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Hidden Defaults

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  • Horn,Sebastian Andreas
  • Reinhart,Carmen M.
  • Trebesch,Christoph

Abstract

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

Suggested Citation

  • Horn,Sebastian Andreas & Reinhart,Carmen M. & Trebesch,Christoph, 2022. "Hidden Defaults," Policy Research Working Paper Series 9925, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9925
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    References listed on IDEAS

    as
    1. Horn, Sebastian & Reinhart, Carmen M. & Trebesch, Christoph, 2021. "China's overseas lending," Journal of International Economics, Elsevier, vol. 133(C).
    2. Mark Wright, 2018. "The Seniority Structure of Sovereign Debt," 2018 Meeting Papers 928, Society for Economic Dynamics.
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    More about this item

    Keywords

    External Debt; Debt Relief and HIPC; Debt Markets; Financial Sector Policy;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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