Conditionality and Path Dependence in Chinese Lending

Abstract

China's long insistence on non-interference in sovereign states' domestic affairs has contributed to a widely held impression that China also lends abroad without attaching policy conditions. In this article, we debunk the notion that China's bilateral lending is entirely devoid of conditionality, by showing that it involves elements of political conditionality, embedded conditionality and cross-conditionality, stemming from the varying concerns of Chinese foreign policy-makers and state-linked lenders. We then draw on the path-dependence literature to explore the possibility that there may also be more indirect forms of conditionality associated with Chinese lending practices. By ‘emergent conditionality’, we refer to structural lock-in effects that may cumulatively restrict or redirect recipient countries' policy-making choices similarly as more direct conditionality would do, even if the PRC government officially shuns conditionality.