Debt as an Instrument of Power: Beijing's Opaque Tactics for Fiscal Subjugation Revealed
- Gabriele Iuvinale
- 29 giu
- Tempo di lettura: 18 min
KEY POINTS
Pervasive Collateralization: Nearly half of China's total public and publicly guaranteed (PPG) loan portfolio to low- and middle-income countries—amounting to $418 billion across 57 nations—is effectively collateralized. This is considered a lower-bound estimate due to inherent opacity.
Preference for Liquid Assets in China: Chinese creditors overwhelmingly prefer liquid collateral, especially cash deposits in bank accounts located in China. These accounts often reside directly with the creditor bank, granting them significant control, monitoring capabilities, and set-off rights under Chinese law.
Unrelated Collateral is the Norm: Over 60% of China's collateralized PPG lending is secured by assets unrelated to the loan's stated purpose. Instead of project-specific revenues, these loans are often backed by proceeds from key commodity exports (e.g., oil, gas, copper).
Revenue Ring-Fencing and Lack of Transparency: A significant share of commodity export receipts from debtor countries never reaches those countries, instead being routed directly to offshore bank accounts controlled by Chinese lenders. These "ring-fenced" revenues remain out of public sight and largely beyond the borrower's reach for years, limiting fiscal autonomy and impeding macroeconomic surveillance.
Hidden Debt and Fiscal Strain: The actual cash balances in these creditor-controlled accounts can be substantial, averaging over 20% of total annual external PPG debt service in low-income commodity-exporting nations. This drains liquidity, restricts fiscal space, and creates significant opportunity costs for borrowing governments.
Quasi-Collateral and Secrecy Clauses: Chinese lenders favor "effective control over assets" ("quasi-collateral") rather than formal security interests, which often bypass public registration requirements. Contracts frequently include "unusually broad confidentiality clauses" that prevent borrowers from disclosing loan terms or even their existence, further exacerbating debt opacity.
Complication of Debt Restructuring: Cross-collateralization and opaque lending structures severely complicate sovereign debt restructuring efforts. Undisclosed collateralized debt poses particular challenges, and the ability of Chinese creditors to access these ring-fenced funds can neutralize international debt resolution tools, such as the IMF's "lending into arrears" policy.
Political Conditioning and Sovereignty Risks: Some Chinese loan contracts include clauses that allow for acceleration of repayment if Beijing "disagrees with the borrower's policies," or consider the "cessation of diplomatic relations with China as an 'event of default'". This highlights the use of debt as a tool for political conditioning, undermining debtor countries' sovereignty.
Aggravated Debt Vulnerabilities: The study underscores how these practices exacerbate existing debt vulnerabilities in EMDEs, potentially leading to over-indebtedness and reducing access to transparent financing from other creditors who may perceive increased risk due to lack of information.
Introduction
A new and alarming investigation reveals how China's lending practices are strangling low-income nations' ability to manage their finances, chaining them to debts secured by vital revenue streams and cash held in offshore escrow accounts. Despite Beijing's repeated denials of any "unscrupulous" conduct—and the Chinese Ministry of Finance's usual silence on requests for comment—the overwhelming evidence paints a starkly different picture, exposing an increasingly profound strategy of global influence.
China, which has proclaimed itself the largest developing country, launched its Belt and Road Initiative (BRI) in September 2013, presenting it as a unique opportunity for other Global South nations to "learn from its experience in lifting hundreds of millions of people out of poverty". In contrast to the Western "software" development model (policy and institutional reform), Beijing devised a "hardware"-focused model, aiming to reduce infrastructure "bottlenecks," increase private capital, and promote equitable economic growth and sustainability. The BRI, with 140 participating countries and nearly a thousand ongoing projects, is an unprecedented infrastructure program, the backbone of China's "dual circulation macroeconomic system," and an expression of "Xi Jinping's dream to expand Beijing's global dominance".
