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China ramped up use of loan contract confidentiality clauses after 2014 – report highlights
The China Development Bank.
China’s use of loan contract confidentiality clauses over time.
Kaieteur News – The Center for Global Development (CGD) has highlighted that China’s state-owned lending entities would have ramped up the use of confidentiality clauses in their loan contracts after 2014, showing a greater shift towards secrecy. This was done via a report titled, “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments,” which was compiled through collaboration with other key organisations.
The report, which is the first systematic analysis of China’s lending, assessed 100 loan contracts between China and governments in 24 developing countries within Africa, Asia, Eastern Europe, Latin America and Oceania and compared them to other contracts those very countries inked with other bilateral, multilateral and commercial creditors.
According to the report, during the assessment, it was found that before 2014 confidentiality clauses were used, but not extensively. In fact, it outlined that loan contracts inked between 2005 and 2007 contained no confidentiality clause, but there was little use in 2008, then none again in 2009. Between 2010 and 2013 there was little use of confidentiality clauses once more and none in 2014, but from 2015 all of the contracts contained such clauses. This means that with that widespread use of confidentiality clauses after 2015, there was a pronounced shift towards greater secrecy in China’s lending contracts. “Sovereign debt contracts with Chinese lenders are more likely to include confidentiality clauses than similar contracts with most other creditors. All CDB (China Development Bank) contracts and 43 percent of (the) China Exim Bank (Export-Import) contracts include such clauses,” the report noted.
More specifically, it found that loan contracts between the China Exim Bank and governments contain a confidentiality clause which states that, “The Borrower shall keep all the terms, conditions and the standard of fees hereunder or in connection with this Agreement strictly confidential. Without the prior written consent of the Lender, the Borrower shall not disclose any information hereunder or in connection with this Agreement to any third party unless required by applicable law.” In the report, it was indicated that such a clause is “unusual” since it bars borrowers from revealing the terms or even the existence of the debt.
It was also deemed unusual because when compared to other commercial creditors that use confidentiality clauses, it was found that they “impose confidentiality obligations primarily on the lenders.” To that end, it referenced the Loan Market Association’s confidentiality agreement which says that “Each Finance Party [defined as lenders] agrees to keep all Confidential Information [enumerated items] confidential and not to disclose it to anyone, save to the extent permitted by Clause 36.2 (Disclosure of Confidential Information) [and Clause 36.3 (Disclosure to numbering service providers)], and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information.”
It added that “39 percent of contracts by multilateral creditors, one third of contracts by bilateral creditors and one third of commercial bank contracts include confidentiality undertakings.”
The CGD posited that with the mix of confidentiality, seniority and policy influence in China’s lending contracts, sovereign debtor’s crisis management options can be limited and debt renegotiations can also become complicated. Most importantly, it called attention to the fact that with such heavy confidentiality obligations, citizens in lending and borrowing countries alike cannot hold their governments accountable for secret debts.
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