As China’s economic influence expands, so does its ambition to shape the very system that once constrained it.
In this episode of The China-Global South Podcast, Eric speaks with Greg Chin and Kevin Gallagher from Boston University’s Global Development Policy Center about their new book that details China’s transformation from a “rules taker” within the Bretton Woods system to a “rules maker” who’s now reshaping the international development finance architecture.
Greg and Kevin explore the country’s growing role in the IMF and World Bank, its creation of new institutions like the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), and what this means for developing nations navigating between Western and Chinese-led finance.
Chapters:
• Introduction – A brief calm in U.S.–China tensions
• Rule Taker → Rule Maker – China’s rise inside global finance
• Building Alternatives – Creating the AIIB and NDB
• Two-Way Countervailing Power – Leveraging inside–outside influence
• Green Finance and “Next Practices” – Raising the bar on development norms
• Debt and Diplomacy – How China handles restructuring
• Institutional Layering – Shaping without dismantling
• Washington’s Dilemma – Anxiety over losing control
• The Global South’s New Agency – More options, more leverage
• A New Multilateral Moment – Uncertain future for global governance
Show Notes:
- Cambridge University Press: China and the Global Economic Order by Kevin Gallagher and Gregory Chin (FREE DOWNLOAD!)
- The China-Global South Project: China and the Bretton Woods Institutions by Kevin Gallagher and Gregory Chin
- Boston University Global Development Policy Center: Quantifying China’s Rise Within the Bretton Woods System by Yaechan Lee
About Kevin Gallagher and Gregory Chin:
Gregory T. Chin is a Non-Resident Senior Fellow with the Global China Initiative at the Boston University Global Development Policy Center and an Associate Professor of Political Science/Political Economy at York University, Canada. He is also a Senior Fellow of the Foreign Policy Institute at the Johns Hopkins University, School of Advanced International Studies. He is the Mayling Birney Global Scholar at the London School of Economics and Political Science for Autumn 2022-Summer 2023, helping to raise the global profile of the LSE in the study of China and Greater China. He is the Co-Director of the Emerging Global Governance (EGG) Project at Global Policy journal online. He has published widely on the international and comparative political economy of China, Asia, the BRICS and international money and global finance. He is on the advisory board of the journal Review of International Political Economy, and the editorial boards of the journals Global Governance and The Journal of East Asian Studies.
Kevin P. Gallagher is a Professor of Global Development Policy at the Frederick S. Pardee School of Global Studies at Boston University and the Director of the Boston University Global Development Policy Center (GDP Center). The GDP Center’s mission is to advance policy-relevant research for financial stability, human well-being, and the environment on a global scale. He serves as the Lead Expert on Multilateral Development Bank Reform to the Brazilian Presidency of the G20. He is a member of the Task Force on Climate, Development and the International Monetary Fund, a consortium of experts working to advance development-centered climate policy at the IMF with rigorous, empirical research, and a Co-Chair of the Debt Relief for a Green and Inclusive Recovery Project.
Transcript:
ERIC OLANDER: Hello and welcome to another edition of the China Global South podcast, a proud member of the Sinica Podcast Network. I’m Eric Olander. Today, we’re going to look at global governance, but from an economic perspective.
And this is particularly salient in light of what we think is a truce or some kind of detente in the US-China trade war after last week’s meeting between US President Donald Trump and Xi Jinping in South Korea. Again, this is a very volatile time. So we don’t know what happens last week.
We’ll stick this week and next week. But for at least for now, there’s does seem to be a little bit more calm between these two countries. Again, don’t know how long that’s going to last for.
What we do know is that it caps a very interesting past two months of great power diplomacy by the Chinese, particularly when it comes to these issues of global governance, and how China increasingly is asserting itself, what we call a rules maker on the international stage. Let’s go back to early September at the Shanghai Cooperation Organization Summit that took place in Tianjin. And Xi Jinping announced another G.
We have the Global Development Initiative, the Global Security Initiative, the Global Civilization Initiative, the Global AI Initiative, and now the Global Governance Initiative. This then follows, obviously, the high level diplomacy with the United States. This also comes in the run up to the G20 summit that’s going to take place in South Africa as well.
