China casts giant shadow over emerging nations’ chase for debt relief

• Poorer nations pay US $ 35bn in debt service in 2022 - World Bank
• Opacity, plethora of Chinese lenders to slow debt overhauls
• G20 Common Framework has not yet produced a debt restructuring

REUTERS: From a US $ 360 million project to expand Zambia’s international airport in Lusaka to a US $ 1.4 billion city port in Sri Lanka’s capital of Colombo, China is the missing piece in the puzzle of a number of debt talks underway in developing markets.

The second largest economy and the biggest bilateral creditor in the world is a dominant lender to many smaller, riskier developing nations. But Beijing has kept a low profile, not only on lending conditions but also on how it renegotiates with borrowers in distress.

That became more evident after the COVID-19 pandemic hit. Many economies buckling under economic strain are seeking debt relief.

Now, the pressure is rising on China to take a more active role in helping strained economies overhaul their debt burdens. Leaders of the Group of Seven rich democracies on Tuesday called on China specifically when urging creditors to help countries.

Poorest countries face US $ 35 billion in debt-service payments to official and private sector creditors in 2022, with over 40 percent of the total due to China, according to the World Bank.

But analysts say the International Monetary Fund (IMF) and World Bank premise of fair burden-sharing in debt relief talks could set them on a collision course with China, putting the prospect of comprehensive debt restructurings into question.

“Chinese ‘Belt and Road’ money is everywhere – so we will see this over and over in sovereign debt restructurings,” said Dennis Hranitzky, Head of Sovereign Litigation at law firm Quinn Emanuel.

According to Beijing, the Belt and Road Initiative unveiled in 2013 is a platform for international cooperation in infrastructure, trade, investment and financing linking China with other parts of Asia, the Middle East, Europe and Africa.

China’s foreign ministry and central bank did not respond to requests for comment.

Zambia and Sri Lanka are test cases on how fast debt talks evolve. Both also need to restructure with overseas bondholders and hammer out the IMF programmes.

“China’s engagement on debt talks is not in the hands of the IMF nor governments,” said Polina Kurdyavko, Head of Emerging Markets at BlueBay Asset Management in London.

“Bringing China to the negotiating table in a timely manner could be the biggest challenge in the upcoming debt restructurings.”