More than a decade after the BRI's launch, the systematic use of commodity export earnings from debtor countries as collateral for loans, often extended precisely when these nations face economic hardship, is now under scrutiny. This report is based on the study How China Collateralizes, which utilizes the dataset "How China Collateralizes (HCC) Dataset (Version 1.0)", documenting 620 public and publicly guaranteed (PPG) debt transactions between 2000 and 2021. The study was conducted by AIDDATA, a Research Lab at William & Mary, a think tank based in Williamsburg, Virginia, in collaboration with the Kiel Institute for the World Economy and Georgetown University. This investigation meticulously analyzes the secured lending practices of Chinese state creditors, revealing the pervasiveness of collateralization, the cunning design of security agreements, and the devastating impact on revenue flows, debt transparency, fiscal management, and ultimately, the macroeconomic autonomy and sovereignty of EMDEs.
The Pervasiveness and Nature of Chinese Collateralization: A Relentless Model of Financial Control
The investigation uncovers an uncomfortable truth: China's total public and publicly guaranteed (PPG) loans to low- and middle-income countries amount to $911 billion. Of this, "almost half ($418 billion across 57 countries) is effectively collateralized, primarily by cash deposits in Chinese bank accounts". This figure, the authors warn, should be considered a "lower-bound estimate" due to the chronic lack of transparency.
What emerges forcefully is Chinese creditors' obsessive preference for "liquidity" as collateral. They demand "visibility and control over revenues". Foreign currency revenues routed through bank accounts controlled by Chinese lenders secure 79% of the collateralized lending volume in the new dataset. A typical security package supporting a Chinese PPG loan includes "one or more escrow accounts at a bank located in China, funded by revenues from the borrowing country, along with contract and property rights in the cash flows". The most troubling dynamic is that "in many cases, the account is at the creditor bank," which can monitor the cash flows, limit withdrawals, and exercise set-off rights under Chinese law. Contrary to common belief, "They rarely take infrastructure project assets as collateral, but often rely for repayment on established commodity revenue streams unrelated to the project". In fact, "In rare instances, we find evidence that Chinese creditors have secured their exposures with local currency revenues and bank accounts in the borrowing country, or with physical assets such as land or equipment," clarified Trebesch.
The research team also found that collateral is "often unrelated to the stated purpose of the loan". "We observe Chinese lenders expanding and adapting standard market tools to make exceptionally risky loans more secure," explained Anna Gelpern. "Instead of relying on infrastructure project assets and future revenues, which may never materialize, they seek access to established export proceeds. Exporters commit to channeling these proceeds through offshore bank accounts for the duration of the loan, which gives creditors leverage in the relationship, as well as a source of repayment." It is no coincidence that the World Bank and the IMF have "recently raised concerns" about "collateralization involving unrelated assets or revenues" and warned that it was "likely to create problems".
Commodity revenue sources vary but typically draw on the borrowing country's leading commodity export: oil in Angola, Iraq, Russia, Sudan, South Sudan, Equatorial Guinea, the Republic of the Congo, Brazil, and Venezuela; gas in Indonesia, Myanmar, and Turkmenistan; gold in Kazakhstan; copper and cobalt in the Democratic Republic of the Congo; bauxite in Guinea; platinum and tobacco in Zimbabwe; cocoa in Ghana; and sesame in Ethiopia. Oil proceeds overwhelmingly dominate, accounting for 79% of the commodity-backed lending volume in the dataset.
Cash Flow Control Mechanisms and "Quasi-Collateral": An Architecture of Financial Suffocation
The secured debts in the dataset rely overwhelmingly on "effective control over assets" ("quasi-collateral") rather than formal grants of security interest or property rights in the collateral. This distinction is crucial: quasi-collateral can have the same economic effect as a formal security interest but entails few to no public disclosure requirements for debtors or creditors.
