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This chapter provides historical context for China’s evolution into a development banker during the 21st century. The People’s Republic of China has been involved with development finance—as both a recipient and donor of foreign aid and other development flows—since its founding in 1949. This chapter describes earlier efforts by researchers to track Chinese-financed development projects around the world. It then outlines basic shifts in China’s approach to development finance over time, and separates China’s approach to development finance into four stages. During the “Early Years” (1949–1959), revolutionary foreign policy under Mao (1960–1977), and the “Reform Era Recalibration” (1978–1998), important building blocks were set in place that help understand the nature of contemporary Chinese development finance. During the fourth and current phase, beginning with the “Going Out” strategy, China’s government has made the transition from an aid donor to a global development banker. The chapter shows how the benefactor-to-banker shift was a product of China’s long history as a development financier. It also provides an historical framework to help readers disentangle novel features of contemporary Chinese development finance from preexisting motivations, institutions, policies, and practices.
In this chapter we focus on the intended and unintended side effects of Chinese development finance, which we address from two different angles, both at the country level and at subnational scales. In the first part of this chapter, we investigate whether and to what extent Chinese-financed aid and debt affect recipient countries’ propensity for civil conflict and environmental degradation. We then turn to the question of how Chinese-funded projects might affect the quality of governance in recipient countries and regions. China claims to follow a policy of non-interference in the domestic affairs of sovereign governments, which implies that its allocation decisions are made without considering the quality of governance, so that Chinese funds might prop up rogue regimes and delay much-needed governance reforms. The second part of this chapter turns to the popular claim that significant financial support from China impairs the effectiveness of aid from Western donors and lenders. Specifically, we investigate whether the effects of World Bank aid differ in countries or subnational regions that receive large volumes of Chinese support compared to other recipients.
This chapter reviews the first six years of implementation of the Belt and Road Initiative (BRI), a major Chinese foreign policy initiative introduced in 2013. The authors explain how China’s transition from benefactor to banker, in con- junction with its push for expanded influence on the global stage, led to the adoption of the BRI. They then consider whether and why China might choose to ‘multilateralize’ the BRI. The authors conclude that if Beijing wants to multilateralize the BRI, it will need to either comply with—or help redesign— international development finance rules and standards. At the same time, the establishment of an inclusive and revitalized development finance regime does not rest solely on the shoulders of Beijing. If OECD-DAC and multilateral donors and creditors wish to avert a crisis of confidence and relevance, they will need to rewrite international development finance rules and norms in ways that accommodate Beijing’s interests and more effectively account for the preferences of low-income and middle-income countries.
This chapter investigates the motivations of recipient governments who seek out Chinese development projects. We examine how host country leaders shape the ways that Chinese development finance is allocated across subnational jurisdictions. First, we evaluate whether China’s allocation of aid and debt within countries flows to areas with higher levels of socioeconomic need. Second, we explore whether political leaders manipulate incoming financial flows from China to advance their own political interests. We do so by examining whether and when funds from Beijing favor the home provinces of political leaders. Finally, we compare and contrast the ways in which Chinese and World Bank development projects are subnationally distributed. To do so, we assign latitude and longitude coordinates to the specific locations where China implemented its de- velopment projects. Our findings indicate that Chinese development finance does not go to the geographic areas within recipient countries where it is most needed: much of it ends up in wealthier provinces. In addition, Chinese development projects favor politically privileged jurisdictions: the home provinces of political leaders receive substantially more Chinese development finance in countries with competitive elections, and even more at election time. This is a problem from a development perspective because the average home province of a political leader is significantly wealthier than the rest of the country.
This chapter introduces the central argument of the book: that China’s 21st- century transition from a “benefactor” to a “banker” has had far-reaching im- pacts in low-income and middle-income countries that are not yet widely understood. Beijing’s growing use of debt rather than aid to bankroll big-ticket infrastructure projects has created new opportunities for developing countries to achieve rapid socioeconomic gains, but it has also introduced major risks, including corruption, conflict, and environmental degradation. Some countries are more effective than others at managing these risks and rewards. This chapter “zooms in” on two countries—Sri Lanka and Tanzania—to illustrate the tension between efficacy and safety confronted by developing countries banking on Chinese development finance. It also provides a roadmap for the rest of the book.
The dataset introduced in this book includes thousands of Chinese government- financed development projects. This chapter begins to analyze these data at the cross-national level and addresses a basic question: Which types of projects does China finance around the world? We provide a detailed overview of the allocation of Chinese development finance based on key variables such as destination countries, flow types (such as grants, loans, technical assistance, debt forgiveness, or sectors). The dataset enables us to distinguish between Chinese-financed aid and debt, and this distinction reveals that China’s donor-to-banker shift occurred in the 2000s following the implementation of the “Going Out” strategy. More generally, this chapter uses our new dataset to demonstrate the value of separating out aid and debt projects and show how different countries have different experiences receiving Chinese projects. In providing readers with an aerial global view of the “known universe” of China’s international development finance projects since 2000, the chapter also situates China’s development finance in the context of that of other major donors.