[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]





 
                  EXAMINING BELT AND ROAD: THE LENDING

                 PRACTICES OF THE PEOPLE'S REPUBLIC OF

                 CHINA AND IMPACT ON THE INTERNATIONAL

                           DEBT ARCHITECTURE

=======================================================================

                            VIRTUAL HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON NATIONAL SECURITY,

                       INTERNATIONAL DEVELOPMENT

                          AND MONETARY POLICY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 18, 2021

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-24
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]          




                            ______                       


               U.S. GOVERNMENT PUBLISHING OFFICE 
 45-076 PDF             WASHINGTON : 2021 
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado              ANN WAGNER, Missouri
JIM A. HIMES, Connecticut            ANDY BARR, Kentucky
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio                   FRENCH HILL, Arkansas
JUAN VARGAS, California              TOM EMMER, Minnesota
JOSH GOTTHEIMER, New Jersey          LEE M. ZELDIN, New York
VICENTE GONZALEZ, Texas              BARRY LOUDERMILK, Georgia
AL LAWSON, Florida                   ALEXANDER X. MOONEY, West Virginia
MICHAEL SAN NICOLAS, Guam            WARREN DAVIDSON, Ohio
CINDY AXNE, Iowa                     TED BUDD, North Carolina
SEAN CASTEN, Illinois                DAVID KUSTOFF, Tennessee
AYANNA PRESSLEY, Massachusetts       TREY HOLLINGSWORTH, Indiana
RITCHIE TORRES, New York             ANTHONY GONZALEZ, Ohio
STEPHEN F. LYNCH, Massachusetts      JOHN ROSE, Tennessee
ALMA ADAMS, North Carolina           BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas
MADELEINE DEAN, Pennsylvania         WILLIAM TIMMONS, South Carolina
ALEXANDRIA OCASIO-CORTEZ, New York   VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
           Subcommittee on National Security, International 
                    Development and Monetary Policy

                  JIM A. HIMES, Connecticut, Chairman

JOSH GOTTHEIMER, New Jersey          FRENCH HILL, Arkansas, Ranking 
MICHAEL SAN NICOLAS, Guam                Member
RITCHIE TORRES, New York             LEE M. ZELDIN, New York
STEPHEN F. LYNCH, Massachusetts      ROGER WILLIAMS, Texas
MADELEINE DEAN, Pennsylvania         TOM EMMER, Minnesota
ALEXANDRIA OCASIO-CORTEZ, New York   WARREN DAVIDSON, Ohio
JESUS ``CHUY'' GARCIA, Illinois      ANTHONY GONZALEZ, Ohio
JAKE AUCHINCLOSS, Massachusetts      VAN TAYLOR, Texas, Vice Ranking 
                                         Member
                                         
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 18, 2021.................................................     1
Appendix:
    May 18, 2021.................................................    33

                               WITNESSES
                         Tuesday, May 18, 2021

Atienza, Jaime, Debt Policy Lead, Oxfam..........................     8
Gelpern, Anna, Anne Fleming Research Professor at Georgetown Law, 
  and Nonresident Senior Fellow at the Peterson Institute for 
  International Economics........................................    10
Horn, Sebastian, Economist, Kiel Institute for the World Economy.    11
Lienau, Odette, Professor of Law and Associate Dean for Faculty 
  Research, Cornell University Law School........................     7
Morris, Scott A., Senior Fellow, Center for Global Development...     5

                                APPENDIX

Prepared statements:
    Atienza, Jaime...............................................    34
    Gelpern, Anna................................................    41
    Horn, Sebastian..............................................    45
    Lienau, Odette...............................................    48
    Morris, Scott A..............................................    65


                  EXAMINING BELT AND ROAD: THE LENDING

                 PRACTICES OF THE PEOPLE'S REPUBLIC OF

                  CHINA AND IMPACT ON THE INTERNATIONAL

                          DEBT ARCHITECTURE

                              ----------                              


                         Tuesday, May 18, 2021

             U.S. House of Representatives,
                 Subcommittee on National Security,
                          International Development
                               and Monetary Policy,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., via 
Webex, Hon. Jim A. Himes [chairman of the subcommittee] 
presiding.
    Members present: Representatives Himes, Torres, Lynch, 
Dean, Garcia of Illinois, Auchincloss; Hill, Zeldin, Williams 
of Texas, Davidson, Gonzalez of Ohio, and Taylor.
    Ex officio present: Representative Waters.
    Also present: Representative Sherman.
    Chairman Himes. The Subcommittee on National Security, 
International Development and Monetary Policy will come to 
order. Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Also, without 
objection, members of the full Financial Services Committee who 
are not members of this subcommittee are authorized to 
participate in today's hearing.
    As a reminder, I ask all Members to keep themselves muted 
when they are not being recognized by the Chair. The staff has 
been instructed not to mute Members, except where a Member is 
not being recognized by the Chair and there is inadvertent 
background noise. Members are also reminded that they may only 
participate in one remote proceeding at a time. If you are 
participating today, please keep your camera on, and if you 
choose to attend a different remote proceeding, please turn 
your camera off.
    A quick note of personal privilege, I want to announce to 
the subcommittee that Chairwoman Waters has appointed the 
gentleman from New Jersey, Josh Gottheimer, to be Vice Chair of 
this subcommittee. I have known Josh for a long time, and I am 
excited to have him on board on the subcommittee. You know 
Josh; he is always willing to hear from lots of different 
perspectives, so I invite you to give Mr. Gottheimer your ideas 
on what else the subcommittee could do in this Congress.
    Today's hearing is entitled, ``Examining Belt and Road: The 
Lending Practices of the People's Republic of China and Impact 
on the International Debt Architecture.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Even before the Coronavirus besieged the world, there were 
worrying signs of sovereign debt distress in developing 
countries, and much of that debt is owed to the People's 
Republic of China. In the last 20 years, China has become the 
single-largest official lender to developing countries, 
dwarfing other multilateral institutions like the World Bank, 
the International Monetary Fund (IMF), and the countries that 
make up the Paris Club. Exactly how large of a lender China is, 
however, remains unknown because the country does not publicly 
disclose its foreign lending. In addition, very little about 
the specific terms of the debt contracts have previously been 
made public.
    The groundbreaking work of three of our panelists today--
Professor Gelpern, Dr. Horn, and Mr. Morris--provides the most 
complete look at the terms of Chinese lending to date. Their 
report, ``How China Lends: A Rare Look into 100 Debt Contracts 
with Foreign Governments,'' is a first-of-its-kind study 
examining sovereign debt contracts between Chinese entities and 
sovereign governments in their entirety. The paper lays out, in 
detail, how China has developed standardized contracts 
containing extreme provisions squarely aimed at the dual goals 
of protecting its investment and exercising its sovereign 
power.
    China seeks to climb the seniority ladder through strict 
nondisclosure agreements and so-called, ``No Paris Club 
clauses,'' tying borrowing countries' hands in restructuring 
debts, or even acknowledging that debts exist. The contracts 
contain provisions requiring collateral accounts that are held 
offshore and off the government's books. And China seeks to 
expand its sphere of influence by using acceleration and cross-
default clauses to impose their policy preferences on borrower 
nations, going as far as cancelling unrelated loans when 
borrowing nations make policy decisions that China opposes.
    Given that lack of clarity around exactly how much is owed 
to Chinese entities and the terms of those agreements, other 
lenders face uncertainty about their level of seniority and the 
full extent of the borrowing country's debt servicing costs. 
This lack of transparency makes future debt restructuring 
efforts, many of which we are seeing get underway right now, 
that much more difficult.
    The Debt Service Suspension Initiative (DSSI) and the 
Common Framework are both positive developments in ensuring 
international cooperation in addressing sovereign debt issues. 
Most notably, the Common Framework brings China closer to 
agreeing to Paris Club-style coordination. However, there 
remain significant hurdles to putting developing countries on a 
sustainable debt path.
    As China continues to expand its lending throughout the 
world, it is more important than ever that the United States 
and our global partners lead in setting durable global norms 
for official bilateral lending. With that, I would like to 
thank our panel of witnesses whose expertise in this field is 
unparalleled. I sincerely appreciate your assistance in 
tackling these difficult issues, and I look forward to your 
testimony.
    I now recognize the ranking member of the subcommittee, Mr. 
Hill, for 4 minutes for an opening statement.
    Mr. Hill. Chairman Himes, thank you.
    Chairwoman Waters, it is good to have you in our discussion 
today. We appreciate your leadership on the bipartisan agenda 
as it relates to reviewing China's engagement as the world's 
largest creditor. It is a bipartisan concern, and our committee 
has made that clear through enacting legislation like the 
Export-Import Bank's most recent reauthorization, as well as my 
Ensuring Chinese Debt Transparency Act that was passed last 
Congress.
    Multilateralism means bringing Beijing into compliance with 
international rules of the road, including those of the Paris 
Club. Recent research, including some by our witnesses today, 
has filled many important details in on the scope, opacity, and 
conditionality of Chinese lending, which clearly runs counter 
to the mission of the International Monetary Fund, the World 
Bank, and other multilateral lenders. This is unacceptable.
    Let me highlight three policy implications I believe result 
from China's Belt and Road lending. First, the U.S. and our 
allies need to be much more serious about pushing for real 
concessions from Beijing. Many know that I have raised 
questions about the Treasury's recent plan to allocate $650 
billion in special drawing rights (SDRs), which could 
facilitate directly or indirectly, Belt and Road repayments. 
This could also make it more challenging to force China to the 
negotiating table.
    Even if you support an SDR allocation, we should all be 
able to agree that the Treasury should use its leverage to 
obtain meaningful agreement on debt before signing off at the 
IMF meeting this summer, and not afterwards, when China could 
end up leading us into endless talks with zero results. Thirty 
years of failure to protect intellectual property and the 
recent suspension of 8 years of fruitless discussions by 
Treasury and our allies on the transparency of China's export 
credit market should remind us just how typical and real that 
danger is.
    A meaningful agreement on debt would entail specific long-
term concessions on transparency and appropriate coverage of 
all of China's official creditors, not just the ones they claim 
are arms of the government. We also must consider whether or 
not the G20's Common Framework for debt treatment should expand 
to cover additional borrowers. The time for the U.S. and its 
allies to nail down these formal commitments is right now, not 
after an allocation, when the urgency of the COVID-19 economic 
downturn begins to fade.
    Second, we need to find an alternative to developing 
countries' acceptance of Chinese lending. Much of the Chinese 
credit to low-income countries is at relatively high rates with 
short maturities, and in some cases requires onerous collateral 
requirements and cross-default provisions. Loans may be also 
linked to a country's diplomatic treatment of Taiwan or some 
other policy at odds with U.S. interests, and the IFI's 
Treasury needs flexibility to weigh these kinds of 
considerations strategically and use the mandates it has to 
make the IFIs as nimble and effective as possible.
    Finally, Beijing's resistance to international lending 
rules, not to mention the abuse of basic human values in 
Shenzhen and Hong Kong, once again highlights that it does not 
deserve more of a voice in the international financial 
institutions. Shareholding is not just about a country's size 
of economy. It is about the commitments and contributions to 
multilateral cooperation. We can't wish this away by believing 
that the IMF quota for China or the status of the RMB in the 
SDR basket are things that can entice Beijing into better 
behavior. It simply hasn't worked, and we must adopt by 
focusing more countries on the interests that align with ours.
    I look forward to our panel today, and I yield back to you, 
Mr. Chairman.
    Chairman Himes. I thank my friend, the ranking member, and 
I now recognize the Chair of the full Financial Services 
Committee, the gentlewoman from California, Chairwoman Waters, 
for one minute.
    Chairwoman Waters. Thank you so very much, Chair Himes. I 
am so pleased about your leadership on this issue and your 
bipartisan efforts. Today, we will discuss how we can prevent a 
pandemic-induced series of sovereign debt crises, and how we 
can bring international norms and principles to China and its 
investments around the world.
    Last Congress, I had the benefit of learning about China's 
Belt and Road Initiative directly from our military leadership 
in the United States Africa Command, when I traveled to 
Germany. The conclusion I drew was that addressing these 
challenges can only be accomplished with United States 
leadership through coordinated and thoughtful multilateral 
action. I am pleased we finally have that leadership in the 
White House with President Joe Biden, and I hope this hearing 
is informative to not just the public, but to his 
Administration as well. Thank you so very much, and I yield 
back the balance of my time.
    Chairman Himes. Thank you very much, Madam Chairwoman.
    I am told that the ranking member of the Full Committee, 
Mr. McHenry, is not present, and doesn't claim his minute. Let 
me give him a second to object or forever hold his peace. Okay. 
It sounds like Mr. McHenry is not there.
    Today, we welcome the testimony of our distinguished 
witnesses: Scott Morris, a senior fellow at the Center for 
Global Development; Odette Lienau, the associate dean for 
faculty research and intellectual life at Cornell University 
Law School; Jaime Atienza, the debt policy lead at Oxfam; Anna 
Gelpern, the Anne Fleming Research Professor at Georgetown Law 
and non-resident senior fellow at the Peter G. Peterson 
Institute for International Economics; and Sebastian Horn, an 
economist at the Kiel Institute for the World Economy.
    Witnesses are reminded that their oral testimony will be 
limited to 5 minutes. You should be able to see a timer on your 
screen that will indicate how much time you have left, and a 
chime will go off at the end of your time. I would ask that you 
be mindful of the timer and quickly wrap up your testimony if 
you hear the chime, so that we can be respectful of both the 
witnesses' and the committee members' time. And without 
objection, the witnesses' written statements will be made a 
part of the record.
    Just as a reminder, it is the practice of the subcommittee 
to allow witnesses to finish their answers, but we do not 
permit Members to go much beyond their 5 minutes to finish a 
question or to elicit a response.
    Mr. Morris, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