Chinese creditors orchestrate multiple, overlapping security mechanisms, ensuring an iron grip on the loan from initial disbursement to final repayment. They cunningly layer cash flow control and collateralization tools adapted from export and project finance, increasing the likelihood of repayment for otherwise "exceptionally risky" EMDE loans. Priority access to dedicated revenue streams, starting at their source, is at the core of this strategy.
The documented lending practices create massive "ring-fenced" revenue streams from EMDE governments and state-owned enterprises into bank accounts in China, effectively remaining "out of public sight". Deposits in these accounts, located in China and controlled by creditor entities, can, on average, amount to "more than a fifth of the annual payments that low-income commodity-exporting countries make to repay their external debt". The report warns that "Some of these revenues remain offshore, beyond the control of the borrowing government, for many years". This "lack of access or transparency" compromises debtor governments' ability to monitor and manage their fiscal affairs, severely limiting their fiscal space and autonomy.
Risks and Critical Implications: Beijing's Conduct Under Scrutiny
The findings of this analysis raise new and significant concerns about debt transparency, fiscal management, fiscal autonomy, and the quality of macroeconomic surveillance, particularly in commodity-exporting EMDEs.
Financial Subordination and Inequity Among Creditors: Collateralization inherently creates priority, effectively excluding other creditors. When a country's principal commodity revenue secures its debts to a single creditor, other creditors and government expenditures are de facto subordinated, all else being equal. China uses collateral unrelated to the loan's purpose—namely, commodity revenues to finance unrelated infrastructure—which does not generate additional revenue to benefit everyone. This acts as a slow poison to the principle of creditor equity, rendering "negative pledge clauses" in many international contracts futile. The secrecy surrounding these agreements prevents any effective monitoring. This situation, moreover, could trigger a destructive "collateral arms race," as warned by Brad Parks, Executive Director of AidData. "Our research reveals a previously undocumented pattern of revenue ring-fencing, where a significant share of commodity export receipts never reaches the exporting countries". "When revenues from a country's primary foreign exchange source secure its debts to a single creditor, unsecured creditors are de facto subordinated, and the risk of a destructive 'collateral arms race' increases". Multilateral development banks should seek new ways to improve fiscal governance and ensure compliance with negative pledge commitments among vulnerable commodity exporters with poor track records in fiscal management.
The Shadow of Opacity: Public Debt That Isn't Public, and the Danger of Political Conditioning: Chinese creditors are far more likely to gain "effective control" over revenue streams and liquidity ("quasi-collateral") than formal security interests (liens, pledges, charges, or assignments) over assets. Quasi-collateral can have the same economic effect as formal security but entails few to no public disclosure requirements for debtors or creditors. This preference for quasi-collateral means that security interests are rarely recorded in public registries or collateral filing systems. Certain transaction forms, such as forward commodity sales, often "mask secured borrowing". The lack of public registration and confidentiality clauses preventing disclosure (such as the confidentiality clause present "in every contract since 2014"), which "prevents borrowers from disclosing (even to citizens) the terms or sometimes even the existence of the loans" and "hides the loans from citizens who are obligated to repay them through taxes", conceal these collateral arrangements from other prospective external creditors and domestic stakeholders, creating "asymmetric information problems". Revenues locked in offshore bank accounts reduce the assets available to pay unsecured creditors and fund government expenditures. Such large funds do not contribute to borrowing countries' foreign exchange reserves and severely limit their fiscal autonomy and space. The sums accumulated in these offshore accounts, sometimes amounting to "billions of US dollars," remain inaccessible and "beyond the borrower's reach until the secured debts are repaid". Political oversight institutions in debtor countries—such as supreme audit institutions (SAIs) and public accounts committees within parliamentary bodies—have "struggled to monitor cash flows and funds tied up in China". Even more disturbingly, some Chinese contracts include provisions that "give China broad discretion to cancel loans or accelerate repayment if Beijing disagrees with the borrower's policies". A striking example is the China Development Bank (CDB), which considers "the cessation of diplomatic relations with China as an 'event of default'". These clauses are not mere financial mechanisms but direct tools of pressure, capable of conditioning the domestic policy decisions of debtor countries and undermining their sovereignty.
