The writer is a senior fellow at Harvard Kennedy School
Announcing a proposed lending facility to rival China’s Belt and Road Initiative, G7 leaders meeting in Cornwall last weekend sent a clear message: they are worried about China’s growing geoeconomic influence as the world’s largest official creditor. There are reasons for concern.
The world of sovereign debt lending is the Wild West. There is little enforceability of sovereign debt contracts (it isn’t easy to seize a country’s assets), the terms of contracts vary widely between creditors and there is no bankruptcy procedure for countries. The worry about China as a lender is not that it is breaking international standards, because there aren’t many of those. The concern is that Chinese loans will leave borrowers worse off — and subject to political pressure by China.