China’s emergency lending threatens to roll back progress in debt relief

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Welcome to the Trade Secrets website. Today, we’ll check on progress on something we looked at earlier – China’s role in debt crises and as a participant in global governance in general. Also, since it’s the only topic anyone talks about publicly here in London, I’m going to take a look at the late Queen Elizabeth II and her startling one-time political intervention, with Prime Minister Margaret Thatcher.

As always, I’m at or open DMs on Twitter Tweet embed for ideas or questions. today hanging water It considers new global estimates of forced labour, as the European Union has drawn up plans to ban products made under these conditions.

The risk to China in the crisis lending game

Last July, I argued that the global system, if you can call it that, for addressing sovereign defaults was unsatisfactory. In particular, China has become a major bilateral lender without participating in creditors’ round table agreements to reach write-downs reasonably and equitably. Well, what do you know, just 10 days later (I don’t claim a causal link), China announced that it would take part in multilateral debt write-off negotiations in Zambia, having been a major lender in the Zambian economy for decades.

So is China showing its pragmatic tendency at times to use multilateral systems when they are beneficial to it – especially to avoid taking all the blame if things go wrong? Not so fast. My colleagues at the Financial Times have just revealed that China is secretly providing emergency loans to a variety of blockading countries, including Pakistan, Argentina and Sri Lanka. These are the countries that previously received long-term financing under China’s Belt and Road Initiative (BRI) and are now experiencing debt problems. This is a big deal because while China has been awarding long-term development loan contracts in fairly direct competition with the World Bank, it has generally sensibly shied away from the uncertainty and unpopularity that comes with replacing the IMF as a crisis lender.

Secret, emergency funding to bail out bad loans from the Belt and Road Initiative without any strings attached to try to tackle the underlying problems is not a cheerful development. It will mean throwing good money after the liquidity and potentially getting the debtor into more trouble, impoverishing borrowers and other creditors alike. There also appears to be poor coordination between different institutions in China, something experts have always warned is an underappreciated phenomenon. Just when you thought that global governance is getting a little better and that the authorities are pragmatically solving problems among themselves, you realize that it’s not that simple.

When the Queen entered into battle for the Commonwealth

One of the reasons for the Queen’s popularity has certainly been her consistent refusal to comment on political issues in public, which is a truly impressive feat over seventy years. (I tried it and had it for about half an hour.)

One notable exception when her views escaped into the public sphere was her vehement opposition to Prime Minister Margaret Thatcher who prevented the British Commonwealth from imposing trade and other sanctions on apartheid South Africa in 1986. The result: a lot of public pressure on Thatcher and a partial turn.

It is so important that the Queen cares about the Commonwealth so much that she has sided with a host of foreign governments against her own. To be honest, it’s not hard to make an argument against taking the organization seriously, as Thatcher did. It is a group of governments with very disparate levels of development, indeed democratic, that has not had much success in promoting the latter among its members. They don’t provide superior commercial access to the UK markets (or indeed to each other’s markets) as they used to: the UK joined the European Communities in 1973 and witnessed it. The monomanic dreamer occasionally goes over a business deal with Canada, Australia, New Zealand, and the United Kingdom, but that idea isn’t going anywhere. Unlike France with its former colonies, the United Kingdom still does not manage the currencies of the Commonwealth countries or easily interfere in their politics.

However, it is clearly worth it for the members of the Commonwealth, of which four are relatively recent adherents (Mozambique, Rwanda, Gabon and Togo) who were not British colonies. They provide technical assistance for trade and development, and they do some good work in the field of aid. The Heavily Indebted Poor Countries (HIPC) campaign that canceled sovereign debt owed to governments, the International Monetary Fund and the World Bank in the late 1990s has its roots in part from the “Mauritius Mandate,” a call for debt relief made at a Commonwealth summit.

As the decolonization process recedes into the past, so does the original Commonwealth logic for managing the process. But it seems that having a forum for developing and developed countries to talk about the salient issues deserves more or less.

In addition to this newsletter, I write a trade secrets column for every Wednesday. Click here to read the latest and visit To see all my previous columns and newsletters too.

hanging water

The European Union is on the cusp of adopting a ban on all products made with forced labor, although officials admit it will be difficult to identify, according to Javier Espinosa and Andy Pounds from Brussels.

This net will be cast on a larger scale than that of the United States, which earlier this year enacted a blanket ban on all imports from China’s Xinjiang province, where there have been allegations of human rights abuses against Uyghur Muslims and other minorities. But detecting violations at any stage of the production process will be difficult for EU member states, especially if countries do not cooperate. Services – including trade, transport and hospitality – account for the largest share of forced labor at the international level.

A joint report by the International Labor Organization, Walk Free and the International Organization for Migration today revealed that there are 28 million people around the world in forced labor situations, an increase of nearly 11% since 2016. The data showed that migrants represent about 5 percent of the total global workforce , but they represent 15 percent of adults in forced labour.

Bar chart of prevalence per 1000 adult forced labor workers globally showing that migrants are disproportionately represented in the forced labor group

“Banning the import of products made with forced labor is a step in the right direction, but it needs to be a clear and transparent process that protects those who have been exploited,” Kathryn Bryant, Head of Policy and Programs at Walk Free, told Trade Secrets.Georgina Quach).

Freight forwarding costs are generally declining to levels last spring before the big surge that followed the shutdown, providing some support to the transit team (and I am one of them) in discussing the freight crisis.

The International Energy Agency details China’s massive dominance of the solar energy supply chain.

The Economist is looking at how to reform the European energy market to help tackle crises.

The Times of India explains why Delhi has stayed out of the new US Indo-Pacific trade initiative.

‘Trade Secrets’ edited by Georgina Quach today.

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