China’s debt practices have caused ‘suffering’, hurt multilateral restructuring: US Treasury official

Dozens of countries may be burdened with debt-servicing problems, lower growth and underinvestment, top adviser Brent Neiman warns
Notes China’s ‘enormous scale’ as a lender, citing estimates of up to US$1 trillion worth of outstanding official loans

US-China relations

Robert Delaneyin Washington

Published: 10:10pm, 20 Sep 2022

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China’s delays in helping to restructure debt to low- and middle-income countries have inflicted “suffering” and threaten to undermine multilateral efforts to lower these burdens on countries from Sri Lanka to Argentina, a senior US Treasury Department official warned on Tuesday.

“These delays carry suffering and uncertainty, may discourage others from requesting needed treatments, and preclude the best outcomes,” Brent Neiman, counsellor to Treasury Secretary Janet Yellen, said in a broadside against Beijing’s international lending practices.

The delays Neiman referenced included the time it took for Chinese government officials to join a creditor committee that paved the way for a US$1.4 billion bailout by the International Monetary Fund (IMF), which he pegged at half a year.

China’s embassy in Washington did not immediately respond to a request for comment about Neiman’s speech.

The Treasury Department official cited Beijing’s delay in joining a creditor committee for Ethiopia – authorised under a common framework for debt treatments agreed by the Group of 20 major economies in late 2020 – “until it was clear that the IMF programme would expire and discussions on a debt treatment would not take place because of the conflict”.

Implemented to help some 70 countries in danger of default, the framework was agreed upon at the same time by the Paris Club, a group of 22 countries that coordinates on reaching debt-restructuring deals with the nations they lend to so that all creditors are affected equally.

Brent Neiman, counsellor to US Treasury Secretary Janet Yellen, delivers a speech about China’s lending practices at the Peterson Institute for International Economics on Tuesday. Image: PIIE

Neiman also criticised China for agreeing in 2020 to only US$2.4 billion in new lending as a financing assurance for Ecuador’s IMF programme and to offset coming interest payments due to Chinese creditors, while private creditors agreed to revamp US$17.4 billion worth of debt.

“Rather than delivering the promised new financing in a matter of months, China only came to terms with Ecuador this past week,” Neiman said.

The speech by Yellen’s associate follows years of accusations of “debt-trap diplomacy” – providing countries with loans they cannot afford to repay, often giving China the right to seize assets – that have put Beijing on the defensive.

The Belt and Road Initiative, a transcontinental infrastructure project introduced by President Xi Jinping in 2013, has been at the centre of this criticism. The trade initiative aims to link China’s economy with those of Asia, Europe and Africa, and some of its projects have contributed to rising debt in low-income countries.

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In a discussion about the issue at the Boao Forum for Asia in April, China’s former central bank governor Zhou Xiaochuan said that some Chinese lending might not have always been “carefully designed”, but countered that the way some critics portrayed the problems amounted to a “smear”.

“Most of [the lending] is for projects that companies in debtor countries have demanded, and at the same time they have economic benefits and are beneficial to the country in the long run,” Zhou said.

Last month China’s foreign ministry announced Beijing would waive 23 interest-free loans that matured by the end of 2021 for African countries. However, it did not reveal which countries would benefit or the total amount waived.

And in a study released last week, Boston University’s Global Development Policy Centre reported it had compiled a database cataloguing 212 interest-free loans totalling US$2.22 billion between 2000 and 2020 in 38 African countries.

Of the US$159.98 billion China had advanced to African countries in the past two decades, interest-free loans accounted for only 1 per cent, the study noted.

Neiman is a top adviser to US Treasury Secretary Janet Yellen. Photo: AFP

Neiman said China’s preference for lengthening debt maturities or grace periods instead of writing down debt was exacerbating the risk of systemic debt crisis. He added that bilateral debt loads owed to Beijing by as many as 44 countries amounted to more than 10 per cent of their gross domestic product.

Restructurings by the Chinese government “typically do not resolve the debt overhang and can stoke uncertainty about the need for repeated rescheduling”, Neiman said. China’s pervasive use of non-disclosure agreements in its loans to low- income countries significantly hinders multilateral restructuring efforts, he added.

“Does the approach of any one country in this process matter all that much?” asked Neiman, who cited estimates that the total stock of outstanding official Chinese loans added up to as much as US$1 trillion.

“In fact, China’s enormous scale as a lender means its participation is essential.”