So the Chinese increasingly are playing a much more prominent role in international governance. And that is something that we’ve obviously been following quite closely on the show. But we’ve been looking at it more and more from a political sense.
Today, we’re going to focus on economic governance, and particularly in the context of international development finance. There’s a fascinating new book that’s just come out, China and the Global Economic Order. And this book is, again, it’s wonderful for our audience, because I want to praise the authors who we’re going to speak with shortly.
It’s mercifully short, it’s free. And you don’t hear that very often in the academic press very often. But this is a book that traces how China is evolving from a passive participant in the international economic order to an active architect of a new, more multipolar economic order, and how China has evolved from a rule taker to a rule shaker, and now increasingly to a rule maker in the realms of international development finance and the global economic governance system.
The two authors I’m thrilled to have on the show today. For the first time, Gregory Chin, who’s a senior fellow at Boston University’s Global Development Policy Center, and an associate professor of political science at York University in Canada, and our old friend, Kevin Gallagher, a professor of global development policy at BU, and the director of the Global Development Policy Center. Gentlemen, good morning to both of you.
And thank you for joining us today. Kevin Gallagher
KEVIN GALLAGHER: Happy to be with you.
GREGORY CHIN: Thanks for having us on.
ERIC OLANDER: Congratulations on the new book. It is very important.
Kevin, let’s start with you. We talked about China being a rules taker, which is back in the 1980s and 1990s when China was very poor and didn’t have the influence that it has today. Then there was a rule shaker, and now a rules maker.
Maybe you can walk us through that trajectory that you outlined in the book.
KEVIN GALLAGHER Sure. Well, again, thanks for having us on. It’s great to be here with your audience.
We’ve really traced in this book China’s engagement with what we call the Bretton Woods institutions, the International Monetary Fund and the World Bank and the other parallel US-led development finance institutions. And like you alluded to, in the early stages, we have to remember that the People’s Republic of China was not present at the creation of these institutions in 1944. It wasn’t until the 1980s where they became a member.
And at that point, they were still among one of the most poorest countries in the world and not very integrated with the world system. And they really benefited from engaging with these institutions in a way of what we call a rule taker. It learned about how to develop financial engineering and plumbing and engaging with the US dollar and making that a core part of its global integration.
It learned a lot about different development practices and benefited a lot from loans from the World Bank to help grow the Chinese economy and help stimulate the reforms that had started with Deng. But then over time, they started to get frustrated with some of the policies that came into the institutions that China had a very small voting share. Obviously, the United States has veto power in most of these institutions.
And especially after the Asian financial crisis, they really started to get concerned with certain policies, especially at the International Monetary Fund about deregulating your financial system and opening up to the whims of global finance. And they started to have a pushback voice in the institutions, but it wasn’t so successful because they didn’t have much voting power. So they started to build a whole bunch of institutions outside of the Bretton Woods.
And that’s what we call rulemaking, right? They’ve created the New Development Bank as a very different set of norms and voting structures than the IMF or the World Bank. And there are two banks, the China Development Bank and the Export-Import Bank, as we’ve talked about many times in this show, on their own rival institutions, say, is the Asian Development Bank.
And so that’s allowed both the rulemaking on the outside of the system has allowed them to be a rule shaker inside of the system because they have, even though they don’t have as much voting power, of course, they’re one of the largest economies in the world and the largest trading economy in the world. And by having this alternative or off-ramp through these alternative institutions, it really allows them to meet many of their objectives that say a country that has a similar amount of voting power hasn’t been able to do.
ERIC OLANDER: Greg, let’s pick up on what Kevin was talking about in terms of that transition from being a rule taker to a shaker to a maker. But I want to talk about the shaker part because there’s an old story, apparently, that the Chinese went to the Obama administration and said that they didn’t feel that the current voting shares in the allocation of rights inside the International Monetary Fund met the guidelines for what the fund is supposed to do. So apparently, if you are the second largest economy in the world, well, then you should get the second largest block of votes.
And apparently, as the legend goes, the Obama administration did not go with that. And that’s why Japan today still has the second largest block of votes at the International Monetary Fund. This also precipitated then the Chinese to create the Asian Infrastructure Investment Bank, again, one of these rulemaking bodies that Kevin alluded to.
