When the pandemic put low-income countries in distress in 2020, China initially appeared to be part of the solution, providing more debt relief than any other creditor to coronavirus-hit countries.
never again Critics say that instead of joining forces to bail out troubled borrowers, China is now putting its own interests first. This not only challenges the traditional approach to sovereign defaultsbut the funds themselves from the IMF, the World Bank, and other multilateral lenders.
Full Consequences China the position starts to sag. Janet Yellen, US Treasury Secretary, raised the issue at the G20 Finance Ministers meeting in Bangalore this week, urging Beijing to become more fully involved in “meaningful debt proceedings for developing countries in distress.”
The remarks follow her visit last month to Zambia, which, after defaulting on its debt in 2020, has been the victim of a sluggish restructuring process, largely accused US for Beijing.
Sri Lanka, which defaulted last year, has also yet to receive the financial guarantee from China it needs to complete its IMF bailout program.
Other countries that have borrowed heavily from Beijing and Western lenders, such as Pakistan and Egypt, risk defaulting in their wake this year.
As the list of developing countries in distress grows longer, Washington is increasingly concerned that China will push global creditors such as the IMF and World Bank to join bilateral and commercial creditors in renegotiating or writing off part of their loans.
Critics argue that removing so-called “preferred lender” status would be disastrous, increasing the cost of lenders’ funds and their ability to provide financing at much lower interest rates than borrowers could obtain elsewhere.
Borrowers in developing countries are also alarmed by any threat to the protection of lenders that underpins ‘AAA’ credit ratings from the IMF, the World Bank and other development banks.
An internal World Bank memo signed in November by chief executives representing 100 developing countries, including, oddly enough, China itself, described the bank’s triple rating as “the very reason” they consistently make the lender the lender of choice when receiving funding.
One explanation for the apparent contradiction in Beijing’s position is that there is more than one Chinese creditor. The ministries of finance, trade and foreign affairs, the central bank and the national development agency have different and sometimes conflicting mandates and priorities.
This argument has been used to explain the slow pace of China’s cooperation with debt settlement in Zambia and elsewhere. Its many creditors in the form of commercial and development banks operate under different and competing imperatives. Some observers even argue that Beijing should be congratulated for the progress it has made in persuading them to act as one.
Few observers doubt that this account is true. Similarly, there is little doubt that when the strategic or economic imperative is strong, Beijing can act decisively.
In 2017, the People’s Liberation Army opened its first overseas naval base in Djibouti, on the Bab el-Mandeb Strait off the Horn of Africa, through which 30 percent of the world’s ships pass on their way to and from the Suez Canal. . When about $1.5 billion worth of Chinese loans began to falter, there was little delay in negotiating revised terms.
“When it matters, they do it,” said Anna Gelpern, senior fellow at the Peterson Institute for International Economics. But she added: “They don’t invest in existing institutions because they didn’t exist when they were created.”
Mark Sobel, former US representative to the IMF, goes even further. China knows “fully and well” that its preferred creditor status is not a starting point. But he “continues to use this argument as another delaying tactic to avoid responsibility for his own massive and volatile bilateral lending.”
With US-China relations at their worst in decades, there is little reason to expect this to change. China watchers think that whatever Yellen says in India over the next two days may be worthless.
Yu Jie, senior China fellow at the international affairs think tank Chatham House, says Beijing will always pursue its best outcome, not collective action. “It’s always been that way, and that’s never going to change.”