STATEMENT OF SCOTT A. MORRIS, SENIOR FELLOW, CENTER FOR GLOBAL 
                          DEVELOPMENT

    Mr. Morris. Chairman Himes, Ranking Member Hill, Chairwoman 
Waters, thank you for the opportunity to testify today. Twenty-
five years ago, this committee was instrumental in putting 
forward the Heavily Indebted Poor Countries Initiative or HIPC 
to relieve the debt burdens of 37 low-income countries. At the 
time, the U.S. Government was one of the leading creditors to 
these countries, while China was a smaller creditor than Costa 
Rica. Today, nearly all of the HIPC countries are again at risk 
of debt distress with vulnerabilities that have been greatly 
exacerbated by the pandemic, but on the creditor side, the 
picture has changed dramatically.
    The U.S. Government today is one of the smallest creditors 
to these countries, while China, on the other hand, is a bigger 
creditor than all other government creditors combined. So when 
we consider how best to address a potential widescale debt 
crisis, we have to grapple with China's dominant position, not 
just how much China lends, but how China lends. I will focus 
the balance of my remarks on the findings of a new report on 
China's lending practices as evidenced by their debt contracts 
as well as U.S. responses to these practices. I co-authored 
this report, ``How China Lends: A Rare Look into 100 Debt 
Contracts with Foreign Governments'', with Anna Gelpern and 
Sebastian Horn, who are both also on the panel today, as well 
as Brad Parks and Christoph Trebesch.
    Four main insights emerge from our research. First, Chinese 
contracts contain unusual confidentiality clauses that bar 
borrowers from revealing the terms or even the existence of the 
debt. These restrictions are problematic. They impede budget 
transparency, they hide the borrower's true financial condition 
from its other creditors, and they can serve as an obstacle to 
timely and orderly debt restructurings.
    Second, Chinese lenders seek advantage over other creditors 
through collateral arrangements such as lender-controlled 
revenue accounts. Accounts of this sort encumber and scare 
foreign exchange and fiscal resources of developing country 
governments. And when the accounts are hidden through strict 
non-disclosure requirements, they can distort the overall 
economic picture for a country in the eyes of the IMF and other 
creditors. Again, such arrangements may serve as a barrier to 
timely and efficient debt restructurings.
    Third, Chinese lenders also seek advantage over other 
creditors through requirements to keep the debt out of 
collective restructuring efforts. Such clauses unambiguously 
seek to set Chinese creditors apart from and ahead of other 
creditors in restructuring situations.
    Fourth, cancellation and acceleration clauses in Chinese 
contracts have broad scope and imply significant policy 
leverage over the borrowing country. These provisions enable 
the Chinese lender to accelerate payments or cancel a loan due 
to a wide array of policy conditions in the borrowing country 
or in China.
    With these findings in mind, let me turn to the U.S. 
Government's policy agenda. In responding to China, I would 
urge you to keep the interests of developing countries in mind, 
particularly during the current crisis. These countries need an 
extraordinary amount of support right now, and the U.S. 
Government should work with partners to mobilize as much aid 
and concessional financing as possible. The U.S. is already 
stepping up with direct support for COVID relief and access to 
the vaccines for these countries, and the faster we can move on 
these measures, the better.
    We should continue to support institutions like the World 
Bank and the IMF in their efforts in these countries. Our 
financial contributions to these institutions are critical. The 
U.S. should have clear objectives when it comes to China's role 
in debt relief. As the largest of the government lenders to 
indebted countries, the Chinese government should bear the 
largest cost of any debt relief initiative, but that outcome 
will not be automatic. The U.S. should work with other 
countries on a more comprehensive definition of government 
creditors such that Chinese governmental lenders are not 
shielded from debt relief commitments.
    The U.S. should also insist that the Chinese government 
disavow contractual provisions that impede debt relief efforts. 
Our government should lead by example when it comes to 
government contract transparency. The degree of secrecy we 
observe in Chinese contracts is unusual, but the reality is 
that secrecy is the prevailing norm among government lenders. 
While the burden of transparency has fallen almost exclusively 
on borrowing countries to date, the U.S. could lead in 
expanding this agenda to creditor governments as well. That 
should start with a commitment to publish government-to-
government debt contracts where the U.S. Government is a 
creditor.
    Finally, as the U.S. seeks to compete with China in 
offering development finance, our government should be vigilant 
about avoiding China's mistakes and lending imprudently into 
vulnerable environments. There is no doubt the U.S. Government 
could be doing more to support infrastructure projects in 
developing countries, but doing so in a manner that protects 
the U.S. taxpayer and benefits these countries will require 
focusing on measures of project quality and safeguards, 
financing terms that are appropriate to the country's 
circumstances, and strong alignment with the IMF and the World 
Bank and their financing frameworks. Thank you.
    [The prepared statement of Mr. Morris can be found on page 
65 of the appendix.]
    Chairman Himes. Thank you, Mr. Morris.
    Ms. Lienau, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

STATEMENT OF ODETTE LIENAU, PROFESSOR OF LAW AND ASSOCIATE DEAN 
      FOR FACULTY RESEARCH, CORNELL UNIVERSITY LAW SCHOOL

    Ms. Lienau. Chairman Himes, Ranking Member Hill, Chairwoman 
Waters, and members of the subcommittee, thank you for the 
opportunity to testify. The United States faces a turning point 
in the international debt architecture for two reasons.
    First, pandemic-related debt distress will be a multi-year 
issue. This means that the international community is currently 
paying closer attention to these problems. There may be a 
greater appetite to put in place necessary changes.
    Second, the global balance of economic power is likely to 
shift in the coming decades. The U.S. has been the central 
actor in international finance for 50 years. This will not 
necessarily be the case forever, so it should act today to 
cement its values, going forward.
    In the remainder of my remarks, I want to emphasize three 
ways that the problematic elements of Chinese lending practices 
fit into broader sovereign debt concerns.
    First, these lending practices do not exist in a vacuum. 
They reflect and amplify general and endemic issues. These 
include a lack of transparency of loan terms and conditions, 
insufficient concern for whether debt actually benefits a 
country's underlying population, and a lack of comprehensive 
creditor participation. The practices of certain Chinese 
creditors take these general defects to the extreme.
    Still, the best way to constrain troublesome practices by 
one country is to establish norms relevant to all countries. 
Otherwise, efforts to constrain problematic actors are unlikely 
to stick. This has been a key principle of the post-World War 
II global order, and it remains essential. Therefore, any 
efforts to improve Chinese lending practices must be part of 
broader progress in the debt architecture.
    Second, if the U.S. is concerned with China's increasing 
role in international capital flows, it should work now to 
solidify values of transparency, accountability, public 
benefit, and comprehensive participation. As with any path, 
this begins with an initial step. The U.S. should commit to 
supporting a swift, stable, and equitable public health and 
financial recovery from the pandemic. This will be essential to 
a full, global economic recovery and also help to forestall 
follow-on consequences such as political instability and 
disruptive migration patterns.
    In the medium term, the U.S. should implement widely 
accepted lending and restructuring principles across multiple 
tracks, including contract term improvements, domestic 
legislation, and international initiatives. This matters 
whether creditors are private investors or government actors, 
especially when these categories are starting to blur.
    For long-term progress, the U.S. should consider the 
establishment of an independent authority to facilitate these 
improvements. Especially given the potential changes in the 
global balance of power, an independent authority committed to 
broadly acknowledged principles could be helpful.
    My third and final point involves corruption and mismatched 
financial incentives in a number of borrowing countries. 
Greater tolerance of corruption may be a problem in some 
Chinese contracts, and again, this issue implicates broader and 
long-standing dynamics in international finance where the 
decisions of borrower elites may not always reflect the 
interests of their citizens.
    This means two key things. First, we should not punish 
countries' populations when dealing with a pandemic and the 
related debt crisis even if elites have made financial 
mistakes. It makes sense to promote transparency and 
responsible lending now, but the most vulnerable will suffer 
the most from inaction.
    Second, U.S. and other international actors must take the 
lead in implementing and modeling new norms and practices. We 
sometimes hear that debtor countries are primarily responsible 
for transparency and other reforms, and that is true, but 
ruling elites in these countries may prefer to drag their feet 
while their citizens often do not have the information or the 
power to take action. So, given the power imbalances and 
information asymmetries on the ground, more needs to be done at 
the external level. U.S. support for strong creditor-focused 
rules on transparency and lending could, over time, help 
undermine troublesome internal dynamics in sovereign borrowers.
    To conclude, I should note that meaningful reforms may not 
be fully embraced by all U.S. stakeholders. Some American 
affiliates have also benefited from deficiencies in the 
international framework. So, if the U.S. is serious about 
curbing problematic debt practices, it will have to make that 
commitment clear to domestic constituencies as well. This will 
not always be an easy choice. Thank you again for the 
opportunity to testify.
    [The prepared statement of Professor Lienau can be found on 
page 48 of the appendix.]
    Chairman Himes. Thank you, Ms. Lienau.
    Mr. Atienza, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

