Despite some caveats, the report released this week by Deborah Brautigam and Yufan Huang from the China Africa Research Initiative found that overall, China “fulfilled its role fairly well as a responsible G-20 stakeholder.”
The report is based on a detailed evaluation of Beijing's participation in the Debt Service Suspension Initiative, or DSSI, an international vehicle for developed nations to support struggling countries like Angola and Zambia.
The analysts said that China “did implement the minimum steps of the DSSI fairly well, communicating with other players, and following through on pledges.”
According to the available data, Chinese creditors accounted for 30% of all claims and contributed 63% of debt service suspensions in the countries that participated in the DSSI.
“The metric by which you evaluate [China’s] performance depends on what your expectations were for the initiative,” Brautigam told VOA, noting that this was the first time the world’s second-largest economy had joined a multilateral initiative – a move one G-20 source called “miraculous.”
The DSSI was introduced in 2020 at the start of the global pandemic by the International Monetary Fund and World Bank, which suggested the world’s 20 largest economies, known as the G-20, temporarily halt the collection of loans from the world’s poorest nations.
Brautigam said it was obvious that a new architecture is needed to deal with debt relief because the current system is dominated by the Paris Club, a group of wealthy Western nations that started lending to developing countries in 1956. In recent years, there have been more major new creditors, like China and bondholders.
“So what evolves out of this is really up in the air,” she said, adding that all lenders “need to be in together because otherwise you get all these suspicions, you know, worries about free riding.”
Successes and failures
The study concluded that China might have achieved more during the DSSI if not for fears that countries would simply take advantage of any debt relief to repay other creditors.
In Zambia, the Chinese decided against suspending their debt payments while the country was still paying bondholders, but this didn’t happen in Angola, China’s largest African borrower with around $20 billion in debt to Chinese entities.
In that case, Chinese creditors provided 97% of the debt relief over the two-year period without asking for assurances that Angola wouldn’t continue making other repayments.
The researcher’s third African case study, Kenya, showed how China’s DSSI treatment was different from the other two. Chinese banks agreed to provide relief at first but later stopped loan disbursements and suspended only some 40% of the expected amount in 2021.
Moving forward
The DSSI ended in December 2021 and has been superseded by what’s known as the Common Framework to continue helping indebted countries like Zambia with their restructuring.
In January, World Bank chief David Malpass said, “China is asking lots of questions in the creditors' committees, and that causes delays, that strings out the process.” Last month, U.S. Treasury Secretary Janet Yellen accused Beijing of leaving developing countries “trapped in debt.”
The Chinese Embassy in Zambia hit back at the U.S., calling Yellen’s comments “irresponsible and unreasonable.”
China has called on the IMF and World Bank to also offer debt relief, with President Xi Jinping saying “International financial institutions and commercial creditors, which are the main creditors of developing countries, should take part in the debt reduction and suspension for developing countries."
