China Development Finance | Seminar Summary

The Finance for Development Lab’s first China conference took place over two days (27 & 29th March 2023), aiming to build a better understanding of the country’s key challenges as a leading provider of finance to developing countries. Day 1 focused on the macroeconomic aspects of Chinese lending, whilst Day 2 discussed the new objectives of China’s lending operations and approach to development finance in today’s context of increasing debt levels and pressing climate and nature-related challenges. A summary paper of the discussions has been published here.

" The Common Framework, being a case-by-case approach to debt restructuring, cannot be industrialised like the Heavily Indebted Poor Countries (HIPC) Initiative. There needs to be a win-win approach to the debt crisis (…), a consensus on what constitutes a cut-off date for a country in default and for a process to define a capital state.”
Guillaume Chabert, IMF
" (There is) increasing difficulty of developed countries to access markets at reasonable rates, leading to more competition for capital flows. The World Bank has announced more flexible lending policies and the use of guarantees to access formal markets, but there is still little appetite for recapitalising or changing the rules in some Asian countries.”
Simon Cueva, former Minister of Economy and Finance of Ecuador
" Chinese creditors are hesitant to participate in debt restructuring when they feel that privileged creditors and non-creditors are pushing major creditors to pay the bill (...). A timely solution requires a fair and equitable burden sharing by all creditors.” 
Dr Jin Zhongxia, People's Bank of China
  • The seminar opened with a Keynote Address by Dr Jin Zhongxia, Director General of the International Department of the People's Bank of China
  • Day 2 opened with a Keynote Speech by Dr Justin Lin, Dean of the Institute of New Structural Economics, and a dialogue with Bert Hofman, Director of the East Asia Institute at the National University Singapore
  • Followed by a discussion with Dr Deborah Brautigam, Director of the China Africa Research Initiative (CARI) at Johns Hopkins University
Justin and Bert

Four Research papers were presented:

Paper 1:

--> Comparability of Treatment, by Gong Cheng (BIS) and Aitor Erce (INARBE)

The paper discusses debt relief games and the interaction between different types of creditors, specifically the Paris Club, the private sector, and China. It proposes to build indicators or coincidence to investigate historical restructuring data and how different creditors interacted among themselves. The focus is on de facto inter-creditor coordination, rather than on the application of Comparability of Treatments (CoT).

Paper 2:

--> Use of SDRs by China for the development of African countries, by     Etsehiwot Kebret and Hannah Ryder (Development Reimagined) 

The paper discusses China's commitment to reallocate 10 billion US dollars of its Special Drawing Rights (SDRs) to African countries, which accounted for around 25% of its new SDR allocation, the largest proportion of SDR locations committed to reallocate by any country in the IMF.

The paper suggests innovative ways to reform the system, exploring 5 options to re-channel China's SDRs to Africa.

Paper 3:

--> Christoph Nedopil Wang, Director of the Green Finance and Development Center, Fudan University: "Can tripartite cooperation with China mobilise green project finance in the global South?"

The research examines the intersection of project infrastructure and finance, with a particular focus on green infrastructure finance. The paper feeds into the broader discussion on how to accelerate green infrastructure project funding in emerging countries, with an emphasis on addressing the environmental, social, and governance (ESG) challenges for tripartite cooperation between China, international institutions, and host countries.

Paper 4:

--> Tianshu Sun (CAITEC) and Wei Shen (Institute for Development Studies) on: "Horizontal Fragmentation and Coordination Vacuum in China’s Foreign Aid System"

The paper focuses on the integration of climate and nature considerations into public financing. It examines the fragmentation and coordination vacuum in China's foreign biodiversity aid. Protection of nature as a focus of Chinese development assistance really took off in the run-up to the 15th Conference of the Parties for biodiversity hosted by China in 2021 and co-hosted by Canada in 2022. The initial goal of this research was to look at what China has been doing in terms of international development supporting biodiversity. Interviews were conducted with institutes involved in such projects.

Options Paper for Channeling China’s SDRs to Africa

In August 2021, the International Monetary Fund (IMF) announced its largest allocation of Special Drawing Rights (SDRs) worth 650 billion USD to boost global liquidity and support member countries in their post-COVID-19 recovery. Just three months later, in November 2021, at the Eighth Forum on China-Africa Cooperation (FOCAC) in Dakar, Chinese President Xi Jinping committed to reallocate 10 billion USD (or one quarter) of its SDR allocation to the African continent, the first country to commit SDRs to African countries specifically.

In the 2021 global allocation, the African continent as a whole received a mere 33 billion USD, or 5% of the total allocation while high-income countries such as the United States, which received 117 billion USD, received much more. This unequal distribution, which is due to the IMF’s age-old quota system, is not the only example of a financial mechanism that disproportionately impacts low-income countries.


Just recently, Japan announced that it will be channeling 40% of its SDRs to needier countries. Over the next few months, there will be several opportunities for China and other countries to make announcements for reallocation through the instruments explored in this report. In May, AfDB will be hosting their annual meetings, the Paris summit will be held in June and the World Bank/IMF Annual Meetings will be held in October in Marrakech. The world is watching to see what countries will be doing next.

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DR policy note


As the international community grapples with the polycrisis witnessed in our world today, the need for greater financing and a reform of the international financial system has never been more dire. SDRs, as a financial instrument, have been a point of much debate and contention over the last few years, mainly due to the need to maintain its reserve asset status and in relation to that, the challenges and limitations of reallocating SDRs outside of the IMF, in particular through Multilateral Development Banks (MDBs).

Developed in partnership with the Finance for Development Lab, DR's new report, titled “Options Paper for Channeling China’s SDRs to Africa” explores five options for China to reallocate its SDRs to the continent.

