Coordinated Credit Spaces: The Globalization of Chinese Development Finance

Abstract

This article examines the emergence of Chinese development finance on the global stage and evaluates the extent to which it differs from, complements and/or competes with the Western‐backed development finance institutions. Whereas the new, China‐backed multilaterals are closer to the Western model, especially the Asian Infrastructure Investment Bank, this analysis finds that China's national development finance is significantly distinct along three parameters — the scale and business model of Chinese finance relative to its Western counterparts, the composition and approach of China's lending portfolio, and the governance of China's development finance institutions. These differences can be seen as complements to the Western‐backed system, given that much of Chinese development finance has flowed into countries and sectors in which Western development finance institutions have ventured to a lesser extent. However, the globalization of Chinese development finance, patterned on the international diffusion of what is coined in this article as the ‘coordinated credit space model’, contrasts with Western development finance, governance and business models, and has triggered a competitive stance from Western actors. Either contestation or convergence are possible trajectories for the future, and the outcome will be determined by whichever can produce conditions akin to the ‘politics of productivity’.

Banking ‘development’: the geopolitical–economy of infrastructure financing

“…China's BRI further deviates from market-based norms and narrow private sector support, reflecting a domestic political economy dominated by SOEs, and a 'Going Global' geopolitical-economic agenda (Zhu, 2018). Chinese state-owned 'policy banks', such as the China Development Bank (CDB) and China EXIM Bank are exporting a 'coordinated credit spaces' model, coordinating with Chinese state-owned commercial banks to reduce credit risks, and lending large amounts to portfolios of strategic projects (Chin & Gallagher, 2019). A backbone of the BRI, such financing enables SOEs to access and secure overseas markets for their goods and technology, as well as secure natural resources (Mohan & Tan-Mullins, 2018).…”

“…A backbone of the BRI, such financing enables SOEs to access and secure overseas markets for their goods and technology, as well as secure natural resources (Mohan & Tan-Mullins, 2018). Besides the use of SOEs, a main difference in China's approach is its lack of policy conditionality typically associated with Western development bank lending (Chin & Gallagher, 2019;Dunford, 2020; though there is still political pressure, see Mohan & Tan Mullins, 2018).…”

Beyond Donation: China’s Policy Banks and the Reshaping of Development Finance

“…Lin and Wang (2017) argue that China is going beyond aid through development cooperation for structural transformation and call for a broadening of the OECD's definition of Official Development Assistancenon-concessional export credits should also be calculated since they too contribute to development. Chin and Gallagher (2019) find that China globalizes its development finance through the overseas diffusion of a coordinated credit space model that blends concessional and non-concessional lending by China's government ministries, policy banks, and commercial banks. This strand of emergent literature highlighting the overlooked duality of China's ODF unveils the internationalization of China's own development-finance model, one that is not only state-led, but also market oriented.…”

China\'s financial statecraft and the internationalization of the Renminbi: what looms over Brazil\'s foreign exchange reserves?

“…Some authors refer to the Chinese credit policy as a form of patient capital (Kaplan, 2016), whereas others see it as yet another instrument of currency statecraft (Cohen, 2017). Moreover, Chin and Gallagher (2019) call attention to the Chinese coordinated credit spaces approach to international finance. In this regard, 59 (Kaplan, 2016).…”

“…In this setting, according to Chin and Gallagher (2019) Arguably, infrastructure alliances pertain to those financial instruments more clearly related to geopolitics in view of its clear "focus on the topographical chessboard" (Wigell et al, 2018, p. 43). This sector becomes even more relevant in the context of hyper-connectivity and interdependence of current globalization, along with massive infrastructure deficits and lack of long-term capital available to the developing world.…”