      STATEMENT OF JAIME ATIENZA, DEBT POLICY LEAD, OXFAM

    Mr. Atienza. Chairman Himes, Ranking Member Hill, 
Chairwoman Waters, and members of the subcommittee, good 
morning, and thank you for the opportunity to testify today. My 
name is Jaime Atienza, and I come to this committee as the 
global debt policy lead of the Oxfam Confederation. The timing 
of this session is critical as we have seen the debt situation, 
especially of the poorest countries, worsen significantly in 
recent years, and even more after COVID hit.
    In February 2020, before the pandemic was declared, the IMF 
stated that over half of low-income countries in Africa were 
either in debt distress or at high risk of being so, and things 
have only worsened since. Debts, both with China and with 
private creditors, represent the largest threat to their 
economic options for recovery, so both need to be tackled to 
bring in effective solutions.
    The human impact of a debt crisis is often overlooked. 
Higher spending on debt means lower spending on public 
services, which means fewer teachers, health care workers, and 
hospital beds for hundreds of millions of citizens in need. It 
also means further entrenching the cycle of poverty for many, 
the impacts of which fall particularly hard on women, as unpaid 
care work must often fill the gaps.
    The impact of COVID-19 in Africa has been profound, with a 
10-year setback in poverty, a steep rise in hunger, and 
desperation leading to more migration. Small island states, 
among them, some in the Caribbean, have lost an average 13 
percent of their GDP, a wartime loss that is boosting poverty. 
In large part because of their debt burdens, poor countries are 
unable to redeploy their resources to the most urgent needs. In 
advanced economies such as the United States, the use of 
expansive monetary policies or large debt purchasing programs 
allow a wide range of policy actions to cope with the crisis, 
protect those worse off, and prepare for the future stage of 
recovery.
    On the contrary, in the poorest countries, the situation is 
dire and options are scarce. In April 2021, one month after the 
pandemic was declared by the WHO, a global initiative called 
the DSSI was launched by the G20. It allowed for up to 23 
countries to receive, upon request, a temporary suspension of 
their bilateral debt repayments from China to the United 
States. But this initiative left voluntary mechanisms any debt 
relief from private creditors, which has not materialized at 
all, and simply invited IFIs to find ways to contribute more.
    The IMF did mobilize resources to cover debt repayments 
that 29 low-income countries owed to the fund, something the 
World Bank has yet to accomplish. However, Oxfam research shows 
that 84 percent of COVID-era loans by the fund encourage or 
require austerity measures, which strike at the very physical 
space needed for recovery. Overall design flaws with DSSI have 
meant that only 46 of the 73 eligible countries requested any 
debt suspension, and at the end of 2020, only $5.7 billion of 
debt repayments were suspended, with almost 90 percent of those 
repayments still flowing out of poor indebted nations. The 
moratorium has failed to give enough fiscal space for the 
poorest nations in response to COVID and essentially has 
postponed the crisis.
    The Common Framework holds more promise, but it has yet to 
be tested, and the kind of debt relief it will deliver is 
unclear. It excludes middle-income countries, and the prospects 
for the comparability of treatment clause to deliver debt 
relief by private creditors remains uncertain at best.
    The situation for developing countries, and specifically 
for low- and low-middle-income African economies on small 
island states, in particular those in the Caribbean, is very 
urgent, and at a minimum, we need to take the following 
actions: ensuring debt cancellation options under the Common 
Framework for DSSI countries as well as middle-income countries 
in deep trouble; ensuring legal protection to debtor countries 
from the potential risks of debt holdouts after debt 
restructuring; accelerating new grant and concessional 
financing to countries that are unable to use their own 
resources or use new debt as advanced economies can; bring 
forward truly collaborative efforts under the G20 umbrella of 
the Common Framework between major creditors including China 
and the U.S., IFIs, and private bondholders and banks; upgrade 
transparency and disclosure of all debt contracts in 
collaboration with the Organisation for Economic Co-operation 
and Development (OECD), including civil society and public 
oversight; and finally, agreeing to sustainable borrowing and 
lending standards to be applied to new operations and include 
catastrophic clauses in needed contracts to avoid situations as 
the current.
    Again, thanks very much for this opportunity.
    [The prepared statement of Mr. Atienza can be found on page 
34 of the appendix.]
    Chairman Himes. Thank you, Mr. Atienza.
    Ms. Gelpern, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

 STATEMENT OF ANNA GELPERN, ANNE FLEMING RESEARCH PROFESSOR AT 
 GEORGETOWN LAW, AND NONRESIDENT SENIOR FELLOW AT THE PETERSON 
             INSTITUTE FOR INTERNATIONAL ECONOMICS

    Ms. Gelpern. Thank you very much, Chairman Himes, Ranking 
Member Hill, Chairwoman Waters, and members of the 
subcommittee. It is a privilege to be here and talk about both 
the next steps for financial architecture reform as well as the 
role of China, and I am happy to answer questions, along with 
my co-authors, about the China Lending Paper.
    COVID-19 is both an alarm bell and an opening for 
meaningful reform of international financial architecture and 
debt architecture in particular. And this is one of those few 
times where the word, ``architecture'' actually means 
``architecture'' and not sort of frittering around with 
interior decoration and changing the doorknobs. Today's crises 
are quite different from the crises we saw 2 decades ago, when 
there was another flurry of architecture conversations. This is 
not the last pandemic. We are going to see climate disasters, 
and public health, and financial shocks that are going to call 
for very different kinds of responses than what we have seen so 
far.
    The actors are very different today. Many of them have no 
experience and at best provisional commitment to multilateral 
crisis resolution. And here, I think, Chad, for one random 
example--it is the first Common Framework country. Its biggest 
creditor, almost half of the debt, is Glencore, a mining 
company. Its biggest official creditor is China, followed by, 
of all countries, Libya, France, Angola, India, and Saudi 
Arabia. This is not the old bonds versus banks, hedge funds 
versus city conversation. Debt stocks are much bigger, more 
fragile, and much more complex. There is more collateralized 
debt, and it is inexcusably untransparent.
    Against this background, the Common Framework is real 
progress. It is a real architectural move. It is a new room. It 
is a turret perhaps. It does need support. It is worth 
investing in. It also needs oversight to live up to its 
potential.
    Now, China found it in its interest to participate, as did 
India, as did other big creditors, and I think that, above all, 
is a really hopeful sign. I am, on balance, optimistic. I am 
testifying here purely in my personal capacity, but I did want 
to highlight for the members some takeaways from a Group of 30 
report on sovereign debt and financing for post-COVID recovery, 
which does focus on next steps in debt architecture reform.
    In particular, I think many of us are on the same page. The 
Common Framework should be open to any country in debt 
distress, not just the poorest. It is a problem to have just 
the poorest countries be eligible, both because it 
marginalizes, kind of, the Common Framework as a mechanism, but 
also because it creates a stigma that I think would be very 
undesirable going forward in the architecture project. The 
Common Framework has to establish a record of transparency, 
equity, and consistency from the very start. This means that 
creditors have to renounce the debt terms that conflict with 
their Common Framework commitments.
    Now, you can always waive the contract terms if you're a 
creditor, right? There is nothing magical about the G20 
standing up and saying, we are not going to enforce these terms 
that my colleagues and I have found, particularly the non-Paris 
Club term and certainly confidentiality provisions.
    Comparability, which Mr. Atienza mentioned, is essential 
and that, by the way, should make this whole distraction of a 
conversation about who is an official and who is a private 
creditor--it should make it go away. I don't care if you're 
official, I don't care if you are private. Everyone has to 
contribute to comparable debt relief and that, I think, is 
essential. Going forward, we are going to see a lot more hybrid 
creditors and we don't want to waste time on this sort of 
thing.
    There should be public disclosure and there has to be 
something like a standing consultative coordinating body to 
ensure that this ad hoc restructuring is not seen as 
illegitimate, and is not conducted behind closed doors.
    My colleagues already mentioned, and I agree 
wholeheartedly, that the U.S. and other G20 have to lead by 
example and disclose our bilateral contracts. And my very last 
point is that my big fear from the China Lending Paper is that 
we are going to see an arms race where every creditor is going 
to want some collateral, and everyone is going to want 
priority. We have to nip this in the bud. We have to start with 
a multilateral agreement that we are not going to dismember 
distressed countries and engage in an asset grab race. That is 
not a way to build an architecture. Thank you very much.
    [The prepared statement of Dr. Gelpern can be found on page 
41 of the appendix.]
    Chairman Himes. Thank you, Ms. Gelpern.
    Dr. Horn, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

