China and global development: 10 things to read in April

Covid-19 aid packages from China arrive in the Philippines, 2020. Photo: Presidential Communications Operations Office, CC BY-NC-ND 2.0

Welcome to the second issue of our China and global development round-up for 2020. This month we discuss the coronavirus outbreak, both in China and internationally; China-South Asia relations; resource-backed loans; and some bonus readings on debt.

The Covid-19 pandemic in China

With potentially devastating health and economic consequences, the Covid-19 outbreak has been a main topic of discussion in development circles.

In particular, much has been written on how the pandemic might affect the Chinese economy. A study (PDF) by Sarah Tong and Li Yao from the National University of Singapore estimates China’s 2020 Gross Domestic Product growth rate to be between 1 and 3.3%, and hovering around 6%, which is well below initial projections and targets.

UNDP China has also brought together evidence through surveys and expert interviews to assess the impact of the pandemic on Chinese enterprises. The report finds that many firms are facing tighter cash flows, a general decline in both market supply and demand, and disrupted supply chains. Most also expect to see a plunge in revenues in the first half of this year but have confidence in response measures and in the medium-term chances of recovery.

Lastly, this article by Yuen Yuen Ang looks at how the current Chinese political context has shaped the way the government handled the Covid-19 crisis. As always, Ang offers a lucid analysis of the issues, discussing how the crisis was managed internally, and how it expanded outside of China.

The Covid-19 pandemic beyond China

Given China’s role in global investment, trade, and supply chains, we need to not only consider the pandemic’s impact on China but also on other developing countries.

On the investment side, this brief by the Rhodium Group highlights that the pandemic is taking place at a time when Chinese outward investments (and loans) had already been slowing down. This is because since 2016 Chinese investors have been facing tighter controls both domestically and abroad, and so have been more cautious in spending their money. This belt-tightening will become more severe with the pandemic.

This article by the Council on Foreign Relations focusses on the Belt and Road Initiative’s (BRI) infrastructure projects, which have slowed down as a result of the pandemic. This is not only due to travel restrictions for people from all countries but also to disruptions in sourcing materials, equipment and services and so on. And while the Chinese government has pledged support to companies implementing the BRI, the article points out that China faces a trade-off between its support to the BRI and domestic challenges.

My colleagues at ODI have also produced many analytical, opinion and policy pieces looking at various issues around Covid-19. One I would like to highlight is a set of policy briefs on the channels and economic impacts of the pandemic on over 20 developing countries in Africa and Asia.

China and South Asia

I have come across two interesting pieces on China-South Asia relations. The first is a piece published by Chatham House which looks at the economic, social and environmental impact of the BRI in Sri Lanka. The study finds no evidence of a debt-trap, but that Sri Lanka has an increased trade deficit with China, and that Chinese-financed infrastructure projects on the island have had mixed environmental impacts and limited economic spillovers.  

A study by Ananth Krishnan looks at the complex relationship between China and India. India is absent at the BRI table, but, as the study notes, the growth of Chinese investment into India since 2014 has changed the nature of their relationship. For the first time, Chinese companies are seeking to establish a long-term presence in India. This calls for a new mode of engagement from India towards China, requiring the former to improve its investment environment but also to think about safeguarding its long-term development.

Resource-backed loans

I read a few pieces and commentaries on resource-backed loans – that is, loans financed or collateralised by a country’s future stream of income from natural resources. This report by the Natural Resource Governance Institute is the most comprehensive one I have read on the topic. Resource-backed loans are not exclusively issued by China, but of the 52 cases identified by the report’s authors since 2004, 80% were issued by Chinese policy banks or state-owned enterprises. The interesting thing about this study is that it highlights the risks of these loans, but also provides opportunities to leverage finance in cash-poor developing countries.

This two-part blog by Scott Wingo provides a historical perspective on these loans. The first part of the blog talks about the characteristics of these deals, how they were used in the 2000s and early 2010s, and how they went wrong in several countries. The second part looks at the newest deals and what is being done to correct previous mistakes, with interesting case studies from west Africa.

Bonus readings: Chinese lending, African loans

A prominent discussion in the past few days has been around the potential debt crisis that is looming over many low-income countries, in Africa and elsewhere. A corollary of this is the debt African countries owe to China, which has been subject of a longstanding debate.

In April 2020, African and European leaders called for a suspension on debt repayments for low-income countries. The G20 has also supported time-bound suspension of payments (PDF) for the poorest countries, to be implemented by all bilateral creditors. This includes China, which one source estimates to hold between 17% and 20% of African government’s external debt (PDF).

While China participates in these coordinated time-bound suspension initiatives, Yun Sun predicts that “China is unlikely to take a unilateral approach to debt forgiveness, especially on concessional loans and commercial loans, which constitute the majority of African debts owed to China.” But as my colleague Yunnan Chen points out “[a]s a creditor, China’s approach to cases of debt distress has been one of flexibility.”

We need to keep watching this space for future developments.

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Authors

Research Fellow
Linda is a development economist. Her research interests include trade and regional integration, [...]