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How China Lends

Summary:
In a CEPR discussion paper, Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, and Christoph Trebesch document “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments:” China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of its lending. … We collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries … First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no

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In a CEPR discussion paper, Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, and Christoph Trebesch document “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments:”

China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of its lending. … We collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries … First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially-savvy lender to the developing world.

Chinese commentary on the paper in the Global Times.

Dirk Niepelt
Dirk Niepelt is Director of the Study Center Gerzensee and Professor at the University of Bern. A research fellow at the Centre for Economic Policy Research (CEPR, London), CESifo (Munich) research network member and member of the macroeconomic committee of the Verein für Socialpolitik, he served on the board of the Swiss Society of Economics and Statistics and was an invited professor at the University of Lausanne as well as a visiting professor at the Institute for International Economic Studies (IIES) at Stockholm University.

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