Series: Occasional Papers. 2435.
Author: Patrocinio Tello-Casas.
Full document
Abstract
Public debt in low and middle-income countries is at historically high levels and a growing number of countries are risk of sovereign debt crises is increasing. This rise has coincided with a significant change in the composition of international creditors, in particular China's new role as a significant international creditor and, sometimes, as a lender of last resort. Against this background, it is important not only to measure the volume of China's lending, but also to identify the characteristics of the financing granted by official institutions in China and their main determinants. This paper contributes to the literature by providing a comprehensive analysis of China's official lending using AidData's Global Chinese Development Finance Dataset, which contains information on projects financed by China in low and middle-income countries during the period 2000-21. This analysis indicates that the financing granted by China is highly concentrated among a small number of countries, located on all continents. Some of these countries are at high risk of experiencing a sovereign debt crisis. China manages external default risk by including guarantees in its loan contracts. China's official financing is mainly directed towards industry, mining and construction projects, and more recently the financial services sector through swaps from its central bank. Finally, geopolitical proximity to the recipient country plays a key role in China's choice of destination for official financing.