STATEMENT OF SEBASTIAN HORN, ECONOMIST, KIEL INSTITUTE FOR THE 
                         WORLD ECONOMY

    Mr. Horn. Chairman Himes, Ranking Member Hill, Chairwoman 
Waters, and members of the subcommittee, thank you for the 
opportunity to testify today. I would like to use my time to 
highlight findings from a recent research project with Carmen 
Reinhart and Christoph Trebesch. I would also like to share my 
personal views on why I believe that greater debt transparency 
needs to be a cornerstone in all efforts to reform the 
international debt architecture.
    Over the course of the past 15 years, the Chinese 
government and its state-owned enterprises and banks have lent 
at least 500 billion U.S. dollars to developing and emerging 
market countries. This lending boom has turned the Chinese 
government into the world's largest official creditor, with 
outstanding claims surpassing those of the IMF, those of the 
World Bank, or those of all Paris Club members combined. 
Chinese overseas lending has filled a void left by traditional 
development donors and has contributed to meeting the enormous 
funding gap for infrastructure and reliable energy sources in 
the developing world. This has potentially large positive 
effects on economic growth and development
    At the same time, outstanding debt to Chinese creditors has 
risen fast and has contributed to debt servicing difficulties 
in multiple developing and emerging countries. For the 50 most-
indebted developing countries to China, we estimate that 
outstanding debt stocks have risen from almost zero in 2005 to 
an average of more than 15 percent of GDP in 2017. In more than 
two dozen developing countries, outstanding debt stocks to 
China now exceed 10 percent of recipient country GDP. The large 
majority of loans have been extended at commercial terms, 
meaning with interest rates that are close to those in private 
capital markets and with comparatively short grace periods and 
maturities. As a result, Chinese creditors are going to play a 
dominant role in debt service payments of many low- and middle-
income countries for years to come.
    Furthermore, the opacity surrounding Chinese lending 
practices has made it difficult to assess the exact debt 
burdens of recipient countries. Our analysis reveals that 
around 50 percent of Chinese lending to developing country 
public sector recipients has gone unreported, meaning that 
these debt stocks do not appear in the most widely used data 
sources provided by the World Bank and other international 
organizations. The unreported lending from China has grown to 
more than 200 billion U.S. dollars as of 2016. Most of these 
liabilities are held on the books of state-owned enterprises 
and special purpose vehicles and are, therefore, outside the 
often narrowly drawn perimeter of public debt statistics.
    Hidden debt problems are widespread and not exclusively 
linked to Chinese lending, however, the opacity of the Chinese 
lending process has fueled the build-up of the problem, which 
Chinese authorities so far have done little to address. The 
issue is that the Chinese government does not publish detailed 
statistics on its outstanding claims and lending activities and 
does not share information with the OECD Creditor Reporting 
System or the Paris Club. Furthermore, Chinese state-owned 
banks often exclude expansive confidentiality undertakings in 
their loan contracts, and thus, prevent adapters from revealing 
the terms or even the existence of the loans.
    Failing to account for unreported debts distorts the views 
of the official and private sectors in significant ways. 
Uncertainty about the amount in terms of outstanding claims 
undermines that sustainability analysis and asset pricing and 
leads to longer and ultimately more costly debt restructuring 
processes. These problems are aggravated by the fact that a 
substantial share of Chinese loans relies on formal and 
informal means of collateralization so that Chinese creditors 
may be treated preferentially in case of repayment problems.
    Maybe most importantly, the lack of transparency prevents 
citizens in both the borrower and lender countries from holding 
their governments accountable for their borrowing and lending 
decisions. Exposing public debt to public scrutiny can help to 
reduce the risks of unsustainable debt buildups and helps to 
mitigate the severity of recurring cycles of debt and crisis.
    The COVID-19 crisis has exposed those vulnerabilities in 
developing countries along with the deficiencies of the 
international debt architecture. Broad action on that is needed 
to ensure that developing countries can mobilize the resources 
they require to address the ongoing health crisis. While 
greater debt transparency alone cannot overcome on issues, it 
is a prerequisite to broader attempts to reform the 
international debt architecture. The best way for advanced 
countries to support such efforts is to lead by example. Thank 
you, and I am looking forward to answering your questions.
    [The prepared statement of Dr. Horn can be found on page 45 
of the appendix.]
    Chairman Himes. Thank you, Dr. Horn. I now recognize myself 
for 5 minutes for questions.
    Ms. Gelpern, let me start with you. My experience is that 
underwriting docents and contracts usually includes 
representations and warranties that forbid a borrower from 
assuming additional debt that is senior to that debt and 
creates a technical default if that occurs. My understanding is 
that at a minimum, a lender will expect to be asked for consent 
for a borrower to take on debt that is senior to that debt.
    So my questions are: first, do you have any sense for how 
widespread Chinese lending that may actually be creating 
technical defaults is; and second, how do both the Chinese and 
the borrowers who are presumably knowingly getting into a 
technical default think about undertaking that kind of 
activity?
    Ms. Gelpern. What a fantastic question. Sorry, I am a 
contracts ethics professor, so I am loving this. The clauses 
you are talking about, pari-passu and negative pledge clauses, 
are very widespread, but their formulation varies tremendously. 
So while I think it is a healthy assumption that a lot of this 
debt violates traditional negative pledge clauses, there the 
carveouts are so broad, and the variation is so wide, that it 
is not entirely clear how much of this lending triggers 
technical default.
    Also, what we found, and my colleagues can elaborate, is 
not so much formal collateralization as just a contractual 
promise to route funds in a certain way. You may recall we did 
this when we did an emergency loan for Mexico in the United 
States in the mid-1990s, and it is just a contractual 
commitment. Now, ours was in the open and politically very 
controversial in both countries. The trouble here is that these 
bank accounts are--many of them are behind the veil of 
confidentiality, so people don't know. The answer is probably 
the--
    Chairman Himes. Thank you, Ms. Gelpern. Not to be rude 
here, but I want to get one or two more questions in before I 
run out of time.
    Dr. Horn, you intrigued me with the last thing you said, 
which is that one thing we could do is actually set a good 
example. The Chinese are famously resistant to moral suasion or 
to abiding by otherwise generally accepted international norms. 
I would love to get a more broad answer. What leverage does the 
rest of the world really have? I am not talking again about 
just moral suasion, I am talking about what leverage do we 
really have to bring the Chinese into a more multilateral 
framework for this sort of lending?
    Mr. Horn. None. In addition to leading by example, I think 
the most powerful way in this regard would be to work to the 
debtor countries and require them to have robust debt 
disclosure laws in their domestic laws that requires them to 
publish lending contracts if they themselves take them up as 
part of the of the debt disclosure process. I think that would 
be beneficial for the borrowers and would have this effect of 
creating a standard that the debt needs to be public in order 
to enter into effect.
    Chairman Himes. Any other thoughts on leverage that the 
rest of the world may have to achieve that end?
    Mr. Morris. Mr. Chairman, I think I share, to some degree, 
your skepticism. I do think it is about using the multilateral 
settings that we have, as Ms. Gelpern noted, the G20 Common 
Framework is a step forward. So it is a matter of, how do we 
build on that? And this agenda, which I think all of us have 
pointed to around transparency, really is a critical piece of 
the next steps.
    And, no, I agree there's no guarantee that China is going 
to get on board quickly, but I do think part of the process is 
that we demonstrate a willingness ourselves to take this on, 
and then we push very aggressively, certainly in the G20 but 
also in the IMF, and the World Bank. These are institutions 
where China is the third largest shareholder, and I think we 
can rightly point to the obligations of the leading 
shareholders to do the right thing here.
    Chairman Himes. Thank you. Mr. Atienza, very quickly, the 
equilibrium clauses that Professor Gelpern, and Mr. Morris, and 
Dr. Horn wrote about, would appear to have perhaps a chilling 
effect on the implementation of new environmental and labor 
laws in countries that borrow from China. Do you share that 
concern?
    Mr. Atienza. I think I really believe that what my 
colleagues state is a true concern that needs to be factored 
in, and I just want to say that it is important to try and find 
frameworks where China will join others, but leading by example 
is not enough. I made the point that we need the privates to be 
part of the mix. And Dr. Gelpern mentioned, too, if we want 
them to be part of efforts that are broader, it is not only 
about bilateral. They, for their size, compete with others that 
are in this mix and it is not just governments. So I think 
that's a direction to take, ensure that everybody is sitting 
around the table, and then there will be a better option of 
pushing China forward as well.
    Chairman Himes. Thank you. Thank you, Mr. Atienza.
    I now recognize the distinguished ranking member of the 
subcommittee, Mr. Hill, for 5 minutes of questions.
    Mr. Hill. Thank you, Chairman Himes, and again, thank you 
for this very constructive panel.
    And I thank all of the witnesses for their excellent 
commentary. I have shared my concerns time and time again 
about, is China really going to come forward and be a 
constructive partner in the debt relief efforts? In speaking 
with the Treasury Secretary and others, people, including 
today, have celebrated that China has said well, we will 
participate in the Common Framework, and I am not saying that 
is not encouraging. That is certainly a good, small step. But 
as with so many things with China, trust but verify is 
important.
    In the very good study that our witnesses have drafted 
today, there is a reference to a contract with Argentina, 
between Argentina and the China Development Bank. And it says, 
``The borrower shall under no circumstances bring or agree to 
submit the obligations under the finance documents to the Paris 
Club for restructuring or into any debt reduction plan of the 
IMF, World Bank, or any other multilateral international 
financial institution to which the state, Argentina, is a part 
of or the government of the PRC without prior written consent 
of the lender.''
    Mr. Morris, does that sound like somebody who is ready to 
participate in the Paris Club?
    Mr. Morris. Congressman, that provision in particular is 
clearly at odds with what the Chinese government has committed 
to under the Common Framework, which is why I think, for the 
U.S. Government, it ought to be a priority to get a very 
explicit disavowal of those kinds of provisions both in the 
existing contracts, but also a commitment not to use those 
kinds of provisions going forward. But you are absolutely 
right. This creates a clear conflict and particularly a burden 
for the borrowing country here where they are making a 
contractual commitment to a Chinese lender that is at odds with 
their own obligations to other creditors and to the 
multilateral institutions.
    Mr. Hill. Right. And it is not in their long-term interest. 
The Chinese loans might be expedient by rate or shortness of 
terms, but they come with these unprecedented non-disclose 
features that we have seen turn into an utter disaster in 
Zambia, in Ecuador, in the Maldives, in Sri Lanka, and the list 
goes on and on, which everyone here certainly knows.
    Would you say that the G7 countries, our finance ministers, 
and our leaders, including President Biden, should have that as 
a part of the G7 meeting where they say that they will together 
