As the world’s largest bilateral creditor nation, China may be considering strategies and plans for debt reorganization for some of its most important, and most debt stressed, BRI country partners. The world is experiencing the worst sovereign debt crisis in a generation, and China is in a key role to consider various solutions to address this crisis for some of its most important partners.
The authors of this paper have been asked by the Green Finance Committee under the People’s Bank of China’s Research Bureau to write about global experiences and best practice with the innovative form of debt restructuring called debt for nature swaps.
As the report lays out, it is one of various forms of debt restructuring, all with their specific advantages and challenges for both China as the creditor country and the debtor country. Debt for nature swaps in particular can provide debtor countries with relevant levels of debt reorganization and relief, and at the same time provide for new and additional sources of funding for environment, climate or similar benefits in the debtor country.
The report particularly focuses on how debt for nature swaps are applied both conceptually and provides an analysis of the broad international experience in the application of debt for nature swaps by both large and small creditor countries (e.g., Germany, France, US) for debtor countries all around the world.
The report concludes with the following recommendations should China’s banks and government officials consider the application of debt for nature swap as one strategy to deal with the evolving sovereign debt crisis. These recommendations are described in greater detail in Section 9 of this report.
- Consider debt for nature swaps as part of the overall strategy for managing sovereign debt. As China’s banks and key government agencies and officials evaluate and consider options for its most indebted Belt and Road partner countries, China may want to consider use of a debt for nature swap as a valuable tool in the overall debt restructuring toolkit.
- Learn from past experience and new partners. As part of this evaluative process, China’s banks and government officials can establish a dialog or exchange with expert organizations and like-minded governments that have been pioneers in developing debt for nature swaps and other sovereign debt restructuring innovations.
- Pilot the application and scale to other countries. If China chooses to evaluate and carry out a debt for nature swap, China may wish to work with Lao PDR or another close BRI partner country on a pilot debt for nature swap project, as described in section 8.
- Establish a clear legal and governance framework that establishes the ambitions, conditions, and implementation frameworks for debt swaps. China has the luxury of learning from, a literally adopting directly, the policies and practices of the 13 creditor countries that have been utilizing debt for nature swaps since the 1990s.
- Engage potential BRI partner countries early. Some of China’s debtor country partners, in particular those within the BRI and that are also carrying considerable debt, have identified themselves as potential partners with China on a debt for nature swap.
- Tell the story well. By working internationally and utilizing global events such as CBD COP15, China will be able to gain considerable positive public attention and support for the benefits derived from debt for nature swaps.
- Seek public and private investment for broader application. Over time, and based on the success of the first pilot debt for nature swap projects, China may succeed in attracting private finance through market incentives tied to conservation practices funded by debt swap proceeds.
>> Download the full report here
Eric is a retired conservation finance expert with years of proven track record. He is currently consulting projects for The Paulson Institute and other clients on finance-related topics. In particular, he is focusing on a major project in China to help advance development of conservation finance and market-based ecological compensation programs to support China's efforts to protect and restore their natural resources.
Dr. Christoph NEDOPIL WANG is the Founding Director of the Green Finance & Development Center and a Visiting Professor at the Fanhai International School of Finance (FISF) at Fudan University in Shanghai, China. He is also the Director of the Griffith Asia Institute and a Professor at Griffith University.
Christoph is a member of the Belt and Road Initiative Green Coalition (BRIGC) of the Chinese Ministry of Ecology and Environment. He has contributed to policies and provided research/consulting amongst others for the China Council for International Cooperation on Environment and Development (CCICED), the Ministry of Commerce, various private and multilateral finance institutions (e.g. ADB, IFC, as well as multilateral institutions (e.g. UNDP, UNESCAP) and international governments.
Christoph holds a master of engineering from the Technical University Berlin, a master of public administration from Harvard Kennedy School, as well as a PhD in Economics. He has extensive experience in finance, sustainability, innovation, and infrastructure, having worked for the International Finance Corporation (IFC) for almost 10 years and being a Director for the Sino-German Sustainable Transport Project with the German Cooperation Agency GIZ in Beijing.
He has authored books, articles and reports, including UNDP's SDG Finance Taxonomy, IFC's “Navigating through Crises” and “Corporate Governance - Handbook for Board Directors”, and multiple academic papers on capital flows, sustainability and international development.
Mengdi Yue is a visiting researcher at the Green Finance & Development Center and previously was a researcher at the Green BRI Center at IIGF. She holds a Master in International Relations from School of Advanced International Studies (SAIS) and has worked with the American Enterprise Institute (AEI), European Union Chamber of Commerce in China and the China-ASEAN Environmental Cooperation of the Ministry of Ecology and Environment. She is fascinated by green energy finance in China and the Belt and Road Initiative and data analysis.
Rose Niu is Chief Conservation Officer at the Paulson Institute, where she manages the planning and execution of initiatives to protect globally significant biodiversity and ecosystems and to promote sustainable management of natural resources, particularly in China. Before joining the Institute, Niu was Managing Director of China Programs at World Wildlife Fund-US, where she coordinated all China-related work for the organization.
As a Director of the Conservation Program, Li Zhu supports the overall management and communications of the program. In addition, Li leads the Paulson Institute’s work to develop and implement initiatives that support China’s efforts to better manage its environmental performance in its overseas investment and international trade of key commodities.
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