Chinese Government cancels $6.7 billion of the Government of Iraq’s outstanding debt obligations

After the U.S.-led invasion of Iraq and fall of the Saddam Hussein regime in 2003, the international community, and in particular, the United States, sought to reduce and restructure the Government of Iraq’s outstanding debt obligations to external creditors to facilitate the reconstruction of Iraq.

In November 2004, an agreement was reached under the Paris Club framework that provided for an 80% debt relief in net present value (NPV) terms.

After this agreement was signed, negotiations with non-Paris Club debt holders (including China) began with the aim of obtaining comparable treatment on the rest of the Iraqi Government’s external debts. The Government of Iraq’s outstanding debts to China represented around $8.5 billion.

Then, on May 3, 2007, the United Nations hosted the Iraqi International Compact Conference — in coordination with the World Bank, International Monetary Fund, and regional agencies — to discuss the reconstruction of Iraq.

At the conference, which was held in Sharm El Sheikh, Egypt, Chinese Minister for Foreign Affairs Yang Jiechi announced that the Chinese Government would consider reducing Iraq's outstanding debt obligations; specifically, the Chinese Government was prepared to forgive all the debts owed by the Government of Iraq and would consider Iraq's request for debt reduction and forgiveness according to the arrangement of the Paris Club.

Shortly thereafter, on June 21, 2007, during the President of Iraq Jalal Tabani's state visit to China (the first visit of an Iraqi president to China since the establishment of diplomatic relations in 1958) and in the presence of Chinese President Hu Jintao, the Government of the Republic of Iraq and the Government of the People's Republic of China signed a debt exemption protocol (Chinese agreement name: 《中华人民共和国政府和伊拉克共和国政府关于免除伊拉克政府对中国政府债务的议定书》).

However, according to the International Monetary Fund's 2013 Article IV Consultation report on Iraq and several additional sources, the Chinese Government only reduced the Government Iraq's outstanding debt obligations by 80% (eliminating $6.7 billion out of total claims worth $8.5 billion) in 2010, not 2007.

The Chinese Government respected the comparability of treatment principle by granting the same amount of debt relief (80% in NPV terms) as other Paris Club creditors. The remaining balance was rescheduled on terms broadly comparable to Paris Club terms.

China’s State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and the Ministry of Finance of Iraq signed the agreement to cut 80% of Iraq's debt on April 1, 2010. It required approval from China’s State Council and the National People’s Congress.

The Government of Iraq’s Ministry of Finance later reported that its outstanding debt obligations to China amounted to $1,534,400,000 in 2014.

Chinese Deputy Foreign Minister Shen Guofang reportedly explicitly stated that the Chinese Government forgave the debts incurred during Saddam Hussein's regime for the purpose of gaining access to the bidding processes on oil and infrastructure projects.

In November 2008, China National Petroleum Corporation (CNPC) signed a Developing Service Contract with Iraq’s Ministry of Oil and resumed development on the Al-Ahdab Oilfield, a concession that was originally agreed upon in 1997 but idelayed because of U.N. sanctions on Iraq.

In 2009, CNPC joined with British Petroleum (BP) to win the operating rights to the Rumaila Oilfield, Iraq's largest oilfield and the sixth largest oilfield in the world with reserves of about 17 billion barrels, and is Iraq’s largest oilfield and the sixth largest oilfield in the world. Also in 2009, CNPC’s joint venture with Total and Petronas won the contract for Halfaya Oilfield in southern Iraq.

By 2013, China was jointly operating three fields in the south of Iraq, producing 1.4 million barrels total per day – more than half of Iraq’s output.