The report examines reallocation through

  • (1) bilateral transfers

  • (2) the African Development Bank’s Hybrid Capital Instrument, Africa Growing Together Fund and Climate Action Window

  • (3) The IMF’s Poverty Reduction and Growth Trust (PRGT) and Resilience and Sustainability Trust (RST)

  • (4) the World Bank (WB) and

  • (5) the Liquidity and Sustainability Facility (LSF)

The report assesses and scores these five options against bespoke criteria that take into consideration both Chinese and African developmental priorities. The authors conducted six interviews with officials working directly or have worked directly with the different options explored in the paper as well as reviewing and analyzing dozens of documents and publications from a range of MDBs, think-tanks and research institutions. The report brings to light African and Chinese views on SDRs and discusses the debate around reallocation through MDBs and the benefits of such reallocation.

After scoring the five options against those criteria, two options- reallocation through the African Development Bank and reallocation through the Liquidity and Sustainability Facility came out with the highest points. What distinguishes these options is that these instruments have a clear SDR reallocation process, these instruments support many African countries and they put African priorities, ownership and agency first.

China’s Developing Countries Debt Problem

Options for Win-Win Solutions

  • Ishac Diwan, Finance for Development Lab

  • Shang-Jin Wei, Columbia University


In parallel to its rise as a major trading partner, China has emerged as a large development financier to many developing countries (DCs), especially in Sub-Saharan Africa (SSA) and in Asia. Financial flows rose in 2000s and accelerated after 2013 in the context of the “Belt and Road Initiative” (BRI). Besides providing official assistance, banks and firms were encouraged to do business globally. China's overall involvement in BRI countries is estimated at $1 trillion.[1]

Amidst the current global slow-down, the debts of many low and lower middle-income countries (LMICs) are reaching unsustainable levels. In Sub-Saharan Africa (SSA), public debt has on average risen to 50% of GDP by 2019, and external debt to 35%. The Covid-19 crisis added up about 5 points of GDP to public debt and 2 points to external debt. The Ukraine war and the ensuing rise in food and fuel prices, followed by the increase in global real interest rates and the tightening of capital markets, amount to large new shocks. Already, financial flows to DCs are falling - from the market, but also from China.

As a result, the need for debt restructuring has become more pressing. However, compared to the debt crisis of the 1980s, the heterogeneity of creditors complicates debt workouts. The dominant creditor groups are now the private sector, multilaterals, and China. The Paris Club creditors are relatively smaller, having largely shifted to grants after the Heavily Indebted Poor Countries (HIPC) process. Without cooperation between those groups of actors, a win-win solution is unlikely to emerge. There is a significant downside to allowing this situation to get stuck:  each creditor would refrain from providing new loans due to fear of benefitting the others. This would push debtors further into insolvency, hurting the country and its creditors.

Recent progress holds promise. In September, Zambia became the first country to reach an agreement with its official creditors committee under the G20-Paris Club Common Framework (CF), though two years after it applied for debt relief. Although negotiations are ongoing, this attests that burden sharing has become more desirable to China than in the past, when its small size allowed it to act unilaterally. But the lack of progress in Ethiopia, another CF country, suggests that many hurdles continue to complicate reaching a multi-stakeholders deal between the debtor countries, public and private creditors, and the IMF. This also seems to be discouraging countries in need of debt restructuring from requesting it.

This paper’s main contribution is to provide a conceptual framework to clarify when, and how, China could participate in debt restructuring processes. It does so in four steps.

  • First, the paper analyzes the composition of China's debt to DCs and finds that China’s exposure to sovereign debt risk is relatively large. China’s main lending institutions could thus suffer from large losses if they fail to address those risks.
  • Second, the paper asks if and when China has an interest to cooperate with other creditors. The theory of debt negotiations tells us that creditors have an interest to free ride – i.e., allow other creditors to take losses and keeping a maintained claim on the sovereign – when it is sufficiently small. Otherwise, debt overhang remains and large creditors cannot be paid. Conversely, when a creditor holds most debt, it can negotiate specific arrangements. Currently, external debt is divided in a balanced way between China, other bilateral and commercial creditors. China has an interest to seek ways to cooperate with other creditors to be able to share the cost of default with them. There are only a few cases where China dominates the other creditors and can gain by playing-it-alone.
  • The third part of the paper investigates how China can use its bargaining power to affect debt restructuring deals. The IMF plays a central role in debt restructuring deals: it defines key parameters of debt relief through Debt Sustainability Analyses (joint with the World Bank for countries eligible to the Poverty and Growth Trust, PRGT); it is the lender of last resort in distress situations, against which it enforces conditionality. Its Lending Into Arrears (LIA) and Lending Into Official Arrears (LIOA) policies provide it with a tool to discipline recalcitrant creditors, although with some limitations in the case of official creditors. The Paris Club plays an important role of counterpart in setting the rules, in particular through the role of financing assurances. These rules must now evolve and take into account China’s size as a creditor.
  • Lastly, we consider the complex landscape of Chinese lending institutions. With heterogenous actors and fragmented power, it has slowed down, and occasionally reversed, restructuring processes. We suggest that the ability to coordinate domestic lending institutions should allow the country to improve its bargaining position. This could be achieved through a menu approach to replace “old debt instruments”, held by lending institutions, with “new debt’, with intervention of the central government, which would be more adapted to the needs of creditors and debtors.

Taken together, the implication of the analysis is that the Common Framework needs a complete overhaul. The institutional structure created by the G20 is valuable, as it brings the key actors under one roof. But substance needs to match form: the most prominent creditor, China, should be able to shape its key principles and rules. Without that, debt restructuring agreements will continue to be negotiated on a slow case-by-case basis.

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[1]  Malik et al. 2021; Horn, Reinhart, and Trebesch 2019.