2. The Rhodium Group’s research looked at 40 cases of external debt renegotiation between 2007 and this year and found there was only one confirmed case in Sri Lanka.
REPORT SUMMARY
1. The conclusions, based on the studies of Chinese debt renegotiations with 24 countries in Asia, Africa and Latin America, challenge claims that the Belt and Road Initiative will leave countries with debts they cannot repay and force them to hand over assets or natural resources to Beijing.
2. The report concluded that Beijing had renegotiated about US$50 billion of loans and in most cases, debts had either been written off or payment was deferred.
3. One example it gave was Cuba, which had US$2.8 billion in debts written off in 2010, while last week Ethiopia announced that Beijing had forgiven interest owed on belt and road loans.
4. The study said debt forgiveness was usually driven by Beijing’s desire to improve relations or relieve acute financial distress – and was often accompanied by extra loans to fund more infrastructure projects.
5. At last year’s Forum on China-Africa Cooperation Beijing wrote off US$7 million of Botswana’s debt, while agreeing to lend an undisclosed sum to finance new infrastructure projects.
6. When Zimbabwe was facing an acute debt crisis in 2015, China agreed to write off US$40 million in loans, but rejected a request for a US$1.5 billion rescue package.
THOUGHTS
1.The large number of debt renegotiations also increased the prospect that China would become more “skittish” about lending more to distressed borrowers, the report continued.
2. Recipient countries may borrow more, but only after existing debt burdens are resolved more favourably. More fundamentally, Chinese external lending will probably slow from current levels rather than accelerate, given the financial stress highlighted by this pattern of Chinese debt renegotiations.
3. Beijing’s leverage is limited when renegotiating loan terms – especially when the other countries have access to other sources of credit, such as the IMF or international markets.
4. However, despite these fears and warnings from the US and other Western countries, the project has so far been endorsed by 126 countries, including Italy – the first Group of Seven country to sign up. Chinese financial institutions have provided over US$440 billion in funding for belt and road projects, according to Yi Gang, the governor of China’s central bank.
Source:
https://www.scmp.com/news/china/diplomacy/article/3008326/why-chinas-belt-and-road-loans-may-not-be-debt-trap-other
