Since 2008, the only “truly” reliable data on sovereign defaults is for sovereign bonds, which are tracked meticulously by rating agencies and the global press. Sovereign defaults on other external creditors (official, banks, suppliers) are likely underestimated, even though they make up the bulk of total external lending to governments. In fact, sovereign bonds accounted for only around 30%-40% of total international sovereign lending by developing countries in the 2010s (Schlegl et al. 2019).

**_Features of China’s debt restructurings_ .** The limited information on restructuring terms available in the case of Chinese lending does not allow for a systematic analysis on the size of debt relief (or “haircuts”), as in Sturzenegger and Zettelmeyer (2007), Cruces and Trebesch (2013), Reinhart and Trebesch (2016), Asonuma et al. (2017) or IMF (2020).<sup>7</sup> But the data show clearly that China’s large state-owned banks very rarely agree to provide deep debt relief to their debtors.

Between 2000 and 2019, the majority of restructuring events associated with debtor debt distress were reschedulings that do not reduce the nominal debt burden but extend the repayment period by increasing the maturity and/or grace periods (45 of the 51 cases prior to the Covid-19 crisis).<sup>8</sup> Interest rates on the loans were unaffected by the restructuring in most cases, with evidence for a reduction of rates in only 10 of 51 cases. Only four cases involved face value debt stock reductions and these are outlier deals that took place in exceptional circumstances.<sup>9</sup> China’s preference for limited cash flow debt treatments has only been reinforced since the outbreak of the Covid-19 crisis. In 2020 and 2021, all 33 Chinese debt restructuring agreements that we can document were reschedulings or payment suspensions with no nominal debt reduction.

Figure 3 compares the Chinese debt restructurings with those involving the Paris Club and private external creditors. The main take away is that China’s approach today most closely resembles that of private and Paris Club lenders during the 1980s and 1990s, when face value relief on debts owed to Western banks and governments was a rare exception. Indeed, the

> 7 To compute the scope of debt relief, the typical approach by researchers, rating agencies, and international financial institutions is to compare the payment burden of the debtor before and after the restructuring in present value terms, with one crucial element being the size of face value debt reduction (e.g. Sturzenegger and Zettelmeyer 2007, Reinhart and Trebesch 2016, IMF 2020). In contrast, some estimates of Chinese “debt relief” simply add total amounts treated, which results in large numbers and ignores the terms of the treatment and, thus, the scope of actual future payment relief (e.g. Acker et al. 2021). The approach of adding amounts is particularly problematic in the context of Chinese distressed restructurings, since these rarely involve a reduction of interest rates or the cancellation of debt outstanding and thus, typically, imply limited present value debt relief.

> 8 As noted, 149 “symbolic” cancelation deals of small Zero-Interest Loans are not included. In two cases there was not enough information available to determine whether the agreement entailed a face value reduction.

> 9 Face value debt forgiveness occurred in Serbia (twice in the early 2000s), in Iraq in 2010 and in Cuba in 2016.

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