Amplified Debt Crisis: An Unraveling Labyrinth: Quasi-collateralization, cross-collateralization, and secrecy significantly complicate sovereign debt restructuring. These mechanisms obscure which government entities or SOEs ultimately control revenue streams and who is ultimately liable. When defaults occur, it becomes "nearly impossible to determine creditor priorities or enforceable claims". The case of Ghana with Sinohydro is a chilling illustration: a massive, previously undisclosed liability emerged on its treasury's balance sheet precisely as the country faced severe debt distress. Such practices increase systemic uncertainty and undermine the transparency needed for fair and orderly resolution. Participants in the Global Sovereign Debt Roundtable (GSDR) recently noted that "undisclosed collateralized debt poses particular challenges" for sovereign debt management and debt restructuring. They also agreed on the "need to restructure secured and unsecured debt on comparable terms". China, furthermore, exacerbates the situation by complicating restructuring when countries attempt to reorganize debts related to infrastructure loans secured by unrelated revenue streams. The fact that creditors can directly access escrow accounts or rerouted revenues neutralizes a crucial IMF tool aimed at incentivizing good-faith debt restructuring negotiations.
Operational and Project Risks: A Cascade of Ignored Dangers: The use of collateral unrelated to the loan's purpose introduces catastrophic operational risk. The World Bank and the IMF have clearly expressed concerns about the impact of such secured lending in developing countries, stating that this practice "risks causing debt difficulties for debtors" and that "collateralization involving unrelated assets or revenues" is "likely to create problems". In Ghana's case, the ability to repay the road construction loan depended on the realization of non-existent bauxite refineries, a project not directly financed by the loan and with an ambitious and uncertain timeline. This misalignment of incentives between lender and borrower regarding the monitoring and success of the collateral project vastly increased the risk of default. If the expected revenues do not materialize, as with bauxite in Ghana, the debt burden falls entirely on the borrower's public finances, often draining general tax revenues.
Liquidity Drain and Fiscal Autonomy Suffocation: Deposits in Chinese-located and creditor-controlled accounts can, on average, amount to "more than a fifth of the annual payments that low-income commodity-exporting countries make to repay their external debt". "Some of these revenues remain offshore, beyond the control of the borrowing government, for many years", as specified in the report. These vast sums accumulated in locked-in escrow accounts in Chinese banks represent a significant opportunity cost for EMDEs, as they "reduce assets available to pay unsecured creditors and fund government expenditures". Such substantial funds do not contribute to borrowing countries' foreign exchange reserves and drastically limit their fiscal autonomy and space. Large excess balances have been a source of open conflict between Chinese creditors and public sector debtors, especially during times of debt distress. The IMF has explicitly urged the "repatriation [of these funds in an escrow account domiciled in mainland China] to avoid sizable opportunity costs and improve liquidity for treasury operations".
Critical Barriers to New Investment: The pre-commitment of all future commodity revenues to Chinese escrow accounts can fatally hinder a country's ability to attract external financing for the development of related industries. Potential investors would face "immediate subordination, or at best, dilution" of their claims, making investment in key industrial sectors dramatically less attractive. This was a central problem for Ghana in attracting financing for its bauxite refineries.
The Secret Program: The BRI and Over a Decade of Opacity
China, with its Belt and Road Initiative (BRI) launched in 2013, has financed ports, bridges, highways, and dams worldwide with hundreds of billions of dollars. AIDDATA, in a 2021 study after four years of work, confirmed that lending and granting activities remain "largely shrouded in secrecy". "Beijing's reluctance to disclose detailed information about its overseas development finance portfolio has made it difficult for low- and middle-income countries to objectively assess the costs and benefits of participating in the BRI". This has also "made it difficult for bilateral aid agencies and multilateral development banks to determine how they can compete, or coordinate and collaborate, with China to address issues of global concern".
