China’s Debt Relief Actions Overseas and Macroeconomic Implications

Abstract

We provide a novel database of 140 cases of official debt restructurings that China conducted between 2000 and 2019 in 64 debtor countries. The database shows that China has executed the majority of debt restructurings through debt forgiveness rather than through debt rescheduling, such as maturity extension and/or interest rate reduction. We also find that one third of China’s debt restructurings in the database took place within a four-year time frame of debt relief agreements with the Paris Club and that more than half of the restructurings were conducted in the context of a financial assistance programme from the International Monetary Fund. Using local projections, we find a negative impact of China’s debt restructurings on growth and development prospects in debtor countries, especially when China provides debt rescheduling and does not reduce the stock of nominal debt. Subdued domestic fixed capital investment and fiscal policy tightening seem to be the main drags on economic growth in debtor countries after a restructuring.