larger G20 group of advanced economies, which China is a part of, have agreed to a debt moratorium for poorer countries in economic distress. Some finance ministers even insisted that their support for the relief package, which halts both principal and interest payments through at least 2020, was contingent on China agreeing to join in.

This is a sign, albeit limited, that not only is Beijing considered on par with the wealthy and powerful of the world, but that its interests coincide with a coalition of developed nations – at least for the moment. If China breaks ranks and pursues its own narrow interests, when many of these loans eventually default, it will lose the status it has long sought by developing its global soft power.

China has long preferred often secretive bilateral deals over coordinated lending efforts. These deals have included loose standards for projects of dubious utility, including transportation projects in Pakistan, Montenegro and Kazakhstan. National assets have been used as collateral. Actual loan amounts have often not been disclosed, making credit assessments by international institutions like the World Bank inaccurate.

This global lending spree, most recently through the Belt and Road Initiative, and China’s mishandling of the coronavirus outbreak, are largely responsible for the developing world’s recent economic dislocation.


The full commentary is available here