press China for this kind of transparency?
    Mr. Morris. I agree with that completely. While ultimately, 
we aim for progress in the G20 because China would make 
commitments there, I think to get there, we need very 
coordinated and cohesive efforts by the G7 countries, which are 
going to be much more like-minded on these issues.
    Mr. Hill. Yes, I agree. I just don't see how, within the 
IMF framework, there is any real enforcement capability here. I 
see transparency, and I like the idea of a register on the 
SDR's transfer, for example. But we have to educate our friends 
in the developing world on what is a good loan versus a bad 
loan.
    Dr. Horn, in your paper, you show this non-disclosure 
chart, which I found very interesting. And the red bars are, of 
course, after 2013, and 2013 is a seminal year as the Chinese 
communist leader Xi Jinping began Belt and Road in 2013, and 
suddenly, we have all these non-disclosure arrangements in 
every aspect of your 100-loan sample. Dr. Horn, what are your 
suggestions for enforcement and how we can encourage Chinese 
behavioral change? What can the IMF do specifically?
    Mr. Horn. I am going to repeat myself in a sense, but I 
think with respect to the confidentiality clauses, again, the 
most powerful way would be to strengthen the debt management 
capacity, the statistical capacity in the debtor countries and 
make use of the carveouts that these clauses have. These 
confidentiality clauses are written in a very broad way, but 
they usually include a carveout that allows the debtor 
countries to publish the contracts and the terms in case there 
is a domestic law in place that requires them to do so. I think 
giving them the capacity to put these laws in place would be 
the most powerful instrument to create transparency.
    Mr. Hill. Thank you, Mr. Chairman, and I yield back.
    Chairman Himes. The gentleman yields back.
    The Chair of the Full Committee, the gentlewoman from 
California, Chairwoman Waters, is recognized for 5 minutes for 
questions.
    Chairwoman Waters. Thank you so very much, and I am 
appreciating this discussion. And I am very thankful that our 
witnesses are here today.
    Professor Gelpern, some people have referred to recent 
sovereign debt restructurings in which countries like Argentina 
and Ecuador have had the terms of their debt amended by their 
creditors to be a success. Continuing with this restructuring 
argument, however, I think touting these restructurings as 
successful ignores the pain and suffering that any sovereign 
debt crisis inflicts on a country's citizens, especially the 
poor.
    And let me just say what I think I have learned about some 
of these agreements that these countries get into. They are 
desperate. Many of them want to increase their infrastructure. 
Some of them are trying to increase tourism as an effort to 
shore up the economy in their countries. And so, while they are 
desperate and they sign on to these agreements, they don't 
really anticipate that they are not going to be able to repay 
the debt, and that has caused harm to their citizens.
    So, what do you say about their plight and the 
restructuring, et cetera, et cetera?
    Ms. Gelpern. Chairwoman Waters, thank you for your 
question. And I agree wholeheartedly, and not just that you 
can't measure a restructuring's success by its speed; you also 
have to look at actual human beings' well-being. But also, just 
the durability of them. Argentina and Ecuador are in distress 
weeks after they restructure.
    And I think reiterating and amplifying some of what my 
colleagues said, building better capacity and agency in the 
borrowing countries that do need tremendous infrastructure 
investment, I think should be an absolute priority. I know 
transparency can sound like meaningless sort of pablum, but if 
you have standardized terms that everyone is aware of, if you 
know when terms deviate from the standard, if there is 
multilateral capacity building, I think that we are going to be 
way better off if countries have these domestic laws that my 
colleague mentioned.
    By the way, the carveouts include laws in other countries. 
If anybody passes a law requiring disclosure, I think that is 
going to embarrass a whole lot of creditors into at least 
somewhat less abusive terms.
    Chairwoman Waters. Thank you very much. What can be done to 
incentivize the borrowing countries to seek some help in 
dissecting the agreement to see if it is in their best interest 
and perhaps get some advice before signing off on these 
agreements?
    Ms. Gelpern. I think there is tremendous demand, and this 
is completely in my different capacity. We have this initiative 
called the Sovereign Debt Forum, where we have done training 
sessions with developing country debt managers, and the 
attendance is very high. I think having standard contracts out 
there, because everybody who gets a contract put in front of 
them is told, ``Oh, this is perfectly normal.'' And just like a 
homeowner who borrows from a bank and on abusive terms, 
everybody thinks they are going to repay.
    And there is genuine humanitarian need, so we can't say we 
will just stop borrowing.
    Chairwoman Waters. That is right.
    Ms. Gelpern. And we need concessional surge capacity and 
multilaterals. Maybe Mr. Morris can talk some more about that, 
but there needs to be affordable funding for basic human needs 
so that countries aren't driven into abusive terms.
    Chairwoman Waters. Thank you very much.
    Let me take a moment here to direct a question to Mr. 
Morris. In the G20's Debt Service Suspension Initiative, which 
temporarily suspends the debt service payments of poor 
countries to G20 nations, China did not suspend service 
payments to the China Development Bank (CDB), asserting that 
the CDB is a commercial entity, despite the fact that it is 
under the control of the Communist Party state council. Some of 
China's contracts that you examined in your report contain 
false default and acceleration clauses to which one defaulted 
China loan in a country would trigger a default across-the-
board on all China loans in the country. Linking all China 
investments in a country this way suggests, as a matter of 
contract, that China is presenting itself as a unitary entity. 
Mr. Morris, isn't this inconsistent with the Chinese 
government's propaganda in debt discussions, and not all loans, 
such as those by the China Development Bank, are centrally 
controlled?
    Mr. Morris. Thank you, Chairwoman Waters. I think this is a 
real challenge, and I think our research provides additional 
evidence that if we are looking at the China Development Bank, 
not only is it unambiguously owned by the Chinese government, 
but it is a policy lever for the Chinese government, and that 
ought to add to the burden on China to continue--the argument 
that it is a commercial bank with no policy ties to the 
government just doesn't hold up. And so, I think the U.S. ought 
to be pressing aggressively on this point.
    And as Anna Gelpern said, in principle, it shouldn't matter 
if we have an agreement that all creditors have to be on board, 
but we know in practice that commercial creditors haven't been 
participating. So, that gives CDB room to sit on the sidelines 
on these discussions.
    Chairwoman Waters. I want to thank you. My time has long 
since expired, and as we go on with the hearing, perhaps we can 
get more involvement in this aspect of it. Thank you very much.
    I yield back to the Chair, Mr. Himes. Thank you.
    Chairman Himes. The chairwoman's time has expired.
    The gentleman from Texas, Mr. Williams, is recognized for 5 
minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman. And I am 
glad we're having this hearing today because we need to find a 
way to properly counter the growing influence of China around 
the world. However, China's centrally controlled command 
economy is going to make it impossible for the United States to 
compete in terms of spending. By some estimates, the Belt and 
Road Initiative is estimated to have funded over 3,000 
projects, with a total value of over $4 trillion, since it 
began. We should not be looking to try to outmatch China in 
terms of dollars and cents.
    But what I hope we pay attention to is how China is 
currently taking advantage of the international financial 
institutions and examine how we can close some of the loopholes 
that are being exploited. If we can better understand how China 
is using these institutions to their benefit, we will be able 
to counter some of their influence without breaking the bank.
    So my first question, Dr. Horn, is to you. Can you talk 
about some of the ways China is taking advantage of 
international financial institutions?
    Mr. Horn. I am not exactly sure what you are referring to.
    Mr. Williams of Texas. How is China taking advantage of 
international financial institutions?
    Mr. Horn. I think that one problematic element that comes 
back to what Mr. Morris just said is the ability of Chinese 
lenders, and I think that it is a flaw of the general 
international architecture to self-select into specific 
categories depending on the situation and to seek structural 
advantages. The self-identification of CDB as an official 
lender when it comes to mapping international capital markets, 
but then as a commercial creditor when it comes to burden 
sharing under the DSSI, I think is one example where this sort 
of discretion is harmful.
    Mr. Williams of Texas. Okay. Thank you.
    Mr. Morris. I can speak to that.
    Mr. Williams of Texas. COVID-19 has been devastating to 
every country across the globe, but particularly for less-
developed nations. For poorer countries that are in need of 
financing and desperate need of outside investment, this opened 
up a great opportunity for China to step in and offer 
assistance. Even though China knows they might not get all of 
their money back, they are investing and they realize that they 
will be able to assert influence over the borrowing country.
    So, Dr. Horn, again, can you talk about how China has been 
exploiting the COVID-19 pandemic to expand their influence 
across the globe?
    Mr. Horn. I think this is not necessarily specific to the 
COVID pandemic, but I think as a general point, foreign 
assistance always comes with some form of foreign influence. 
That is also true in the case of Chinese official lending 
overseas. My colleagues have already mentioned a variety of 
examples of how this sort of political influence plays through 
the contract. I think a key issue here is the writing, the 
inclusion of fraud acceleration and cancellation clauses that 
allow you to give a lot of bargaining power to the creditor and 
allow it to impose influence on certain domestic or foreign 
political issues. I think these sort of contractual provisions 
are an issue in that context.
    Mr. Williams of Texas. Okay. We have heard how China is not 
transparent with disclosing the details of their lending 
practices and the problems that are created within the 
international system. This is not surprising, given China's 
track record of covering up human rights violations, stealing 
IT, and theft from companies across the world, and silencing 
descending voices across the government.
    Finally, Dr. Horn, with our inability to affect China's 
behavior in these areas, why do you think that this time will 
be different as we push for greater transparency in their 
financial dealings?
    Mr. Horn. Again, I share some of the skepticism that has 
already been voiced, that repeated commitments might not really 
make a material difference this time. So again, I think that 
the most powerful way to try to create transparency, if the 
creditors and buildings are unwilling to do so, is to really 
enable the debtors to put out the contracts and the debts and 
their terms into the public space.
    Mr. Williams of Texas. Okay.
    Thank you, Mr. Chairman, and what time I have, I yield 
back.
    Chairman Himes. The gentleman from Texas yields back.
    The gentleman from Massachusetts, Mr. Lynch, is recognized 
for 5 minutes.
    Mr. Lynch. Thank you very much, Mr. Chairman. This is a 
great topic, and I appreciate your good work on this.
    Just before this pandemic, we had an opportunity to travel 
to quite a few countries in Africa. We went to Mali, Somalia, 
Ethiopia, and Nigeria. And the onerous terms of some of the 
lending by the Chinese Communist Party, by the Chinese 
government was not only egregious in in terms, but in many 
cases, as a number of the witnesses will point out, those loans 
were backed by collateral, and in many cases, it was the 
maritime ports of these countries. So it really controlled 
the--well, not Mali, but in the other countries, it was really 
almost a sale of part of their maritime ports, which in the 
