China has become the number one provider of development finance in the world. Because of its significant share in Low and Middle Income Countries’ (LMICs) external debt, China should take up responsibilities and cooperate with traditional development finance providers, but its particular lending style and distinct approach to debt management pose many challenges and do not make international cooperation straightforward. Although some progress could be observed over the past couple of years under various initiatives such as the Debt Service Suspension Initiative, the Common Framework and the Global Sovereign Debt Roundtable, more remains to be done. But as China is increasingly faced with the same difficulties as other lenders, and in particular with rising risks of default, one may be reasonably confident that China will behave increasingly like other lenders.
Policy recommendations
- In concrete terms, the EU should push the topic of debt management on the G20 agenda so as to encourage a constructive discussion with China. It is also important to avoid ill-founded criticisms that are simply counterproductive. The EU should call for more transparency and encourage the streamlining of lending practices and approaches to debt restructuring. It is in all countries’ interest to design an effective multilateralized debt management mechanism.
Stay tuned with us by reading more: Reconnect China_Policy Brief 14_Getting China onboard a Global Debt Governance System