May 21, 2020 / 3:31 AM / 2 months ago

Breakingviews-Debt hero role awaits China at rich price

Chinese President Xi Jinping listens to a speech during the Dialogue of Emerging Market and Developing Countries in Xiamen in southeastern ChinaÕs Fujian Province Sept. 5, 2017. REUTERS/Mark Schiefelbein/Pool

HONG KONG (Reuters Breakingviews) - China could be the hero of the developing world if it took the lead on restructuring their debts. But when it comes to aid, Beijing likes playing poor at times, rich at others, and opacity deters coordination with other creditors. If it wants to seize the opportunity, transparency is the price.

The external debt of low- and middle-income countries collectively stood at over $7 trillion at the end of 2018, per World Bank data. Servicing payments on average suck up over a quarter of their national incomes. G20 nations, including the People’s Republic, agreed in April to defer interest and principal for 76 hard-hit countries. But restructuring credit – or forgiving it outright as some are pushing for - could allow stretched governments to borrow more to spend on stimulus.

China can play a big role. A 2019 study by the U.S.-based National Bureau of Economic Research showed the People’s Republic accounts for a quarter of bank lending to emerging economies, worth an estimated $919 billion. Djibouti owes China nearly 100% of its GDP. If others write off debts, and Beijing doesn’t, some worry the freed-up cash will repay Chinese banks.

China has forgiven loans in the past. An analysis by Rhodium Group found the country wrote off at least 14 packages between 2002 and 2019, and restructured others. Apart from its takeover of a Sri Lankan port in 2017, it has rarely seized collateral on default. That has slowed overseas lending since, as recipients worry about financial sustainability.

Yet reflexive secretiveness hobbles its leadership cred. China is an observer, not a full member, of the Paris Club of sovereign creditors. The NBER study suggests half of Chinese loans to emerging economies are “hidden” one way or another. Beijing talks big about rewriting global aid norms and boasts of a superior model for development lending. Yet its unwillingness to consistently disclose details of loans and rates sabotages its case.

China enjoys many exceptions granted developing economies, and itself borrows from the World Bank. That may explain its reluctance to formally join the wealthy lender community. Time to ditch the cloak and join the club

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