long term really affects the long-term interest and the 
national security of those individual countries.
    We also visited Darwin, Australia, where a private investor 
with close ties to the Chinese communist government effectuated 
a 99-year lease, basically a purchase of the Port of Darwin, 
not very far, about 2 miles from the United States Marines' 
facility there in northern Australia.
    Is there a way that we might adopt within the Common 
Framework a policy or requirement that that we discourage or 
deny the opportunity for the Chinese government to actually 
acquire this infrastructure, especially when it is so essential 
to the future of these countries? Many of these countries, 
especially in Africa, are so desperate for capital, for 
lending, some of them--obviously there is a level of corruption 
there, but it I would just ask any of the witnesses, are there 
any opportunities that we might have using the IMF, using some 
of our international organizations and lending platforms, is 
there any [inaudible]--a requirement that we disallow or we 
prevent the acquisition of these major ports by the Chinese 
communist government? Mr. Atienza?
    Mr. Atienza. Thank you for the question. I think the way in 
which we should look at this issue is to try to think about how 
to turn things around, so if there are capital needs, why is it 
the Chinese that are providing? Who else can provide and in 
which terms that will help support? So, that is a way of 
turning it around. And if they benefit from the lack of 
transparency and from the lack of rules, why not set a rules-
based system?
    Even the Paris Club, that we know has clear rules and all 
members work well with each other, it is just an informal club. 
My colleagues, Dr. Gelpern and Dr. Lienau, already spoke to the 
need to have an architecture that is strong enough so that 
everyone will have to abide. I think moving in these two 
directions in the provision of finance for the right things and 
in the right terms and in the provision of a rule set, a strong 
set of rules including a system for debt management and debt 
restructuring, would be direct ways to go. That would be my 
take on this one. Thank you.
    Mr. Lynch. Thank you.
    Ms. Gelpern, could you add to that?
    Ms. Gelpern. Sure.
    Mr. Lynch. Thank you.
    Ms. Gelpern. If I may amplify? First of all, multilateral 
banks have negative pledge clauses that prohibit debtors from 
pledging collateral or at least restrict it heavily without 
going to the banks. They have to be made more uniform and 
revisited and taken more seriously. And then, the IMF and the 
World Bank put out a paper before COVID hit on the rise in 
collateralized debt where the collateral is unrelated to the 
revenue generated project and discouraging that. I think that 
we can be a lot more muscular in the institutions, the 
multilaterals can be a lot more muscular in encouraging 
collateral only when it is a revenue-generating project that 
actually has returns in terms of human development.
    Ms. Lienau. Could I jump in on that as well, quickly?
    Mr. Lynch. Ms. Lienau?
    Ms. Lienau. Yes. I would also point out, and I am sure that 
you realize this in your travels, that these types of terms are 
very unpopular on the ground once they become well-known. 
Emphasizing, again, transparency from both the debtor side and 
also the creditor side, especially because some range of these 
contracts might have been eased in the--facilitated by side 
payments, I think this means that we need transparency from 
both sides so that these types of things become known on the 
ground by the broader citizenry, and they can object to it at 
the time.
    Mr. Lynch. Thank you.
    Mr. Chairman, I yield back. Thank you for your courtesy.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Davidson, is recognized for 5 
minutes.
    Mr. Davidson. Thank you, Chairman Himes. And thank you to 
our witnesses for spending time discussing this important and 
prevalent issue with us today.
    China's economic infiltration across developing countries 
has grown very worrisome. We have known for some time that the 
Chinese RMB is prone to manipulation, and this means that we 
must look to ensure that anything the RMB touches is not 
undermined by activity from the Chinese Communist Party and the 
People's Bank of China.
    To address these concerns, I am now working on the Chinese 
Currency Accountability Act. The IMF's special drawing rights 
are comprised of five of the world's largest currencies, 
including the RMB. The bill would require that the United 
States oppose and vote against any increase in the RMB 
inclusion of the SDR currency basket unless the Treasury 
Secretary can provide a report to this committee and to the 
Senate Banking Committee that certifies China is abiding by 
fair monetary practices. Effectively, this would ensure that 
there would be no RMB increase in the currency basket unless 
China adheres to the principles of the Paris Club. I look 
forward to working with the subcommittee and my colleagues on 
holding China accountable to the same standards that the rest 
of the world is abiding by.
    A question for Mr. Morris, in your testimony, you state 
that suggesting that that these borrower countries could 
selectively default on their legal obligations to Chinese 
lenders is misguided and would ultimately be damaging to the 
countries. Could you explain a little more as to why this is a 
bad idea for those countries to selectively default on debt?
    Mr. Morris. Thank you, Congressman. I think as much as we 
do view China as a singular actor and certainly just in the 
scale of its lending for a lot of these countries it stands 
out. Nonetheless, it is a creditor among creditors, and I think 
the challenge for borrowing countries is if you default on a 
single creditor, whether it is China or any other, it is going 
to make your life more difficult, more generally as a borrower 
for all creditors, because you are violating the terms of a 
contract you made. And maybe, I will leave it at that. I know 
that Dr. Gelpern can speak to this issue from deep expertise.
    Mr. Davidson. Yes. So just to pick up there, and I will 
open it up, but what kinds of tools could the U.S. use more 
effectively in our kit bag, and how could developing countries 
interact with the United States--they have already gotten 
caught in the snare that China laid for them when they have 
taken some of these debt instruments. What kind of tools do we 
have and how could we work with some of these countries?
    Mr. Morris. Thank you. If I could just emphasize, in my 
recommendations I started by emphasizing the financing these 
countries have during this crisis, which is a little bit odd. 
We are talking about the debt vulnerabilities they face, so it 
seems odd to be thinking about new financing coming in. But I 
think we have to find ways to get money into these economies as 
they grapple with this crisis and that means financing terms 
that are appropriate to their circumstances.
    I think the best way to do that is to give our full support 
to institutions like the World Bank and the IMF so that they 
can be stepping up at a time, by the way, that Chinese lending 
has actually fallen off a lot. For a lot of these countries, on 
a net basis, they are paying a lot more back to the Chinese 
than they are receiving in new loans. So, that is all the more 
a drag on their economies, and I think all the more reason why 
the lenders that reflect our values and our way of doing things 
could be stepping up right now.
    Mr. Davidson. Yes. So, I will open it up to the panel. 
There is already a problem within countries that have taken on 
too much debt. What, short of just pumping U.S. dollars into 
other countries, frankly, at a time when they are needed in our 
own, what kinds of tools could we use to work with these 
countries?
    Mr. Atienza. If I can speak to that? I would just say that 
there are some obvious ones. We have lost the chance, in my 
view, in this 2020 year of providing debt cancellation to 
countries that were already under strong debt distress. And I 
think that is a road to go. It is not new cash. Of course, it 
has some impact, but it is much cheaper than postponing the 
crisis and putting a new pile of resources on countries.
    And second would be, the countries need ODA. They need 
additional aid, and they need concessional financing. 
Concessional financing can allow them to cope with repaying 
back, but with a grace period and with low interest rates, and 
that can make the matching.
    Mr. Davidson. Yes. Thank you, and my time unfortunately has 
expired.
    Chairman Himes. The gentleman's time has expired.
    The gentlewoman from Pennsylvania, Ms. Dean, is recognized 
for 5 minutes.
    Ms. Dean. Thank you, Chairman Himes, and I also thank the 
ranking member.
    And thank you, Chairwoman Waters.
    I do want to say to our expert witnesses, thank you. I hope 
you will forgive me for moving between this important 
subcommittee hearing and a markup in the Judiciary Committee. 
So, don't take my in and out as anything other than trying to 
do two jobs at once. But I do thank the witnesses.
    Professor Gelpern, I wanted to start with you. Could you go 
into greater depth as to the opaqueness of Chinese foreign 
lending policies and what concrete steps we can take for 
greater transparency?
    Ms. Gelpern. This is probably something that I should share 
with Dr. Horn, who has looked at the numbers, and I've looked 
at the contracts. What the contracts have is inordinately 
expansive confidentiality terms, and more so in recent years. 
The really interesting thing to me is that there are carveouts 
for disclosure required by law. Well, then, let's require 
disclosure by law. My preference is to start with the borrowing 
countries, because, as Professor Lienau has said, there needs 
to be accountability to the people whose work is repaying the 
debt. But I think that any legal statutory requirement of 
disclosure would actually take the wind out of a lot of these 
contractual terms.
    And just to flag, and I think this connects to the G7, the 
French have very similar confidentiality clauses. So, going 
through the G7 actually is a very good idea because China can 
always point to AFD and say, hey, we are no different.
    Ms. Dean. Dr. Horton, do you want to add to that?
    Mr. Horn. I fully agree with what Professor Gelpern said. 
Maybe just to add one additional suggestion, I am fully in 
favor of having a global debt census in which we try to create 
a global database that has detailed and comprehensive long-
level data on sovereign debt, and that, of course, requires 
information sharing from both the debtors and the creditors. 
But having that in place, perhaps hosted by an international 
organization such as the World Bank, I think will help to raise 
the pressure on those creditors that refuse to disclose.
    Ms. Dean. That is really helpful. Thank you.
    Professor Lienau, could you please offer us a little 
greater detail about the concern you raise in your testimony 
regarding the corruption in Chinese lending practices in 
addition to simple bribery? And that seems like a crazy 
oxymoron, ``simple bribery.'' Are there other criminal aspects 
that we should be considering when talking about Chinese 
sovereign debt deals?
    Ms. Lienau. On the specific issues of Chinese lending, I 
think that some of my fellow witnesses might be able to speak 
more fully on particular issues. But I think, in general, you 
are highlighting that corruption is an issue and it can distort 
the way sovereign lending is done.
    In particular, sovereign debt terms is a major problem. Of 
course, this is not just Chinese entities. This is a broader 
issue in the international financial architecture. So, I think 
we need to think about dealing with that problem, and again, 
embedding our response to Chinese issues in a more broader 
international approach, because I think that is much more 
likely to stick. I think that has been one of the themes of 
this hearing, and I want to emphasize that.
    So if you're thinking about this broader approach in which 
you are enmeshing Chinese lending, I think you need to remember 
that it takes two to tango, or sometimes more than two to 
tango, so you really need a multi-pronged approach. First, we 
want to think about constraining the capacity of corrupt 
officials in these borrowing countries to hide funds.
    And because that's going to limit incentives for the type 
of corruption that we are thinking about, both straight-up 
bribery and also the use of sort of side accounts and middlemen 
and these other types of more hidden mechanisms that are not 
pay-for-play direct bribery, but are akin to that. So, we want 
to make sure that any of these types of funds become more 
