The G7 is right to worry about Chinese credit terms

The G7 is right to worry about Chinese credit terms

The writer is a senior fellow at Harvard Kennedy School 

Announcing a proposed lending facility to rival China's Belt and Road Initiative, G7 leaders meeting in Cornwall last weekend sent a clear message: they are worried about China's growing geoeconomic influence as the world's largest official creditor. There are reasons for concern.

The world of sovereign debt lending is the Wild West. There is little enforceability of sovereign debt contracts (it isn't easy to seize a country's assets), the terms of contracts vary widely between creditors and there is no bankruptcy procedure for countries. The worry about China as a lender is not that it is breaking international standards, because there aren't many of those. The concern is that Chinese loans will leave borrowers worse off “” and subject to political pressure by China.

A study by World Bank chief economist Carmen Reinhart and others found that as of 2019, the 50 countries most indebted to China owed Beijing close to 40 per cent of their total reported external debt. China would argue that it is filling a gap in the market, taking on risky lending so poorer countries can finance their development, as it did. It would also highlight that it voluntarily