A prototype for China-West teamwork
Many of the world’s poorest nations have waited nearly two years for this moment. On Thursday, China and many Western countries struck a deal with Zambia to restructure $6.3 billion of the African country’s debt. While certainly good for Zambia – which defaulted on debt repayments during the pandemic – the deal sets a precedent for other nations to rid themselves of repressive red ink.
Most of all, it reflects a triumph in how wealthier countries – especially China – can cooperate to set new norms in debt relief.
Zambia was seen as a test case of whether China, the world’s largest bilateral creditor, would either conform to Western practices of debt restructuring or help shape new ones. Through prodding, patience, and persuasion, the West and China reached an agreement for Zambia that the International Monetary Fund (IMF) calls “unique and innovative.”
Even getting China to join in global talks over debt governance has been a triumph. Its various financial bodies have had to adopt new vocabulary and learn to cooperate with each other. “It took enormous courage for anyone on the Chinese side to ‘trust’ an international process that is led by ‘the West’, especially on an issue that China would have to incur huge financial loss in the short term,” wrote scholars Deborah Brautigam and Yufan Huang of Johns Hopkins University in an April paper.
China dropped a demand that the IMF – a key lender of last resort – take a financial “haircut” in granting debt relief. In the end, the deal resulted in Zambia’s debt being rescheduled over two decades with a three-year grace period during which only payments on interest are due. The World Bank may provide Zambia with loans with highly concessional or grant terms.
This deal sets a vital example of cooperation for Africa. Much of the continent would be at high risk if China and the West “decoupled” in trade and investments, according to the IMF. A desire to help the world’s poorest nations turned out to be a unifying moment.
