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Updated August 25th, 2021 at 16:22 IST

China uses ‘well thought out strategy' to debt-trap countries with confidentiality clauses

IFFRAS reported that China is using confidentiality clauses barring borrowers from revealing T&C of the engagement or even the existence of the debt itself.

Reported by: Bhavya Sukheja
China
IMAGE: AP | Image:self
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International Forum for Right and Security (IFFRAS) recently reported that China is shockingly using confidentiality clauses barring borrowers from revealing terms and conditions of the engagement or even the existence of the debt itself. IFFRAS said that joint research by the Peterson Institute for International Economics, Kiel Institute for the World Economy, and the Centre for Global Development & Aid Data concluded that China, which is the world’s largest creditor, uses these contracts to "debt-trap" a nation.

As per the report, the researchers looked at 100 contracts signed during 2000 - 2020 to systemically analyse the legal terms of lending followed by Chinese state-owned entities and government borrowers across 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania with a commitment amounting to the tune of $36.6 billion. It found that Chinese credit terms remain highly skewed in favour of Chinese lenders over other creditors.

IFFRAS reported that the credit offered contains collateral arrangements, no Paris Club clauses, clauses allowing lenders to influence debtors' domestic and foreign policies, etc. Additionally, it also said that the Chinese stress keeping the credit terms secret from the citizens in both the borrowing as well as the lending country, who otherwise have a legitimate right to know. The lender is also provided with the discretion to cancel loans or demand full repayment ahead of the schedule at will. 

China’s ‘well thought out strategy’ 

IFFRAS said that such terms obviously equip the lenders - in this case, Chinese - to exert influence over the borrower and limit the borrower's policy space to cancel any adverse loan or issue new environmental regulations that could impinge on the terms of the Chinese agreements. It added that all Chinese creditors like commercial banks, hedge funds, suppliers, and export credit agencies seek influence over borrowing countries to increase the prospect of repayment by legal, economic, and political means. 

“China has even devised unique ways of blending standard commercial and official lending terms to secure repayment in priority and in the process gain a stronger grip over the borrowing country's economic and foreign policies,” IFFRAS said. 

It added, “This analysis of the Chinese lending pattern points to a well thought out strategy to manage credit risks and overcome enforcement hurdles that could possibly arise in any borrowing country”. 

(With inputs from ANI)


 

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Published August 25th, 2021 at 16:22 IST

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