China Refocuses Debt Restructuring Attention onto World Bank

China has called for multilateral development banks (MDBs), including the World Bank, to offer debt relief to Zambia.

China believes that the levers necessary to relieve Zambian debt involve MDBs and commercial creditors. 30% of Zambia’s debt derives from Chinese investment, construction and financial lending.

Chinese foreign ministry spokeswoman Mao Ning issued a statement, which clarified that multilateral institutions and creditors account for 24% and 46% of Zambian debt respectively.

Ms. Ning concluded, “The key to easing Zambia’s debt burden thus lies in the participation of multilateral financial institutions and commercial creditors in the debt relief efforts”.

This latest announcement is a sign of the importance China places on reforming the global system by restructuring sovereign debt. There are, however, concerns that China driving a new debt structure may add to tensions with the World Bank, and prolong talks on Zambian debt relief that should have been concluded some time ago.

Mao continued by clarifying that much of Zambia’s debt to China has been put into development projects financed and constructed by China, such as the Kafue Gorge Lower Hydropower Project.

The Group of 20 leaders have stressed the importance of creditors providing debt treatments that ensure fair burden sharing; recently, however, both U.S. Treasury Secretary Yellen and IMF MD Georgieva have identified a reticence from China to follow other major lenders’ restructuring templates. Georgieva will seek an agreement from G20 finance ministers to a debt relief matrix when they meet in Bengaluru, India, in February.

As the world’s largest sovereign lender, China holds a responsibility both to facilitate restructuring deals involving other parties and to agree to relief systems involving China’s own lending.

World Bank President David Malpass made it clear that China must lighten the burden for Zambia, and that China’s calls for debt relief have already been discussed and will not be possible in the current framework. In January, U.S. Secretary Janet Yellen visited Zambia for important financial talks, and branded China a barrier to resolution to Zambia’s debt crisis. She also pointed out that much of the unsustainable debt plaguing African nations is tied to Chinese investment programs.

Image courtesy of Simone D. McCourtie / World Bank