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Hidden Defaults

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  • Sebastian Horn
  • Carmen M. Reinhart
  • Christoph Trebesch

Abstract

China's lending boom to developing countries is morphing into defaults and debt distress. Given the secrecy surrounding China's loans, 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, multiyear debt workouts with serial restructurings lie in store.

Suggested Citation

  • Sebastian Horn & Carmen M. Reinhart & Christoph Trebesch, 2022. "Hidden Defaults," AEA Papers and Proceedings, American Economic Association, vol. 112, pages 531-535, May.
    • Handle: RePEc:aea:apandp:v:112:y:2022:p:531-35
    DOI: 10.1257/pandp.20221002
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    References listed on IDEAS

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    1. Tamon Asonuma & Christoph Trebesch, 2016. "Sovereign Debt Restructurings: Preemptive Or Post-Default," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 175-214, February.
    2. Carmen M. Reinhart & Christoph Trebesch, 2016. "Sovereign Debt Relief And Its Aftermath," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 215-251, February.
    3. Horn, Sebastian & Reinhart, Carmen M. & Trebesch, Christoph, 2021. "China's overseas lending," Journal of International Economics, Elsevier, vol. 133(C).
    4. Mark Wright, 2018. "The Seniority Structure of Sovereign Debt," 2018 Meeting Papers 928, Society for Economic Dynamics.
    5. Brautigam, Deborah & Acker, Kevin & Huang, Yufan, 2020. "Debt relief with Chinese characteristics," SAIS-CARI Policy Briefs 46/2020, Johns Hopkins University, School of Advanced International Studies (SAIS), China Africa Research Initiative (CARI).
    6. Asonuma, Tamon & Niepelt, Dirk & Ranciere, Romain, 2023. "Sovereign bond prices, haircuts and maturity," Journal of International Economics, Elsevier, vol. 140(C).
    7. Trebesch, Christoph & Gelpern, Anna & Horn, Sebastian & Morris, Scott & Parks, Bradley, 2021. "How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments," CEPR Discussion Papers 16331, C.E.P.R. Discussion Papers.
    8. Broner, Fernando & Didier, Tatiana & Schmukler, Sergio L. & von Peter, Goetz, 2023. "Bilateral international investments: The big sur?," Journal of International Economics, Elsevier, vol. 145(C).
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    13. Christoph Trebesch & Mr. Michael G. Papaioannou & Mr. Udaibir S Das, 2012. "Sovereign Debt Restructurings 1950-2010: Literature Survey, Data, and Stylized Facts," IMF Working Papers 2012/203, International Monetary Fund.
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    More about this item

    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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