easily discoverable, so, strengthening efforts to target tax 
havens and to discover ultimate beneficial owners of shell 
corporations would help.
    In addition, I think we need to make clear that bad faith 
creditors can't recover on debt. They should be sure that the 
debt signing authority actually exists in these countries. And 
so, this emphasis on clarifying laws and making sure that there 
are laws in place in the borrower countries for this, I think 
would help a lot.
    And again, I think creditor-side transparency in lending is 
very important, especially when there are debtor-side 
corruption concerns. So, I think you really need to think about 
this as a whole package in which Chinese actions are embedded.
    Ms. Dean. Thank you.
    I see my time has expired. Thank you, Mr. Chairman. I yield 
back.
    Chairman Himes. The gentlelady's time has expired.
    The gentleman from Ohio, Mr. Gonzalez, is recognized for 5 
minutes.
    Mr. Gonzalez of Ohio. Thank you, Mr. Chairman, and thank 
you to our great panel. This is an awesome and very timely 
discussion, so I do thank the chairman and the ranking member 
and the witnesses.
    I want to start my questions with Dr. Horn. When we talk 
about, how do we combat this and what sort of counter do we 
have, I think the instinct is to say, okay, let's look at our 
multilaterals as a counterweight to what China is doing. And I 
think that makes sense in some respects. Having said that, I am 
skeptical that the World Bank and the IMF are equipped to do 
that, only because my impression, from speaking with former 
executive directors at the World Bank and folks who are very 
familiar with the World Bank, is that China in many ways has 
blocked any attempt at getting the transparency that we want, 
because of their shareholder rights and their ability to build 
coalitions inside the World Bank.
    And by the way, I say that as somebody who supports the 
World Bank. I think these multilaterals are necessary, despite 
their frustrations, so I think we do need to support them. But 
that being said, Dr. Horn, my first question is, one, do you 
agree with the perspective that the World Bank has not been as 
effective as we might hope vis-a-vis transparency because of 
China's influence? And then, if yes, should we be looking to 
create an alternative either through the D10 or the G7 or some 
sort of alternative financing mechanism that can push back on 
this stuff?
    Mr. Horn. I am not familiar with the internal discussions 
within the World Bank on debt transparency and what has slowed 
the progress. My personal observation is that there has been 
progress over the course of the last couple of months. One 
specific example is the publication of creditor compositions of 
the international public debt data, which I think is the first 
time that an official institution has really put quantities out 
there and has tried to sort of publish the actual debt stocks 
that I think these countries owe to China. So, I think that 
that has been a significant step forward.
    I also share your initial statement that these multilateral 
institutions will need to play a very important role in making 
offers to these countries that lessen their dependence on China 
when it comes to spending for infrastructure and energy. I 
think one more general point that I would like to make is that 
part of the attractiveness of Chinese lending for these 
countries over the course of the past years and the past 
decades has really been the lack of alternatives when it comes 
to financing large-scale projects in high-risk countries. And I 
think to do that and to offer these countries alternatives, the 
multilateral institutions will need to play a key role.
    Mr. Gonzalez of Ohio. Thank you.
    Professor Gelpern, do you have any thoughts on that? Is 
your perspective that China has not--or I guess, what would you 
say to the initial claim that the World Bank and the IMF have 
largely been blocked due to Chinese influence from demanding 
the type of transparency that we would need?
    Ms. Gelpern. I wouldn't say, ``blocked.'' I would say, 
``occasionally gummed up.'' And it is a meaningful distinction 
in my mind. I do want to refocus attention on something Mr. 
Morris said, which is that Chinese lending is going down, their 
net repayments. And the really interesting question now is what 
is going to replace that? Right at the time when countries 
accumulated unprecedented amounts of debt in 2020, we haven't 
had defaults. Why? Because countries that maybe shouldn't have 
borrowed, borrowed up a storm.
    And so, we are facing a delicate moment right now, and I do 
think that is where multilaterals can come in. IDA can borrow. 
IDA is enormously conservative. They can borrow and that would 
diminish any given shareholders' influence in some sense.
    Mr. Gonzalez of Ohio. Yes.
    Ms. Lienau. May I speak to something that you said, 
Representative Gonzales? You began by expressing concern about 
the possible politicization of the World Bank, and I agree with 
Professor Gelpern that, ``gumming up'' is more accurate than 
``blocked.'' I would emphasize that I think the U.S. needs to 
maintain its voice in these institutions rather than 
withdrawing, because I think withdrawing from these 
institutions is not the way to go. I also do think that given 
the changing balance of power over time, the U.S. should 
consider support for an independent expert institution, because 
experts from every country basically agree on what is needed. 
And so, if we want to be supporting that, then an independent 
institution, even a consultative one, is not a bad idea.
    Mr. Gonzalez of Ohio. Thank you. I am not as sanguine about 
the world. I agree we absolutely need to be at the table and we 
need to be leading at the World Bank to the extent that we can. 
But absent that, I do hope we consider alternatives.
    But with that, I yield back. Thank you.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from New York, Mr. Torres, is recognized for 
5 minutes.
    Mr. Torres. Thank you.
    I guess my first question is about the G20 Common 
Framework. My understanding is that China agreed to participate 
in the G20's Common Framework. How does one reconcile China's 
participation in the Common Framework with China's insistence 
on no Paris-Club clause? Professor Gelpern?
    Ms. Gelpern. I think that also, Mr. Morris may have more 
economy color to add, but look, the clauses all predated last 
November. Some of them very recently predated. Yes, we have 
some contracts of 2020 that have these clauses, but we don't 
have anything since the Common Framework. It is embarrassing. 
They need to get up and say--they and we--need to get up and 
say, now that there is the Common Framework, nobody is going to 
ask for this and nobody is going to enforce what is there now. 
Otherwise, it is just--why would you sign up for something just 
to be publicly embarrassed? I am being simplistic here.
    Mr. Torres. Your organization did a data report, if I 
understand correctly, and what is China's endgame? Is China 
seeking repayment or is debt a means to an end? I am thinking 
of the case of Sri Lanka, which could not repay the debt. And 
instead of repaying the debt, Sri Lanka ceded control of a port 
to China or an entity of China. And I am wondering, is it more 
important to China to be repaid or is it more important to 
leverage debt financing as well as integrated project delivery 
to secure control of other countries strategic assets? What is 
the end game here?
    Mr. Morris. Congressman, I think I will come in on that 
question. I think our interpretation, as authors of this study, 
is that we view these features as very aggressive measures to 
get repaid, that basically--and there are different 
interpretations. But I think ours would be that particularly 
lending in the high-risk debt environments, measures like these 
cash accounts, and other kinds of offshore accounts, are 
features that the lender is using to protect itself.
    But that is one interpretation and it can exist alongside 
other interpretations about broader strategic goals that the 
Chinese government might have, which is why the other features 
that we point to, these very broadly written provisions that 
implicate policy issues in the two countries. There's a lot of 
room for maneuverability there on the part of the Chinese 
government. And it is interesting that they would write those 
features into the contracts.
    I think it does speak to legitimate concerns we can have 
from a U.S. perspective about the degree of leverage that the 
government might have in these situations. And they don't need 
to be blending countries into default deliberately in order to 
find sort of avenues for strategic influence in these 
countries.
    Mr. Torres. This might be a challenging question to answer, 
but China has an ever-expanding web of debt contracts with 
collateral clauses and confidentiality clauses, and all of 
these contracts contribute toward a lack of debt transparency. 
And it seems to me that these loans are structured to undermine 
multilateral institutions and the debt restructuring 
initiatives of those institutions. How close are we are to 
reaching the point of no return, where these contracts are just 
so widespread that it will derail the debt restructuring 
initiatives of multilateral institutions like G20 and others?
    Ms. Gelpern. Contracts are not the ten commandments. And at 
a certain point, they backfire. If you have a really brittle 
contract all that happens is your debtor defaults, and then 
what? I think we need to leverage the self-interest here. Now, 
Congressman, you are exactly right. Sovereigns are--
    Mr. Torres. But if you are a low-income country, the cost 
of defaulting and alienating a country as powerful China can be 
quite high, so--
    Ms. Gelpern. You are right, but--
    Mr. Torres. --you can lose access to markets and--
    Ms. Gelpern. But today, we have very diverse lenders and 
lots of them. So in some ways, putting creditors against one 
another can play against us or in favor of a more constructive 
financing model, and I think really it is about turning the 
ship around rather than a point of no return. I don't think we 
are there.
    Mr. Torres. Thank you.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from Texas, Mr. Taylor, is recognized for 5 
minutes. Did we lose Mr. Taylor?
    Okay, hearing nothing from Mr. Taylor, the gentleman from 
Illinois, Mr. Garcia, is now recognized for 5 minutes.
    Mr. Garcia of Illinois. Thank you, Mr. Chairman, and 
Ranking Member Hill, for convening this very important hearing.
    And of course, thank you to all of the witnesses who came 
to shed light on this complicated topic. I know it is easy to 
get abstract when we talk about the impact of global debt, but 
my constituents know we are talking about people's lives too. I 
am from Chicago and when our interest rates go up in Chicago, 
in Cook County, we worry about pension cuts.
    I have a large Puerto Rican community in my district. Their 
loved ones are trying to rebuild the island while needed 
investments are going to bond holders on Wall Street. So if 
countries around the world have to cut their budgets to make 
that payment, whether it is to China or Wall Street, I worry 
that it will be impossible for us to recover from this 
pandemic.
    Mr. Atienza, your testimony painted an alarming picture of 
the global economy during COVID-19, but many of the existing 
debt relief programs are only focused on small or very low-
income countries. Are larger economies like Mexico or Nigeria 
also likely to run into debt issues due to COVID-19, and does 
that jeopardize recovery for all of us?
    Mr. Atienza. Thank you for your question, Representative 
Garcia. Definitely, there are middle-income countries that are 
in debt trouble. I wouldn't mention Mexico in that stance at 
this point, but definitely Nigeria is part of this initiative; 
it is a large economy with deep troubles. And what we are 
seeing is that problems with debt are quite widespread, but we 
are finding or ways are being found of providing new liquidity 
that hides, to some extent, the depth of this crisis and 
postpones it.
    Our take is that we are going to need to set new mechanisms 
to protect countries from the worst in these debt storm--are 
going to need that cancellation. It is a bit of a lost 
opportunity that nothing else was done under DSSI, just 
postponing with the crisis going deeper payments to 2022-2026 
is not good enough, and we need to include mechanisms that 
allow for debt cancellation for middle-income countries that 
are under severe debt stress, and there are plenty of those.
    And definitely protecting and setting provisions to protect 
