China traps debt with confidentiality clauses: report
China, which is the world’s largest creditor, shockingly uses confidentiality clauses prohibiting borrowers from revealing the terms and conditions of the commitment or even the existence of the debt itself.
International Forum for Law and Security (IFFRAS), reported that recent joint research by the Peterson Institute for International Economics, the Kiel Institute for the World Economy and the Center for Global Development & Aid Data concluded that it uses these contracts to trap a nation debt.
The study mentioned in this article examined 100 contracts signed between 2000 and 2020 to systematically analyze the legal conditions of loans followed by Chinese public entities and government borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America and Oceania. with a commitment of $ 36.6 billion.
Chinese credit conditions remain heavily skewed in favor of Chinese lenders compared to other creditors. The credit offered contains guarantee agreements, no Paris Club clauses, clauses allowing lenders to influence the domestic and foreign policies of debtors, etc. Typically, credit terms are kept secret from other creditors, including the IMF and other international agencies, IFFRAS reported.
The Paris Club is a group of major creditor countries with policies to extend coordinated debt relief to developing countries in addition to ensuring sustainable debt levels.
Apart from this, the Chinese also insist that the credit terms remain secret from the citizens of the borrowing country and the lending country, who otherwise have a legitimate right to know.
The lender also has the discretion to cancel loans or demand full repayment before maturity. Such conditions obviously allow lenders (in this case Chinese) to exert influence over the borrower and limit the borrower’s room to maneuver to cancel any unfavorable loans or issue new environmental regulations that could infringe on the borrower’s flexibility. terms of Chinese agreements.
All Chinese creditors like commercial banks, hedge funds, suppliers and export credit agencies seek to influence borrowing countries to increase repayment prospects through legal, economic and political means, IFFRAS said. .
China has even devised unique ways of combining standard commercial and official lending terms to guarantee priority repayment and, in so doing, gain a better grip on the economic and foreign policies of the borrowing country.
As such, three main lessons that emerge from an analysis of the Chinese lending model are as follows: a) Chinese contracts contain unusual confidentiality clauses, especially since 2015, in which the borrower is prevented from revealing details. b) Second, Chinese lenders seek an advantage over other creditors, including collateral arrangements like controlling income accounts. c) Third, cancellation, acceleration and stabilization clauses in Chinese loan contracts are much more common, allowing lenders to influence the domestic and foreign policies of debtors.
In other words, Chinese loan terms and conditions, even unenforceable in court, could limit the borrower’s crisis management options and complicate debt renegotiation at any time. This analysis of the Chinese lending model indicates a well-thought-out strategy for managing credit risk and overcoming execution barriers that could potentially arise in any borrowing country, IFFRAS reported.
In fact, the impact of Chinese predatory financing is not more evident than in Sri Lanka which has already seen the loss of strategic resources in guaranteeing loans as in the case of the port of Hambantota where more than 1,500 acres of land around the port have been ceded. in China with a 99-year lease.
A similar situation cannot be ruled out in Pakistan as well. Despite international warnings of what was imminent, Malaysia also followed the same path and found itself caught in a cycle of debt.
Like Sri Lanka, Pakistan is also under heavy debt pressure to the Chinese due to China-Pakistan Economic Corridor (CPEC) projects worth nearly $ 60 billion. The Pakistani economy has tried to cope with growing debt over the past few years with a nearly bankrupt government and a severe balance of payments crisis.
Lately, the main obstacle for CPEC has been Pakistan’s inability to accept more Chinese debt, whether due to rising electricity tariffs or construction costs, IFFRAS reported.
Thus, China’s predatory debt policies in countries of the Indian subcontinent such as Sri Lanka, Pakistan or the Indo-Pacific such as Thailand, Laos, Cambodia or Africa elsewhere such as Sudan, Ethiopia, etc. evidence that borrowing countries are now arguing for independent existence while on the verge of losing sovereignty, IFFRAS reported.
BRI refoulement cases have increased significantly in several of the more than 150 countries on China’s credit list.