Examining one hundred loan contracts, researchers discovered how Beijing "controls" its debtors. Chinese state development banks are aggressive lenders that use contracts to position themselves as "privileged creditors," securing repayment before others. This often occurs by requiring borrowers to provide an "informal source of collateral – bank accounts with minimum cash balance requirements that lenders can seize in case of default – and prohibiting borrowers from restructuring their Chinese debts in coordination with other creditors".
Comparing Beijing's contracts with 142 other publicly available contracts from major lenders, researchers found unusual features in Chinese state bank loan contracts:
They contain "unusually broad confidentiality clauses," which prevent borrowers from disclosing (even to citizens) the terms or sometimes even the existence of the loans. Secrecy has increased over time, with a confidentiality clause present "in every contract since 2014," which "hides the loans from citizens who are obligated to repay them through taxes".
They contain provisions that position Chinese state banks as "senior creditors," with loans to be repaid on a priority basis. Almost a third of the contracts require borrowing countries to make "significant cash balances in bank or escrow accounts" available to Beijing's lenders. These informal collateral arrangements put Chinese lenders at the forefront of repayment, since "creditors can simply draw from their borrowers' accounts to collect unpaid debts".
They give China broad discretion to cancel loans or accelerate repayment if Beijing "disagrees with the borrower's policies". For example, the China Development Bank (CDB) considers "the cessation of diplomatic relations with China as an 'event of default'".
Most Chinese contracts contain "No Paris Club" clauses, which "prohibit borrowing countries from restructuring loans on comparable terms and in coordination with other creditors". This modus operandi gives Beijing "absolute decision-making discretion on whether, when, and how to grant debt cancellation". Some of these provisions are now clearly at odds with the objectives of the "Common Framework" on debt, agreed upon by G20 ministers (including China) in 2021.
Despite Beijing's claims of strict adherence to a policy of non-interference in other countries' internal affairs, developing countries should pay close attention to this "rhetoric". Beijing has no qualms about demanding that sovereign borrowers accept "intrusive conditions if it maximizes its repayment prospects". Therefore, borrowing entities must intensify due diligence efforts and negotiate contractual terms they consider reasonable and acceptable.
Omar Haddad of Oxford University, noted that "China Eximbank developed a replicable and scalable cross-collateralization structure in Angola. This model was subsequently refined and adapted by a diverse group of Chinese creditors in a wide range of PPG lending operations in Africa, Latin America, the Middle East, and Central Asia". For almost half of China's collateralized PPG loans in developing countries (EMDEs), the same asset or pool of assets secures more than one loan. The transaction structure merges elements of pre-export finance, traditionally used to support commodity exporters, with public infrastructure finance. In the combined structure, a pool of consolidated export proceeds serves as collateral to reduce the risk of multiple unrelated domestic projects in developing countries.
Pakistan, a strategic country for the Belt and Road, has received the largest amount of BRI funding globally, with nearly $44 billion. Today, it might be forced to lease Gilgit-Baltistan, a Pakistan-occupied Kashmir (PoK) region, to China to repay its growing debt.
The Debt Apocalypse and the Chinese "Grana": An Amplified Global Crisis
More than a decade after the BRI's launch, Beijing finds itself at a crossroads, facing "significant implementation challenges". The initial enthusiasm of countries for the BRI has "slowly waned, especially due to long-term investment risks". The common risks of large infrastructure projects are "exacerbated by the initiative's lack of transparency and openness, weak economic fundamentals, and the governance of several participating countries". Among the 43 corridor economies for which detailed data are available, 12 "could experience further deterioration in sustainability prospects in the medium term". Governance risks (non-transparent public procurement), environmental risks (increased CO2 emissions), and social risks (gender-based violence, sexually transmitted diseases, social tensions) are also highlighted.