How much of that is true, according to your understanding of it, in terms of what motivated the Chinese to say, OK, we’re going to go from being a rule taker to a rules maker?
GREGORY CHIN: Yes, building on what Kevin said about rule shaking and rule making, I think part of this is understanding how the Chinese have been quite frustrated and over the last few decades, and increasingly so with the relative voice within these institutions, the IMF and the World Bank. And the Obama story that you mentioned is part of that story, where they were rebuffed to some degree as far as increasing their voice further in the World Bank. But it’s also part of the story is how China feels about the Asian Development Bank, where China also has been frustrated with the fact that the Japanese don’t want to really give up some of their voice in a redistribution.
And part of this has to do with a gentleman’s agreement between Washington and Tokyo back to the 1990s, when Japan wanted more voice in the World Bank. And basically, Washington and Tokyo had a gentleman’s agreement where the US would be the number one in the World Bank, and Japan would be number two in the World Bank. But in the Asian Development Bank, though they hold equal shares, US and Japan, that Japan would have more voice within the Asian Development Bank or more influence.
And so where does that leave China, you know, as China’s grown in the last three decades? And so that’s where the Chinese then say, well, if we can’t get more voice in these legacy MDBs, then there’s a need to go outside and also create our own institutions. Now, those institutions, to some degree, reflect and share many of the norms of the legacy MDBs, but they’ve also been sites for the creation of some new norms, new rules, new ways of doing things.
And after creating those institutions, China then is able to go back into the World Bank and the Asian Development Bank and the IMF and be able to exert influence back inside. So outside and inside. And Kevin and I then build up this concept of two-way countervailing power.
And I think that’s something that we add that’s a little new to the knowledge about China in the global order.
ERIC OLANDER: Okay, so let’s dive into that two-way countervailing power, Kevin. What is it?
KEVIN GALLAGHER Well, it’s the ability to punch above your technical voting weight in these institutions, because you’ve built outside of the system, a set of rulemaking institutions that allow you to have an off-ramp, allow other countries to have other choices besides just the legacy institutions run by the United States. And that allows power in one way to give China more power in the institutions, even though they don’t technically have the voting voice going in. Greg, how about you share power in the other direction?
Yeah.
GREGORY CHIN: And then also from the inside out, I think the idea mainly there is that China is able to, when it doesn’t agree with some of the way things are being done, then China is able to go outside. And one example would be China has wanted to look for ways to demonstrate within the multilateral scenario, it’s able to advance new norms, new principles, new rules. And I think we can see, for example, in the area of the environment, environmental protection, climate change, where China has talked about wanting these institutions, the new ones, the AIIB, for example, to not only operate according to so-called best practices or the established best practices of the World Bank or the Asian Development Bank, but actually advance so-called next practices.
In other words, elevating further the commitments to meeting, for example, the Paris climate change agreement. So there’s a feeling that, for example, especially in the area of green finance, that maybe the legacy MDBs aren’t doing enough and that the AIIB and the NDB China has pushed along with the Europeans for these new institutions to actually try to elevate commitments to leading the Paris climate change agreement. Because they, China sees, and these two banks, the AIIB and the NDB, they see themselves as babies of the Paris climate change agreement.
These are two multilateral institutions that were created after the Paris climate change agreement. And so they’re very self-consciously aware that they need to step up and actually help fulfill that agenda. And especially you can imagine at a time when the predominant power of the world traditionally seems to be less interested in climate change, then there would be reason why China would then go outside to leverage influence outside.
And then, of course, eventually come back inside. And I think Kevin and I have shown in areas such as infrastructure and in green finance, how China’s activity pushing of these new multilateral institutions to take on these new rules and new ways of doing things, how this thing can then also come back in. So outside, inside.
ERIC OLANDER: Greg, I think your Canadian modesty is showing through when you say that the US seems to be uninterested. I think President Trump has been pretty clear that it’s what the greatest sham ever committed on the world.
So they’re definitely not interested in climate change issues. That’s for sure. But let’s talk a little bit, Kevin, about how China has been trying to change some of the norms, but not always successful.
