Chinese Domestic Fragmentation and the Evolution of Sovereign Debt Restructuring

• In Event: Evolution of International Regime Complexes: Adaptation and Maladaptation

Abstract

Contemporary innovation in institutional arrangements for sovereign debt restructuring offers an opportunity to test conjectures on the causes and mechanisms of the evolution of international regime complexes. China has emerged as the leading official bilateral creditor to low-income and emerging-market countries over the last two decades. But China cannot be understood as a unitary actor and theoretical perspectives that adopt such a perspective are misleading. Instead, Chinese agencies hold sometimes intensely different positions on the need for debt restructuring in distress cases. Domestic fragmentation among Chinese creditors configures the type of innovation within the regime complex for sovereign debt restructuring that can succeed. Such fragmentation was responsible for China's refusal to join the Paris Club, the G20's creation of the Common Framework as a substitute, and the creation of the Global Sovereign Debt Roundtable, and has thus been a force for institutional layering and complexity. It is a little too early to assess whether these changes improve the depth and timeliness of restructuring or whether outcomes are otherwise more satisfactory. But we can conclude that, in addition to exogenous sources, the evolution of this regime complex exhibits endogenous mechanisms of gradual adaptation.

Author

• C. Randall Henning, American University-SIS