Chinese creditors are more hesitant to participate in sovereign debt restructuring because multilateral development banks are not offering debt relief, a senior official at China’s central bank said.
(Bloomberg) — Chinese creditors are more hesitant to participate in sovereign debt restructuring because multilateral development banks are not offering debt relief, a senior official at China’s central bank said.
Jin Zhongxia, head of the international department at the People’s Bank of China, repeated calls by Beijing to change prevailing norms for restructuring countries’ overseas debts, including direct relief by institutions such as the World Bank. The World Bank rejected that suggestion earlier this year.
Because the multilateral development banks are not participating in debt restructuring, “bilateral official creditors are effectively asked to restructure part of the debt that is not owed to them,” Jin said in an online seminar.
“Chinese creditors’ hesitancy is further increased when they feel that privileged creditors are offering a big meal of debt restructuring by pushing the major creditors to pay the bill,” he said.
Fears that multilateral development banks’ credit ratings would be impacted by offering debt relief “can be addressed through capital increase that is provided by donor countries,” Jin said. MDBs have participated in previous global debt relief efforts, he added.
China supports multilateral mechanisms to restructure sovereign debt as well as the “leadership role” of the International Monetary Fund in co-ordinating debt relief efforts, Jin said. The IMF should “increase transparency” in how it produces debt sustainability analyses for countries undergoing debt restructuring, he said.
Read More: ‘Lost Decade’ Looms as US, China Face Off Over Debt Relief
Jin proposed that debts used to fund “productive assets generating cash flows,” apparently a reference to infrastructure projects, could be treated differently from other debts in restructuring. He also said that there was room for continued debate over the issues of how local-currency debt and borrowing by state-owned companies should be treated in debt restructuring.
Jin questioned whether debt difficulties encountered by some developing countries in recent years meant that there was global “systemic debt distress,” adding that he was “puzzled” by the creation of mechanisms such as the G20’s Common Framework as a response to sovereign debt issues.
“It seems we are dealing with non-systematic crises with a systematic approach, this is something that puzzles me,” he said.
Jin re-iterated Beijing’s position that loans by China Development Bank, a state owned lender, should be classified as private lending. The CDB’s loan decisions are based “purely on commercial judgment,” Jin said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.