The Belt and Road Forum takes place this week, in a context of mounting pushback against Beijing’s signature foreign policy initiative. Debt sustainibility concerns are at the center of current criticism, with the Sri Lankan example—where China assumed control of the Hambantota port—serving as a cautionary tale of the risks of reliance upon Chinese financing for infrastructure projects. We reviewed 40 cases of China’s external debt renegotiations to understand the broad patterns of outcomes, and to explore whether asset seizures as occurred in Sri Lanka are typical or exceptional. Key findings include:
Debt renegotiations and distress among borrowing countries are common. The sheer volume of debt renegotiations points to legitimate concerns about the sustainability of China’s outbound lending. More cases of distress are likely in a few years as many Chinese projects were launched from 2013 to 2016, along with the loans to finance them.
Asset seizures are a rare occurence. Debt renegotiations usually involve a more balanced outcome between lender and borrower, ranging from extensions of loan terms and repayment deadlines, to explicit refinancing, or partial or even total debt forgiveness (the most common outcome).
Despite its economic weight, China’s leverage in negotiations is limited. Many of the cases reviewed involved an outcome in the favor of the borrower, and especially so when host countries had access to alternative financing sources, or relied on an external event (such as a change in leadership) to demand different terms.
