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MNI POLICY: China to Defer Some Nations' Debts: Ex-PBOC Head

MNI (Sydney)

China plans to allow the deferment of debt repayments by some countries hit by the Covid-19 outbreak on a case-specific basis, Zhou Xiaochuan, former governor of the People's Bank of China, told the 2020 Bund Summit in Shanghai.

Such relief programs may "not necessarily" imply the major restructuring, reduction or cancellation of the obligations after the pandemic, Zhou stressed.

Both the government and large financial institutions have implemented plans to defer debt payments to improve the capacity of low-income countries to fight the pandemic, Zhou said on Saturday at the event co-sponsored by China Finance 40 Forum (CF40). There is no one single framework that can be settled on, and it must be considered that most of the high-leverage borrowing occurred before the pandemic, Zhou said.

Potential debt risks will impact the capability of these countries to raise funds, while defaults and significant debt restructuring will damage the financial condition of institutions such as the Asian Infrastructure Investment Bank, negatively impacting their credit ratings and the capacity to further fund the One Belt, One Road Initiative (OBOR), said Zhou.

Refuting accusations by some foreign countries that the OBOR is a debt trap, Zhou said China will focus on strengthening the partnership with countries along the OBOR and helping their infrastructure building to boost growth.

The role of Chinese financial institutions may change as the OBOR evolves, since China's savings rates are expected to drop as its relies more on internal spending, Zhou said.

China's savings rate jumped to 51.8% in 2008 from 35% before the crisis, helping boost OBOR funding, but it had declined to 44.6% by the end of 2019, Zhou said. That is still higher than the average 26.5% worldwide over the past 10 years, according to Zhou.

Policymakers should closely watch the impact of the falling savings rate as younger generations are increasingly replying on credit card spending, said Zhou.

MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
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MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
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