S7 Ep16: The rise and fall of China's overseas lending

About this episode

The episode discusses the rise and fall of China's overseas lending to developing countries and the resulting debt crisis.

China became the world's largest bilateral creditor to developing countries over two decades, and for most of that time the scale of what it was doing was effectively a state secret. Its state-owned banks lent close to $1 trillion to developing-country governments, structured roughly half those loans against commodity export revenues held in offshore accounts, and concentrated the riskiest lending in countries such as Venezuela, Angola, and Russia. Net financial flows turned negative in 2019, and the countries that borrowed now repay more to China than they receive in new lending. Sebastian Horn of the Kiel Institute tells Tim Phillips that despite the opacity and the distinctive collateral structures, we’ve seen this movie before, in the 1920s and 1980s: in the bust, serial short-term extensions of grace periods that defer payments without resolving the underlying debt, while affected countries cut spending to stay current. What Horn calls a "silent crisis" is underway in a cluster of highly indebted developing countries, too small to trigger global contagion but large enough to matter profoundly for the people living through it. The challenge is whether China's lenders, debtor…

People in this episode

Host: Tim Phillips

Guest: Sebastian Horn

Topics covered

• China's overseas lending
• developing countries
• debt crisis
• financial flows
• international finance
• commodity export revenues

Keywords

• China
• lending
• developing countries
• debt
• financial flows
• Venezuela
• Angola
• Russia
• Kiel Institute

Mentioned in this episode

Organizations: Kiel Institute, China

Books & works: China's Lending to Developing Countries: From Boom to Bust

Places: Venezuela, Angola, Russia

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