By Lucas Engel and Oyintarelado Moses
The debt challenges among China’s borrowers, as well as China’s shifting approach to lending and investment abroad, are feeding an appetite for data on Chinese financial flows.
However, without a common vocabulary and an understanding of specific terms and concepts, the abundance of data available could be misinterpreted or lead to disparate understanding of China’s objectives and strategies abroad. In order to lay the foundation for a shared understanding of trends and shifts in China’s outward economic engagement, it is imperative that we begin by distinguishing between overseas lending and development finance, aid, currency swaps, and foreign direct investment.
A cohesion of terms and concepts is essential for understanding trends in China’s economic engagement with developing countries. In our work building and maintaining five interactive datasets on China’s overseas economic activities, we are specific about the terms we use in researching and analyzing China’s overseas lending and development finance (OLDF).
Not All of China’s Overseas Lending and Development Finance Is Considered Aid
Within our research group at the Boston University Global Development Policy Center, our research seeks to understand how China’s development finance institutions (DFIs), independent public institutions with policy mandates for supporting development, play a role in contributing to economic growth in the Global South.
To achieve this goal, we research loan data from China’s two main DFIs, the Export-Import Bank of China (CHEXIM) and the China Development Bank (CDB). Overseas development finance (ODF) exclusively refers to loan data from CDB and CHEXIM, while OLDF refers to lending from these two DFIs and other Chinese financiers. Using web scraping and manual data collection methodologies, we track OLDF to foreign governments for the purpose of understanding to what extent this financing leads to development impacts and outcomes.
When comparing and analyzing numbers and trends, a knowledge of what recipients are represented in the data is imperative. Our data restricts recipients to foreign governments so as to ensure alignment and allow comparison with the World Bank International Debt Statistics.
The World Bank asks debtors to report public and publicly guaranteed (PPG) loans, which are loans to sovereign governments, majority state-owned enterprises, and minority state-owned enterprises with a sovereign guarantee. Recipients of Chinese OLDF could also be domestic private companies, joint ventures (JV) with partial foreign government ownership, or wholly Chinese entities owned entities. However, these OLDF loans are not tracked in our datasets because they may not add to countries’ sovereign debt burdens.
One common misconception is that all Chinese OLDF to developing countries constitutes “aid.” When analyzed according to the Organization for Economic Co-operation and Development’s (OECD) most commonly used guidelines, the vast majority of Chinese loans to developing countries do not qualify as aid. Aid may come in the form of subsidized loans or in the form of grants, which do not qualify as loans since they come with no repayment obligation.
The Chinese government describes its own approach to engagement with developing countries as “development cooperation” rather than aid. Where aid is purported to foster a hierarchical relationship between donor and recipient, China claims to pursue equal partnerships in which each partner leverages their strengths in a way that allows both countries to further their own development.
Chinese Currency Swaps and Foreign Direct Investment Are Not Development Finance
Currency swaps and foreign direct investment (FDI) are other forms of Chinese economic engagement, though they should be considered distinct from traditional forms of development finance.
The People’s Bank of China has established several bilateral swap agreements that are meant to provide liquidity to banking systems through central bank currency swaps, which, along with other bilateral swap agreements, can be analyzed in our Global Financial Safety Net Tracker. Chinese companies supply FDI to either inject equity into a new project or acquire an existing asset in the form of greenfield and mergers and acquisitions investment.
This financing does not need to be repaid, nor does it add to the debt burden of recipients. We track Chinese FDI trends in our research on China’s economic engagement with different regions, such as Latin America and the Caribbean.
These forms of Chinese economic engagement are not counted as part of Chinese OLDF because they are not development finance loans and are not intended to serve development goals. Their purpose is to either backstop a short-term liquidity crisis (currency swaps) or develop a project through commercial means (FDI).
Why Collective Understanding of These Concepts Matters
It is only through a common vocabulary and a solid knowledge of the concepts that form the foundation of China’s economic engagement with developing countries that analysts can arrive at findings that can be widely understood and agreed upon. At a time when concerted action and policy coordination among developing countries’ creditors becomes ever more pressing, evidence that can be interpreted more accurately and cohesively can have a real and positive impact on the world’s most vulnerable countries.
Lucas Engel is a Data Analyst for the Global China Initiative at the Boston University Global Development Policy (GDP) Center and Oyintarelado (Tarela) Moses is the Data Analyst and Database Manager for the Global China Initiative at the Boston University Global Development Policy (GDP) Center. Follow her on X: @tarelamoses.