China’s Lending

As part of a broader project on finance and national security, I wrote a bit at the Diplomat about a new report out on Chinese international lending practices…

The study assembled a dataset of 100 debt contracts, including borrowers in 24 countries and amounting to $36.6 billion, out of a universe of some 2,000 contracts over the last 20 years. They found that China tends to employ a standardized set of loan contracts that have a series of commonalities. The standardized contracts they study included extensive confidentiality clauses, reducing transparency and making study difficult. These contracts shroud China’s lending practices in a cloak of confidentiality, making it difficult for evaluators and monitoring agencies to get a good sense of how the loans perform. The contracts require different treatment for Chinese debts during periods of debt restructuring; Chinese debts have preference over other kinds of debt even when the international community deems it necessary to come to agreement with a government that has become over indebted. Finally, China’s contracts have a variety of cancellation, acceleration, and stabilization clauses that enable China to apply pressure to debtors who run into trouble.