Working Paper

Hidden Defaults

Authors

  • Sebastian Horn
  • Carmen M. Reinhart
  • Christoph Trebesch
Publication Date

China’s lending boom to developing countries is morphing into defaults and debt distress. Given the secrecy surrounding China’s loans, also the associated defaults remain “hidden”, as missed payments and restructuring details are not disclosed. We construct an encompassing dataset of sovereign debt restructurings with Chinese lenders and find that these credit events are surprisingly frequent, exceeding the number of sovereign bond or Paris Club restructurings. Chinese lenders follow a resolution approach reminiscent of 1980s Western lenders; they seldom provide deep debt relief with face value reduction. If history is any guide, multi-year debt workouts with serial restructurings lie in store.

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Info

JEL Classification
F21, F34, F42, F6, G15, H63, N25

Key Words

  • Belt and Road initiative
  • China
  • Crisis Resolution
  • default
  • external debt
  • hidden debts
  • official lending
  • sovereign risk