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Welcome to the January issue of our China and global development round-up. In this issue we cover recent news and changes in China’s aid landscape, a decline in external lending and our China economic pulse report.
China’s international development landscape
This month, the Chinese government issued a new white paper on ‘China's International Development Cooperation in the New Era’. The white paper highlights an important change in China’s development landscape. As Marina Rudyak noted, it marks an explicit shift from ‘foreign aid’ to ‘international development’, a notion already present in the name of the China International Development Cooperation Agency (CIDCA).
My ODI colleagues and I wrote a blog on the notable features of the white paper. Yunnan Chen discusses how the white paper signals a shift towards multilateralism, while Barnaby Willits-King talks about the emphasis of the paper on the humanitarian sector. I highlight how the Belt and Road Initiative (BRI) forms a key feature of the document, becoming inextricably tied to international development.
Beyond this, most articles and commentaries I have read on this topic are quite descriptive, and I look forward to seeing more analytical pieces.
The JICA Ogata Research Institute published updated figures in December on China’s foreign aid between 2001 and 2020. They estimate that China’s foreign aid has increased from $5.1 billion in 2015 to $5.9 billion in 2019, or 0.044% for China’s nominal gross national income (GNI). This is divided into bilateral grants and interest-free loans (48%), Chinese government concessional loans (21%), and contributions to international organisations (30%).
Chinese outward lending and the BRI
In December there was a lively debate on China’s external lending triggered by the Boston University Global Development Policy Centre’s new database on China’s overseas development finance. The database tracks the 2008-2019 lending commitments of China’s two major policy banks, the China Development Bank and the Export-Import Bank of China. It also provides geospatial locations for some of the projects. One of the most striking findings of the data is that the two policy banks’ lending commitments have been quite intermittent. In particular, after peaking in 2016, they declined dramatically in 2018 and 2019. This prompted an intense debate (again) on whether ‘the BRI is dead’.
The Rhodium Group published a piece discussing this downward trend in lending commitments. First, they point out that the Boston University dataset only includes loans from two policy banks and therefore does not represent the entirety of the BRI lending. Second, the rigorous methodology employed may exclude some of the most recent lending commitments, for which data is not yet available. Regardless, the dataset shows a declining tendency that has been captured by other data sources as well. This is probably due to a combination of factors, including China’s large banks lending more carefully, and many recipient countries becoming more prudent borrowers.
Yan Wang also discussed this issue in an interview with the China-Africa Project, making a clear link between China’s domestic economic conditions and the country’s external lending. She notes that in 2016, China had accumulated massive foreign exchange reserves, which boosted outward investment and lending. In 2017, the excessive leveraging and exposure of the Chinese economy, together with stricter financial regulations, led to a reversal in this trend.
Finally, in a recent editorial, Lauren Johnston raises some great points on why judging the success of the BRI based only on lending levels is misleading. First, she says, the BRI is not just about infrastructure finance – this is just one of the five pillars of the initiative. Second, the financial aspects of the BRI are not confined to sovereign lending, but include lending to other financial institutions, enterprises and so on. And third, even small loans, if well targeted, may have big, transformative impact.
Looking at global China: the ODI economic pulse
Covid-19 has caused a lot of uncertainty about international economic linkages such as trade and investment. With China being one of the few countries projected to grow in 2020, we at ODI want to understand how this will affect low- and middle-income countries dealing with China. For this purpose, we are producing an economic pulse report, tracking China’s outward economic activities (investment, infrastructure construction, lending and so on) and its impact on developing regions. The first report is already online, and more will follow in the coming weeks. Stay tuned!
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