cross-posted from: https://lemmy.sdf.org/post/37886023
How China collaterizes loans to the Global South: News study raises concerns of debt transparency and 'macroeconomic surveillance' by Beijing
Here is the working paper (pdf).
An international team of lawyers, economists, and political scientists launched a report that sheds new light on the secured lending practices of Chinese creditors in low- and middle-income countries and highlights the urgent need for more transparency in collateralized lending and borrowing.
The How China Collateralizes (HCC) report, by Anna Gelpern, Omar Haddad, Sebastian Horn, Paulina Kintzinger, Brad Parks and Christoph Trebesch, is the first comprehensive analysis of the secured lending practices of Chinese creditors in emerging market and developing economies (EMDEs). We present a new dataset and detailed case studies of collateralized public and publicly guaranteed (PPG) loans from Chinese state-owned institutions in EMDEs between 2000 and 2021.
TLDR:
- Almost half of China's total public and publicly guaranteed (PPG) loan portfolio to emerging market and developing economies (EMDEs) is effectively collateralized - amounting to $420 billion in collateralized debt across 57 countries.
- As security, they use liquid, easily accessible assets, such as cash in bank accounts located in China. They rarely take infrastructure project assets as collateral, but often rely for repayment on established commodity revenue streams unrelated to the project.
- Typically, EMDE governments and state-owned enterprises commit to route foreign currency proceeds from commodity sales through bank accounts controlled by China. The cash balances in these accounts can be very large; in low-income, commodity-exporting countries, they average more than 20% of annual PPG debt service to all external creditors.
- The same revenue source can secure multiple successive borrowings over many years. The study reveals a previously undocumented pattern of revenue ring-fencing, where a significant share of commodity export receipts never reaches the exporting countries as revenues routed overseas secure priority repayment for the creditor; they remain out of public sight and largely beyond the borrower’s reach until the secured debts are repaid.
- These findings raise new concerns about debt transparency, fiscal management, fiscal autonomy, and the quality of macroeconomic surveillance, particularly in commodity-exporting EMDEs.