China is facing a "negative backlash wave", with projects canceled or suspended, and some even failing. Sri Lanka, after accumulating over $8 billion in total debt to Chinese SOEs over the years, was forced to lease the Hambantota port to China for 99 years in exchange for debt reduction, and defaulted in 2022. Montenegro, with a billion-dollar loan from China for the construction of its first highway, now risks default as it cannot finance the completion of the infrastructure.
Chinese "policy banks" (China Eximbank and China Development Bank) have led the expansion of foreign lending ahead of the BRI, and since 2013, state-owned commercial banks have quintupled their foreign loans during the first five years of BRI implementation. The aforementioned 2021 AidData report notes that as China has financed larger projects and taken on higher levels of credit risk, it has also demanded "increasing guarantees". In the early 2000s, only 31% of the foreign loan portfolio benefited from credit insurance, pledges, or third-party repayment guarantees, but this figure now "stands at almost 60%". Collateralization is Beijing's preferred risk mitigation tool: "40 out of the 50 largest loans from Chinese state creditors to foreign borrowers are thus secured".
The Dragon's loans to low- and middle-income countries are provided on "more burdensome terms" than those from OCSE-DAC (Organization for Economic Cooperation and Development - Development Assistance Committee) and multilateral creditors. A typical loan from China has an interest rate of 4.2% and a repayment period of less than 10 years. In comparison, a standard loan from an OCSE-DAC lender like Germany, France, or Japan has an interest rate of 1.1% and a repayment period of 28 years. The study also documents the rise of "hidden debt" and a sharp decline in sovereign debt during the BRI era. "Most of China's foreign loans were directed to sovereign borrowers, central government institutions during the pre-BRI era. But since then, a major transition has occurred: almost 70% of China's foreign loans are now directed to state-owned enterprises, state-owned banks, special purpose vehicles, joint ventures, and private sector institutions in beneficiary countries". These debts, for the most part, "do not appear on their public balance sheets" but benefit from "explicit or implicit forms of host government liability protection, which has blurred the distinction between private and public debt and created important challenges for public financial management in developing countries".
Today, debt to China is believed to be "substantially larger than estimated" by research institutions. The report's authors found that "42 countries now have public debt exposure levels to China exceeding 10% of their GDP". These debts are "systematically underestimated" by the World Bank's Debtor Reporting System (DRS) because, in many cases, central government institutions in low- and middle-income countries "simply are not the primary borrowers responsible for repayment". This means that the affected governments, on average, "underestimate their 'actual and potential' repayment obligations to China by an amount equivalent to 5.8% of their GDP". "The challenge in managing these hidden debts is not so much for incumbent governments, who know they have to honor undeclared debts to China with known monetary values, but for future ones who do not know the monetary value of the debts to China".
Furthermore, "35% of the BRI infrastructure project portfolio has encountered serious implementation problems, such as corruption scandals, labor law violations, environmental risks, and public protests," while only 21% of Chinese government infrastructure projects outside the BRI have faced similar issues. Finally, BRI infrastructure projects take "much longer to implement" than those financed by the Chinese government and undertaken outside the BRI; and Beijing has seen "more project suspensions and cancellations during the BRI era compared to the pre-BRI era". "Host country policymakers are mothballing high-profile BRI projects due to corruption and overpricing issues, as well as major shifts in public sentiment making it difficult to maintain close ties with China".
