Saturday, July 18, 2020

Did Benn Steil Get it Wrong About China's Intentions for BRI Debt Relief?

On April 15, 2020, the G-20 announced a response to Covid-19's economic distress:  an unprecedented agreement to suspend official bilateral debt service payments for the world's low income countries for the remainder of 2020. The G-20 finance ministers are meeting again and there's one question everyone will be wondering:

Does China intend to live up to its Covid-19 pledge on debt relief? 

One of the most influential stories about Chinese debt relief intentions was an April 24 piece on Foreign Affairs' website, "Chinese Debt Could Cause Emerging Markets to Implode," by prominent Council on Foreign Relations economists Benn Steil and Benjamin Della Rocca.

Steil and Della Rocca argued that China had “added caveats that make a mockery” of its G-20 debt relief commitment.  Beijing planned to exclude hundreds of large Belt and Road Initiative (BRI) loans in low income countries, they charged.

Their source for their analysis was an op-ed in the English language Global Times, widely seen as a source of official views. The op-ed was by Song Wei.

Song, who works at a Chinese think-tank under the Ministry of Commerce, was a Fulbright Fellow a few years ago at Columbia University. She writes frequently on Chinese foreign aid and on African issues.

Her piece on Africa's debt problems was clearly written before the G-20 announcement and did not reference it.  She made the unremarkable point that only China's interest-free loans were eligible for debt write-offs. But then she added that “preferential loans are not applicable for debt relief.”

This was confusing. And I can understand why Steil and Della Rocca misunderstood Song's statement.

So let us (belatedly) help them out.

In April, our team (myself, Kevin Acker, and Yufan Huang) was deeply immersed in the final stages of researching and writing our latest Johns Hopkins University SAIS-CARI working paper:  "Debt Relief with Chinese Characteristics"(June 2020). We had collected and analyzed dozens of examples of debt relief, including China Eximbank's (the sole source of preferential loans in China) restructuring of a number of concessional and preferential loans between 2000 and 2018.

Steil and Della Rocca wouldn't have known -- as we did by then -- that the Chinese term “债务减免” (debt reduction and cancellation) is often mistranslated into English as “debt relief”.

So when we saw the same piece in Global Times, we read the statement "preferential loans are not available for debt relief" differently. Song Wei was simply stating something most China-Africa watchers already knew: Africans should not expect debt write downs or cancellation of anything but interest-free loans, consistent with China's debt cancellation actions in Africa over the past 20 years. Other loans would not be cancelled.

Notwithstanding this confusion, Song's article had plenty of other information that clarified her point.

Most importantly, she described how rescheduling and payment delays (i.e. debt service suspensions like the G-20 pledge) were among the many non-write off measures available for China Eximbank’s preferential loans:
"If any debtors encounter difficulties to pay on time, there may be tailored plans including rescheduling [emphasis added]… adding grants to help bring projects back to life, conducting debt-equity swaps, or hiring Chinese firms to assist operations. . . adopting such measures to help the projects get back on track and gain profit has advantages over simply offering write-offs which may only solve issues on the surface and are unsustainable." 

So clearly, although we still do not have much detail on what has happened in the first month of the DSSI, Song Wei's op-ed is not evidence of a Chinese plan to renege on its G-20 commitments.

Unfortunately, Steil and Della Rocca's piece was cited as the source for other articles, for example "China Squeezes Debt Repayments From Virus-Hit Nations" (Asia Times, May 5). But what's sad--and more important--is the way this piece has become part of the conventional wisdom.

Just two days ago David Leonardt, a NYT columnist I follow and respect, wrote that China has "tried to squeeze low income countries for debt payments during the pandemic."

No evidence or links provided, but look closer: Leonardt's charge is simply a clear restatement of the Asia Times headline, which is based on Steil and Della Rocca's piece, which, I hope I've shown, was in error.

Sigh.

If China was simply more transparent none of this would be necessary. But until then, we'll keep trying to tell "the real story".

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