You’ll recall back in maybe the 2022, 2023, during the debt restructuring processes in Zambia and elsewhere, where China was trying to force the MDBs to also take losses or haircuts or debt forgiveness on their loans. And we were in a year-long standoff that presented a potentially existential threat in some ways to the mission of the IMF and the World Bank as the lenders of last resort. China rejected the idea that they should be called on to take haircuts on their loans, while the World Bank and the IMF, they were not ultimately successful in that.
But that, is that an example of how they’re trying to change the established norms? Again, sometimes they’re successful, sometimes they’re not, but yet we’re seeing them try. Is that a good example?
Or am I misreading that in terms of your framework?
KEVIN GALLAGHER To a certain extent, that’s actually a case where they haven’t been able to meet their objectives. But we would say, I think, to quote Ann Krueger, that the biggest gap in the global economic governance system is the fact that we don’t have a rules-based sovereign debt restructuring workout system. It’s very ad hoc and the G20, as you know, a few years ago, tried to sort of formalize the ad hocness of it.
But China has been correct to point out that for the majority of the countries that are in debt distress, their number one creditor is multilateral development finance institutions. And China didn’t see it as fair that they take a haircut, but the multilateral development institutions not do it. And that, as you said, that was a real sticking point there, but they weren’t able to change those rules.
The other thing that they were concerned about, however, was that the private bondholders were able to get a lot more out of the restructuring. They were able to get more financing relative to some of the others, and that changed with Zambia and then later with Ghana. So China has been able to get some of its gains in the sovereign debt space, but nowhere near as much as they’ve shot for, because there are no rules in that one.
It really is run by the Paris Club and this sovereign debt round table, but it’s very ad hoc and China hasn’t felt like it’s been listened to. But thinking about the outside on this, so what has China done? China’s provide more debt relief than anyone over the past decade or so, but on a bilateral level, which unfortunately isn’t so optimal because the countries don’t take the extra financing that they get from debt relief and debt refinancing from China and put it back into education or health.
Unfortunately, they have to turn that money and pay back the IMF or pay back Standard and Charter and PIMCO and things. And so they’ve been doing some of this bilaterally and in other work, we’ve been encouraging them to do more, but this really speaks to one of the biggest flaws in the system is that we don’t have a rules-based system for that. And China has been really, really frustrated and hasn’t been able to get its objectives there.
And it’s the paralysis of that is really putting a downward turn on certain parts of the global economy. We actually say at the end of the book that this is almost like an epitome of a concern. So while we are concerned, we don’t think that the global economic governance regime has been working so well because of its hegemonic nature and its lack of ability to respond to many of the world’s global challenges.
And it’s facing a bit of a legitimacy crisis because countries that are growing and have more say in the real world don’t really have much say in these institutions. And so in the short term, it might not be so bad to have a plurality of institutions providing the same kinds of services, but when it comes to a crisis, plurality could create fragmentation. And that’s really where we’re at with the sovereign debt because there’s lots of different creditors now.
There’s no real established rules. And so it creates this fragmentation and it really is making a lot of countries worse off. And so that’s our puzzle at the end here is that while China is almost paving the way to allow a more multilateral, multipolar set of voices in different kinds of institutions, that’s good when things are going pretty well.
Countries have more choice for development finance now. It’s not only the World Bank, which is only going to fund certain kinds of things now. Now there’s other options.
And so that’s great when the money’s coming in. But if things get tricky, what’s been shown here, the more countries at the table without real rules, the more fragmented and the more countries like Zambia are worse off.
ERIC OLANDER: And there’s been a lot of news lately on the debt restructuring front. Kenya just converted a big portion of its outstanding debt, about $3.5 billion from dollars to yuan. And also there’s big talks underway between Indonesia and China to restructure their $7.3 billion of railway debt. By the way, just for people who don’t follow our Africa program, we did a fantastic interview last week with Yufan Huang, also from Johns Hopkins SAIS, who is really one of the leading experts on Chinese debt restructuring. And so if you want to learn more about some of the things that Kevin was alluding to, I recommend everybody to check out that episode with Yufan that came out last week. Greg, let’s kind of bring this into the Great Power Competition.
We all spend a lot of time in Washington every year, as little as we possibly can, because it’s not always good for our mental health, but we do go there. And when I’m there, I’m talking to folks. There’s a lot of anxiety about China displacing the United States.
