The New Asian Development Finance

Karin Costa Vazquez,Yu Zheng

doi:10.19088/1968-2021.119

Abstract

The recent challenges posed for multilateralism and the emergence of a sustainable development regime have pushed countries to engage in more flexible, issue-based development finance initiatives and institutions. These changes have profoundly impacted how China conceives and delivers its development finance. How is China’s development finance being shaped by other countries’ experiences? How has China been shaping development finance globally? This article argues that China’s development finance has been increasingly market-oriented, concerned about financial and environmental sustainability, and delivered through hybrid bilateral–multilateral channels, particularly since the launch of the Belt and Road Initiative. Shaped by the changes that China experienced at both international and domestic levels, these new features signal the rise of a ‘new Asian development finance’ that is refocusing the global debate on the importance of combining aid, trade, and investment under financially and environmentally sustainable frameworks, and channelling development finance through multilateral channels to catalyse structural transformation.

Highlights

Over the past two decades, the global economic landscape has been shifting with the rise of emerging economies and developing countries, on the one side, and the relative decline of developed countries’ share in world output, on the other
These changing dynamics in the global economy have had a profound effect on international development as emerging economies become even more important sources of development finance on both bilateral and multilateral fronts
The challenges posed for multilateralism have pushed countries worldwide to prefer more flexible, fluid, and issue-based development finance initiatives and institutions over models of global economic governance that prioritise negotiations within standing, formal

Summary

Introduction

Over the past two decades, the global economic landscape has been shifting with the rise of emerging economies and developing countries, on the one side, and the relative decline of developed countries’ share in world output, on the other. The greater public scrutiny and the international commitments on climate and development, coupled with China’s economic rebalancing and growing awareness of the risks associated with its foreign aid, have motivated the country to emphasise the financial and environmental sustainability of its development finance. This can be seen in the reduction of CDB and Exim Bank loans from US$75bn in 2016 to US$4bn in 2019, signalling a possible rebalancing of China’s overseas development finance over concerns around borrowing countries’ indebtedness and loan sustainability (Gallagher and Ray 2020; Acker and Brautigam 2021). This thinking is similar in the case of the new multilateral development banks as China figures among their top shareholders – an evolution from the role China and other emerging and developing countries have historically played as borrowers from traditional multilateral development banks (MDBs)

Beyond China

Findings

Conclusion