China has dropped its long-standing resistance and agreed to forge closer ties with the Paris Club, a group of creditor nations seeking to address debt problems among developing nations.
The move comes as the world’s second-biggest economy seeks to increase its influence to protect its global economic interests.
A communique issued by leaders attending the G20 summit in Hangzhou on Tuesday said they supported the role of the Paris Club as the main international forum for restructuring nations’ debts and for China to play an increasing role in the organisation.
“We welcome China’s continued regular participation in Paris Club meetings and intention to play a more constructive role, including further discussions on potential membership,” the statement said.
The Paris Club was created in 1956 and its members, mainly the richest Western nations, meet every six weeks to discuss debt restructuring or debt relief for developing or poor countries.
China is not a full member of the club and takes part in its activities on an ad hoc basis. China would become the first full member from an emerging economy if it formally joins the group.
China has indicated before that it wanted to increase its influence in the organisation, seen as dominated by wealthy Western nations.
Zhang Tao, a former deputy governor at the People’s Bank of China, said at the beginning of July that China was looking at ways that it might become a member of the club, the Reuters news agency reported.
China has lent to countries struggling to find loans in global markets, such as Russia and Venezuela, in exchange for commodities, energy supplies and strengthened diplomatic influence.
But dramatic falls in commodities prices, slumps in emerging economies such as Venezuela plus growing geopolitical uncertainties means Beijing may have to broaden its strategy, according to analysts.
“China’s increased prominence as an official lender and the commodity price busts have raised the likelihood that some of its official assistance may need to be restructured,” said Tim Condon, an economist at ING.
Louis Kuijs, chief China economist at Oxford Economics, said the Paris Club was keen for China to join.
“It would increase the chance that all creditors to a country see eye-to-eye and reduces the chance that Paris Club debt restructuring initiatives are frustrated by new borrowing from China.
“As China’s lending to many countries has risen, it has a stake in these countries’ solvency and the sustainability of their foreign debt. Thus, China is also recognising the benefits of coordination and cooperation on this front,” said Kuijs.
Suggestions that China might join the club come as it is actively expanding its influence politically and economically around the globe.
Its currency, the yuan, will officially become one of the five currencies in the basket of the Special Drawing Rights, an accounting unit of the International Monetary Fund this October. It will also have a bigger say in the running of the international lender.
Despite its increasing influence, China is far from supplanting the institutions governing the global economy that are dominated by the US and analysts say it is wise for Beijing to get fully involved in their workings.
Full membership of the Paris Club, however, requires high levels of transparency and information disclosure, just as China is starting to get accustomed to being in line with international standards and norms.
“China should not isolate itself. Instead, it should utilise the opportunities, slow economic recovery in the world and a retreat of globalisation, to proactively participate in global issues,” said Lu Zhengwei, chief economist at Industrial Bank.
The Paris Club has addressed US$583 billion of debt since its establishment.
These include the debt crisis in Latin America in the 1980s and the debt restructuring of the former Soviet nations in the 1990s.
Its members include Australia, Britain, Canada, Denmark, France, Germany, Japan, Russia, the US and South Korea.