China’s Debt Relief Actions Overseas and Macroeconomic Implications

Abstract

This paper explores a novel database of 140 cases of debt restructurings that China conducted between 2000 and 2019 in 65 debtor countries. It uncovers a number of salient features of the restructuring terms that China has offered and the ways in which China has interacted with other creditors and the International Monetary Fund (IMF). The majority of debt relief operations have been executed through debt forgiveness rather than debt rescheduling through maturity extension or/and interest rate reduction. Interestingly, a large number of Chinese debt relief operations took place within a two-year timeframe of debt relief agreements with Paris Club or private sector creditors and in the context of financial assistance from the IMF. Using local projections, this paper sheds light on the negative impact of China’s debt relief operations on growth and development prospects in debtor countries, especially when China provides debt rescheduling and does not treat the stock of nominal debt. Subdued domestic fixed capital investment and fiscal policy tightening seem to be the main drag on economic growth in debtor countries after a restructuring.