In fact, a very senior think tanker told me, he said, listen, here’s the bottom line, Eric. China wants to be number one, and we don’t want them to be number one. They want to displace the United States as the global economic power.
And that’s the feeling in a lot of corners of official Washington. You guys in the book say that, well, China’s more focused on what you call institutional layering rather than replacement. How do these discussion about rule makers fit with people in Washington who are very anxious about losing their ability to set the rules for everybody?
Help us understand how that all fits together, or if it does.
GREGORY CHIN: That’s a great question, Eric. And I think what Kevin and I would suggest, Kevin, correct me if I’m misinterpreting, is that we feel it’s important to understand that when you study China’s behavior in relation to the global order, you really have to look at how China acts. There’s variation vis-a-vis the Bretton Woods institutions.
So in the global economic order, I think we can see that China is wanting to create a set of institutions outside of the existing Bretton Woods institutions, and yet it still wants to maintain one foot in the Bretton Woods institutions. And it wants to have this two-way hybrid option of inside outside. That’s how it sees how its interests, national economic interests, can be protected and advanced.
It’s not clear that it necessarily wants to just do away with the Bretton Woods institutions, which is where the United States still is the paramount power within. The US has the largest voting share. It’s up to the United States to decide, aka the Donald Trump administration, whether it still wants to be the number one and a leader inside the Bretton Woods institutions.
I understand that’s up for review right now. But if you look in the area of global security, for example, so China and the global security order, there, I’m not like, I think there, China, does it want to supplant the US? I don’t think China’s looking to have a confrontation with the US over global security, right?
The Chinese Communist Party sees itself as having been an ally with the United States during World War II. And I think it doesn’t see itself as wanting to necessarily replace the United States as the dominant world power. There’s all kinds of responsibilities that go along with it.
However, if the United States and its Western allies provoke on the Taiwan issue, for example, then China sees that it has to step up to protect how the party state sees its national interests, which is a unified China. That includes Taiwan. So in that regard, if you push China on that, then China’s going to have to respond on that, is how I think Beijing would see it.
But it’s not clear that it wants to necessarily replace the United States and all the global public security goods that go along with that as the leading global policeman of the world, right? So I think this is where, from Washington’s vantage, often there’s a, you know, there’s a China threat perception that China wants to replace the US one for one. But we say, you know what, I think it’s important to examine China’s differing national interests in these differing areas of China and global governance.
You have to open them up and then go inside.
ERIC OLANDER: Yeah, Kevin, you spend a lot of time in Washington. I can imagine your book is a little bit disconcerting to some folks there. What do you think the reaction is to this, where there is anxiety about China displacing the US?
KEVIN GALLAGHER Well, Greg and I just had an opportunity on the sidelines of the annual meetings of the IMF and World Bank to give two talks on the book, and it definitely provoked a lot of discussion.
ERIC OLANDER: What did people say? I’d be interested to hear some of the reactions.
KEVIN GALLAGHER Yeah, well, two things. One of them is perhaps surprising agreement. There was a consensus until recently that China was just a rule taker, actually.
People were writing books called Playing Our Game, that China was really just being part of the system, and it’s better for them to be part of the system because it helps China and helps the US with its objectives. But we really show empirically in the book that that’s changed with the whole setup of all these things on the outside and concrete things that they’ve proposed and have become outcomes that the US would never have proposed and didn’t necessarily like the outcome, such as the IMF’s change on capital account liberalization and the use of capital controls, just as one example, or the World Bank’s push to infrastructure we see as having a big, really resulting in China laying so much infrastructure around the rest of the world and the bank feeling like it needed to go there.
So there was some agreement that there’s really a change here and that China is meeting some of its objectives. But I think, especially in Washington, there is a consensus in Washington, in those institutions, that these institutions are working fairly well and that these proposals that China has are worse than just shaking, that they might make the institutions not so strong. And they are somewhat antagonistic to some of the policies that the US has been pushing in the two institutions.
