Beijing’s Changing Approach to Zambia: Debt Relief Negotiations with Emerging Markets Underway
Beijing’s approach to providing debt relief to emerging markets seems to be undergoing a transformation, as evidenced by a recent restructuring deal with Zambia. A comprehensive dataset on China’s external debt restructurings, updated through March 2023, reveals that over $78 billion of China’s external debt has been under renegotiation since 2020.
While these changes in Beijing’s positions are still incremental, the deal with Zambia highlights a potential shift in tactics. However, China’s banks remain focused on adjusting loan terms and financing costs rather than accepting principal haircuts, and negotiations continue to take place separately from other creditors. This article delves into the details of China’s evolving approach and the implications for debt relief negotiations with emerging markets.
Beijing’s Incremental Shift
China’s participation in the Debt Service Suspension Initiative (DSSI) indicates a shift in its approach to debt relief. However, negotiations with China are still conducted separately from other creditors, suggesting that Beijing’s banks may not be speaking for all lenders involved. The recent deal with Zambia, which involved China’s Export-Import Bank, underscores this point. Chinese lenders are more inclined to extend loan terms and adjust financing costs rather than agreeing to principal haircuts. While these changes are incremental, further shifts may occur as financial stress in emerging markets escalates.
New Insights from Data
Contrary to recent claims of widespread rescue lending by China over the past decade, our data reveals a concentration of new funding among China’s most indebted borrowers, such as Pakistan, while being limited in other cases. This challenges the notion of broad-based rescue lending and emphasizes the selective nature of China’s financial assistance.
The Impact of the Zambia Deal
The tentative restructuring deal reached between Zambia and its bilateral creditors, including China, marks a significant development in global negotiations on debt relief for financially distressed emerging markets. After defaulting in 2020, talks had stalled, with China’s banks facing criticism for their reluctance to align with IMF debt calculations or accept principal haircuts. The potential relief offered to Zambia through the deal, pending negotiations with private creditors, represents a departure from previous approaches while preserving the original loan principal. The key question now is whether this change in Beijing’s strategy, exemplified by Premier Li Qiang’s presence in Paris last week, will be reflected in negotiations with other countries facing similar challenges.
Prospects for Alignment
To gauge the prospects for alignment between China and other external creditors in various countries, our dataset provides valuable insights. It estimates that the total amount of sovereign debt under negotiation since 2020, including principal and deferred income, exceeds $78 billion. This data sheds light on ongoing sovereign debt negotiations and zero-interest loan write-offs involving Chinese creditors.
Beijing’s evolving approach to debt relief negotiations with emerging markets, as exemplified by the recent deal with Zambia, signifies a potential change in tactics. While the shifts are still incremental, China’s willingness to engage in restructuring discussions is encouraging. However, the focus on loan term extensions and financing cost adjustments rather than principal haircuts remains a characteristic of China’s approach. As negotiations progress and financial stress in emerging markets intensifies, the outcome of future debt relief agreements will shed further light on Beijing’s evolving stance and its implications for global financial stability.
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