China is the missing link in several ongoing debt talks in developing markets such as a $1.4B city port in Colombo, Sri Lanka’s capital, and a $360M project to expand Lusaka’s international airport in Zambia.
The second-biggest economy and the largest bilateral creditor globally is a dominant lender to many riskier, smaller developing nations. Beijing has however kept a low profile, not only on how it will renegotiate with borrowers in trouble but also on lending conditions.
This became increasingly evident during the COVID-19 pandemic. Many economies that buckled under economic strain are looking for debt relief.
The pressure is now increasing on China to become more active in helping strained economies restructure their debt burden. On Tuesday G7 leaders specifically called on China when asking creditors to help countries.
According to the World Bank, poor countries face debt-service payments worth $35 billion to private and official sector creditors in 2022, with more than 40% of this due to China.
According to analysts, the World Bank and International Monetary Fund’s premise of fair burden-sharing in debt relief talks may put them in conflict with China, putting the likelihood of broad debt restructuring into question.