the citizens in countries in these situations is going to be an 
important step forward. And I want to add that you need civil 
society oversight, and you need the eyes and the testimony of 
ordinary people to speak to the impacts of this debt crisis and 
to the reality that this COVID crisis is not going to get 
better yet, because the uncertainties and the slow path of 
vaccination in developing countries is not allowing for that. 
So, all of our provisions and all of the numbers that we are 
reading are too optimistic, currently. We need to be ready for 
things getting worse and for action coming forward urgently.
    Mr. Garcia of Illinois. Thank you for that.
    Professor Lienau, in your testimony you mentioned the 
importance of a fair, transparent restructuring process. We see 
in Puerto Rico how difficult restructuring can be and how 
important it is to get the process right. Can you talk about 
international efforts underway to create a fair restructuring 
mechanism for sovereign debt, and what Congress can do to 
support them?
    Ms. Lienau. Yes. Thank you for the question. There are 
important mechanisms or processes underway to try to improve 
debt restructuring. I think the current discussion, the move 
toward the Common Framework, including a broader range of 
countries and creditors, is very important. I think that, in 
addition though, we need to take broader steps, because I 
believe that this is just an initial step, and we need to take 
additional steps on both the sort of transparency side and on 
the actual fair restructuring side.
    We need to think more broadly about including not just 
public creditors but also private creditors, as you pointed 
out, because different countries and different entities like 
Puerto Rico are differently exposed to public as opposed to 
private approaches. I think comparability of treatment in the 
Common Framework is one way to try to encourage the 
collaboration and coordination that is so essential, but it is 
not going to be sufficient. Because, as you point out, a very 
small range of countries are covered, and also because it is 
very difficult to encourage private creditors, in addition to 
public creditors, to participate in that.
    We need to think a little bit more broadly both in terms of 
improving contract mechanisms to make sure that they are not 
just within a certain type of contract like bonds, but also 
include a broader range. We need to think about domestic 
legislation including legislation that, I believe, is under 
consideration in New York. And we just think we need to think 
more seriously about international mechanisms, even beyond the 
ones that are under consideration right now. I think it takes a 
multi-track approach.
    Mr. Garcia of Illinois. Thank you so much.
    Mr. Chairman, I yield back.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from Massachusetts, Mr. Auchincloss, is 
recognized for 5 minutes.
    Mr. Auchincloss. Thank you, Chairman Himes, for convening 
this hearing today. I found this really, really edifying.
    I want to focus on China's practices as they relate to the 
Association of Southeast Asian Nations and the effect on 
geostrategy in the South China Sea. After World War II, the 
most important alliances and stabilization for the Pacific were 
the United States' relationships with Japan, with South Korea, 
with implicit security guarantees for Taiwan, our relationship 
with Australia, and now, the Association of Southeast Asian 
Nations. The Asian states are some of the fastest growing 
economies in the world. Their political heft is growing, and 
they have become the next battleground to be won in terms of 
influence in the in the Indo-Pacific. Partly because of the 
United States' failure to join in the trans-Pacific 
partnership, we left a vacuum in Asia, and China has filled 
that with more than $100 billion worth of infrastructure loans 
and investments.
    I will leave this question open for any of our witnesses 
who wish to answer it. Can you explain how China has been using 
cancellation acceleration stabilization contracts to influence 
the foreign policy of the Asian states in regards to its 
aggressive actions in the South China Sea, and what the United 
States might be able to do in working with Asian debtors to 
push back on these aggressive actions in the South China Sea?
    Mr. Morris. Congressman, maybe I will come in on this. I 
guess, I would say two things. One, is just to observe, 
entirely separate from these loan contracts, we do have to 
appreciate the nature of influence that comes with the scale of 
lending that you just described. This volume of financing just 
inherently creates significant leverage when it is between two 
governments, as it is in many of these cases. And as you said, 
while we are looking at China lending globally, there is no 
question that there is a particular concentration in southeast 
Asia and it is inextricably linked with a broader range of 
objectives on the part of the Chinese government that isn't 
strictly commercial or economic.
    With all of that in mind, it is particularly striking then 
to be able to look at these debt contracts and see that on top 
of all that, the Chinese lenders, government-owned lenders, 
have taken that step of making explicit this kind of leverage 
that basically, by writing pretty aggressive, broad terms to 
enable cancel cancellation-acceleration in ways that we can 
read into a lot of different kinds of behavior to be honest, 
speculative on our part because it is hard to observe in 
practice what this looks like. It is not transparent. But it is 
striking that these are written into the contracts.
    Mr. Auchincloss. And, Mr. Morris, are we seeing already 
evidence that the Asian states, as a coordinating body, are not 
particularly muscular yet in the Indo-Pacific affairs? Are we 
seeing evidence that they are being muted in their response to 
Chinese actions in the South China Sea because of the 
investments in the loans they are getting from China?
    Mr. Morris. Maybe I will avoid speaking directly to that, 
but more broadly, I would say that I am actually struck by how 
there is an opportunity here for the United States. The degree 
to which there is political blowback in the region, certainly 
to China's lending behavior. There is a desire to diversify 
sources of financing, and I think, as we heard from the other 
witnesses, that at the citizen level there is discomfort and 
resistance to their own governments as they have taken on these 
commitments that feel like there are strings attached and 
broader implications. So, I think there is an opportunity for 
us.
    Mr. Auchincloss. How can the United States use the 
potential for re-entry into the Trans-Pacific Partnership or 
some updated version of that to provide a counterbalance in 
Asian states?
    Mr. Morris. I do think the trade agenda is an important 
instrument. One thing I would say though is that if you look 
back historically, the U.S. has emphasized trade agreements as 
sort of a leading instrument of our foreign policy. That has 
fallen off a lot in recent years, obviously. What we have not 
emphasized that the Chinese have is financing, direct 
investment lending, equity stakes. And I think we have to 
grapple with that as part of our toolkit.
    Mr. Auchincloss. I yield back, Mr. Chairman.
    Chairman Himes. The gentleman from Massachusetts' time has 
expired.
    The gentleman from California, Mr. Sherman, is recognized 
for 5 minutes
    Mr. Sherman. Thank you, and Mr. Chairman, thank you for 
letting me participate in this subcommittee. I was Chair of the 
Asia Subcommittee back on May 8, 2019, when we had hearings 
focused on very much on the same subject. I want to observe 
that China providing capital to poor countries to help them 
develop is often a good thing. These loans are risky for China, 
and the most important loans, the most important financing in 
the world is when lenders aren't willing to take a risk. But we 
need to be concerned about three areas. One is when the loan is 
unfair, particularly when it is a trap designed, as it may have 
been in Sri Lanka, to make the loan not with the idea that it 
would ever be repaid, but as a way to seize the underlying 
security.
    The second issue that arises is aid, or concessionary 
loans, or financing a foreign policy bribe encouragement, and 
we do that too. We give aid and concessionary loans to 
countries hoping that they will support American foreign 
policy. And if we're going to compete with China around the 
world, I would much rather the competition be who can do the 
most to help poor countries and to compete for their votes at 
the U.N. or diplomatic support than it be a competition as to 
who can build the most aircraft carriers.
    A third issue that arises is the confidentiality. And that 
particularly concerns me because if I gather what our witnesses 
are testifying, China insists that the borrower not disclose 
the debt, which makes it impossible then for the borrower to be 
honest with its citizens and to be honest with other lenders. 
Do I have this right, that countries agree or even companies 
agree not to disclose their debts to China or Chinese entities 
to their citizens or to others they may be seeking credit from?
    Ms. Gelpern. Congressman, the answer is yes, but--
    Mr. Sherman. Isn't that fundamentally illegal? If you then 
go to another lender and you say, here is a list of all of my 
debts, do you then put a little note at the bottom and say, 
except for the ones to China, which I am not disclosing to you? 
And fraud doesn't count. ``I promised China that I would 
defraud the next lender, so the fraud is good fraud because I 
did it at Beijing's request.''
    Ms. Gelpern. Sir--
    Mr. Sherman. But, no, what is the good fraud here?
    Ms. Gelpern. There is no good fraud. I think there is 
broad-based agreement on that. I think the only thing, the only 
qualification to all of this is that we have the agreements 
either because--we have 100 that are 5 percent or however 
much--either because they are legal requirements or because 
somebody leaked. These are all from public sources. What we 
need is an international--
    Mr. Sherman. If I can interrupt for a second, the response 
of America should be, please, if you enter into an unfair 
contract with China, or a contract where you are required to 
conceal it from other debtors, including us, then please don't 
repay. And in order to encourage you not to repay, we will 
instruct all of the lending agencies under our control not to 
count it against your credit.
    Many countries will repay China because they want to 
maintain a good relationship with China. But at some point, the 
debt to China will be so enormous that the opportunity to just 
stiff them completely and not have it count against their 
credit rating anywhere else will be very inviting, or the 
opportunity to use that opportunity to negotiate with China 
will be helpful.
    When we evaluate a country's credit and count defaults to 
China, we are acting, in effect, as China's debt collector 
[inaudible].
    Ms. Gelpern. The trouble is that we don't have that 
leverage. We are not in a position to tell private creditors 
not to call a default or rating agencies to downgrade.
    Mr. Sherman. You don't know the power of our committee. We 
do have control of the agencies.
    I yield back.
    Ms. Gelpern. Well--
    Chairman Himes. Ms. Gelpern, I will give you a few seconds 
to respond, as you were starting a sentence there.
    Mr. Sherman. Thank you.
    Ms. Gelpern. Well, just that the victims are going to be 
the countries. That is my concern. That if we had all of the 
control and all of the money, and if we could replace all of 
the liquidity, I suppose we could consider that. But we are--
Paris Club creditors are 5 percent, including us, of a lot of 
these countries' debt. So, who are we talking to? Who is the 
audience?
    Chairman Himes. Okay. The gentleman's time has expired.
    Thank you, Ms. Gelpern.
    The Chair does not see any more Members seeking time. Going 
once, going--
    Mr. Sherman. If I could seek 30 seconds?
    Chairman Himes. Mr. Sherman, you are recognized for 30 
seconds.
    Mr. Sherman. I just want to respond. What I am suggesting 
would just be an option for a country to use. And if they 
thought it wasn't in their interest, they wouldn't use it. And 
I will yield back.
    Chairman Himes. The gentleman yields back.
    Seeing no additional Members, I would like to extend a 
hearty thanks to all of the witnesses for a fascinating 
conversation and a lot to follow up on today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
With that, I thank our witnesses once again, and this hearing is
adjourned.
[Whereupon, at 11:46 a.m., the hearing was adjourned.]


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