China takes the lead in development finance
China now finances overseas development at nearly the same level as the World Bank, according to new estimates.
With countries currently struggling to combat COVID-19, protect the vulnerable, and mount a green and inclusive recovery, this significant increase in global development funding could potentially bring major benefits to the world economy.
But, like any huge influx of capital into the developing world, China’s financial assistance also poses large risks – especially regarding debt distress, biodiversity loss, and climate change.
A new interactive dataset from Boston University’s Global Development Policy Center tracks the overseas sovereign loan commitments of China’s two global policy banks – China Development Bank and the Export-Import Bank of China. Between 2008 and 2019, China’s global development finance totaled $462 billion, just $5 billion short of the World Bank’s sovereign commitments in the same period.
China’s development finance is highly concentrated in infrastructure – a sector with strong potential for spurring economic growth – as well as extractive sectors. The World Bank estimates that China’s overseas investments could lead to an increase in global real income of up to 2.9% by 2030, with recipient economies experiencing real income gains of up to 3.4%. In contrast, researchers using similar modeling techniques estimated in 2016 that the Trans-Pacific Partnership trade pact would boost growth in its member countries by just 1.1% by 2030, and globally by 0.4%. But the increase in Chinese development finance has raised concerns about possible debt distress in recipient countries. Although this financing spans the world, 60% of it to date has gone to just ten countries: Venezuela, Pakistan, Russia, Brazil, Angola, Ecuador, Argentina, Indonesia, Iran, and Turkmenistan. Several may now struggle with repayment obligations.
Chinese development finance also poses risks to biodiversity and climate stability. The new Boston University dataset locates each Chinese-financed project by its longitude and latitude, allowing users to pinpoint their proximity to sensitive regions from the standpoint of biodiversity. Of the 615 projects mapped there, 124 are in national protected areas and 261 are within critical habitats.
Moreover, in a recent article co-authored with Princeton University scientists, it was found that between 2006 and 2015, public lending by China’s two policy banks financed more additional power-generation capacity globally (59GW) than the ten largest multilateral development banks combined (55GW). Although this Chinese lending helped to increase global energy capacity, 64% of those plants were in the carbon-intensive coal sector and will emit more than 12 gigatons of carbon dioxide over their lifetimes.
