China today is a key provider of financing to developing and emerging countries through a variety of channels, from lending for development and infrastructure projects to foreign direct investment and currency swaps. These channels are widely used by other countries, but China extends financing opaquely, providing extremely limited information on financing volumes, destinations, terms, and (re)negotiation processes. As a result, it is extremely difficult to accurately gauge how China’s lending affects recipient countries. Risks include pressure on their macroeconomic and fiscal health, negative consequences for other creditors and for Chinese banks engaged in overseas lending. The lack of transparency around Chinese financing practices makes it difficult to objectively assess their impact. This has led to wildly differing characterizations of these practices. China is described both as a vital “development alternative” and as a “debt trap” facilitator.
With a focus on lending (China’s primary type of overseas financing) and on emerging and developing countries, the objective of this primer is to provide an overview of major Chinese loan types, volumes, and associated terms and conditions, and explain how China handles debt renegotiations.