Case Studies: A Warning from Kenya and Ghana
Kenya - Standard Gauge Railway (SGR): In May 2014, Kenya's National Treasury entered into two loan agreements with China Eximbank totaling $3.5 billion to finance the first phase of the country's railway system upgrade and expansion project. The loans were secured by four sources: a Railway Development Fund, a Revenue Account, and a Payment Account (collectively, "Escrow Accounts"), and a long-term service agreement with the Kenya Port Authority (KPA). Although the collateral was related to the project's revenues, which aligns more with traditional project finance, the contractual structure revealed significant weaknesses. The Kenya Railways Corporation (KRC) failed to repay its on-lent funds to Kenya's National Treasury, accumulating substantial arrears. Additionally, Kenya may have missed some debt service payments to China Eximbank, incurring penalty interest. Despite the presumed robustness of the security structure, inaccuracies in contract drafting, with a key clause that "promised" to grant security rather than granting it directly, and the escrow bank's control by the borrowing government, created loopholes. The persistent divergence between the contract text and the actual conduct of the parties suggests a complexity and malleability of agreements that extend far beyond mere legal provisions.
Ghana - Roads and Bauxite: Ghana's May 16, 2018, agreement with Sinohydro for up to $2 billion in infrastructure projects, is a glaring example of the problems associated with unrelated collateral. Ghana agreed to repay the loans using revenues from the sale of "refined bauxite" to a strategic off-taker, with proceeds deposited into an offshore escrow account. However, the anticipated funding source, refined bauxite, "never materialized", as Ghana lacked operational bauxite refineries. This situation placed unexpected and severe fiscal pressure on Ghana. The government initially attempted to conceal the true nature of the agreement, classifying it as a "forward sale of commodities" rather than public debt. Only when facing a severe debt crisis in December 2022 did Ghana reclassify the agreement as a loan in a December 2024 Eurobond prospectus. This case starkly illustrates how Chinese lending structures can obscure the true nature of debt and its devastating implications for the sovereign balance sheet.
Conclusions and Policy Implications
Chinese secured lending practices in EMDEs, with their emphasis on controlled cross-border cash flows and extensive use of "quasi-collateral," have far-reaching and deeply destabilizing implications for sovereign finance and debt crisis resolution. While they offer EMDEs seemingly easy access to vital development financing, they carry an extremely high risk of over-indebtedness, blatant subordination of other creditors, and insurmountable complications in debt crisis resolution. Within borrowing countries, these practices can paralyze governments' fiscal autonomy, unacceptably subordinate recipients of essential public services, and fundamentally undermine public accountability and national sovereignty.
The lack of transparency, the opacity of collateral, and the complexity of transactional structures make it almost impossible for other creditors and macroeconomic surveillance institutions to accurately assess a country's risk and debt situation. This climate of mistrust and uncertainty can trigger a "collateral arms race," where all creditors seek to protect their claims, leading to further unsustainable indebtedness and increased financial fragility.
It is imperative that there is greater research and relentless political pressure on secured sovereign lending. Multilateral institutions must drastically intensify efforts to monitor compliance with negative pledge clauses and impose greater debt transparency. Understanding the "economic substance" of lending transactions, beyond their formal attributes, is fundamental to preventing future debt crises and ensuring a fairer, more sustainable, and transparent management of development finance.
To counter Chinese expansion and the use of debt as a tool for political conditioning, immediate and coordinated containment strategies are necessary:
Imposition of Global Transparency Standards: It is fundamental that the international community adopt and enforce strict and mandatory standards for the disclosure of all sovereign loan terms, rendering confidentiality clauses in public contracts illegal. This must include centralized registration of all collateral.
Strengthening Creditor Coordination: International institutions and major creditors must actively work to include China in transparent debt restructuring mechanisms on comparable terms (such as the Common Framework), preventing Beijing from acting unilaterally and opportunistically.
Support for Debtor Countries' Internal Governance: Western countries and international financial institutions must provide robust support to developing countries to strengthen their capacity to negotiate loan contracts, conduct thorough due diligence, and implement effective parliamentary oversight of public debt, enabling them to resist predatory terms.
Offering Sustainable Financing Alternatives: It is crucial for international financial institutions and traditional donor countries to significantly increase their development financing offers, providing transparent alternatives with more favorable terms aligned with the national interests of beneficiary countries, thereby reducing reliance on Chinese loans.
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