And we don’t necessarily see that as a bad thing, that many of the policies that China has been pushing and being relatively more successful at are actually what many finance ministries and central banks across the entire global south have been concerned about, and that China’s just been more successful about it. And that we think until it really hits the fan when you have big crises and you need lots of global coordination and then multi-polarity and sort of a fragmented world could be a problem. But in these more incremental things like less conditionality, less austerity, more infrastructure, more flexibility in program, capital account liberalization, these have improved these institutions.
These are reforms that experts and countries in the global south have been pushing for. But in DC, there’s a debate on A, the extent to which many of those policies are better or not. But B, by definition, these are policies that the United States treasury has often not been interested in reforming and they’ve had to reform.
And so they do see this as an erosion of the US’s ability to push its view on economic stability and development finance across the world. So that’s where there’s some disagreement on sort of the interpretation of the extent to on the normative level, which we don’t really get into the normative components of it in the book. But you can’t just talk about tables and graphs when you’re giving talks in Washington.
And so they pushed us to say, what’s going on here? I think there’s real agreement that things have changed. China is no longer a taker.
And I think we’ve really established that. But is it going to make the institutions better or worse? That’s up for debate in Washington, especially the folks with US passports pushed back in the other direction.
ERIC OLANDER: No doubt. Greg, Kevin brought up the issue of the global south and how the frustrations with the Bretton Woods institutions don’t just extend to China, but there’s a lot of frustrations about how the IMF has dealt with structural adjustments and some of the austerity programs that it continues to push on developing countries while at the same time in US, Europe, Japan, whenever they run into problems, they bring out fancy words like quantitative easing and just print more money and inflation goes up. But it’s OK for some to do that, but not for others to do And so I want to bring up the question of the global south in particular. And I was in Congo back in 2006, when the deal of the century started to kind of get word that this was this $9 billion infrastructure for resources deal that eventually came down to about $6 billion.
But there was this kind of blood draining from the heads of world bank officials that all of a sudden China was on the scene throwing around cash in sums much larger than what traditional donors were putting out, certainly the Paris Club and World Bank and IMF. And so, Greg, what we saw from 2006 and certainly with the run up of the Belt and Road is a transformation of the traditional donor recipient relationship. And this is something you talk about in the book.
Now, in hindsight, now we’ve seen the debt restructurings, we’ve seen the debt crisis that came out of COVID and whatnot. Some people may argue that the surge of lending from the Chinese may not have been the best thing, but at the same time, we cannot argue with the fact that it has changed the donor recipient relationship. Talk to us a little bit about the impact on the global south.
GREGORY CHIN: Yeah, that’s an excellent point, Eric. I think a lot has changed. I think if you do interviews with government leaders across the global south, and you ask them, are you better off or worse off having China as an additional potential lender to you?
I think most of those governments are going to say, and I’ve heard this, that it’s good to have China as an option in addition to the Bretton Woods institutions and other MDBs and the private capital markets, especially. So I think this is where, from the vantage of the leaders in the global south countries, the more the better. Then it’s up to them to try to figure out how to maximize their leverage and opportunity and minimize the risk within that scenario.
I think one of the things that they especially appreciate about China as a lender, and Kevin has looked at this as well, is, for example, in the discussions with China Export-Import Bank, Chexim Bank, it’s the different approach that the Chinese take, where Li Roku, the former president of Chexim Bank, when he was challenged by OECD DAC heads about China potentially starting a new cycle of debt in Africa right after the G7 had done debt write-off, Li Roku raised a number of interesting points about China and comparing it to the traditional lenders. And one of the most important differences that he offered up was that when China approaches the African countries, they do so with a clear awareness of opportunities and risks, but as a business partnership, not as that China’s coming to save Africa, and that within that business partnership, they have to work very carefully with the African countries to figure out what are the potential shared opportunities, but also the shared risks and how to manage those risks. And so they say that that’s quite different than how the other lenders have approached Africa. The other thing that they say is that they say, we don’t just lend the money and walk away and then come back when the loan is due and say, pay us.
They say with China, they actually try to work with their quote, unquote, African brothers and sisters to try to actually implement the employment creation, job creation, industrialization projects, where there’s new export opportunities for the African countries and actually work together with them rather than just lend the money and walk away. And that’s where Kevin and I, in our other research on China’s kind of coordinated capital approach, you know, where you have some links between finance and industrial policy and income generation and these kinds of group initiatives with China and African countries, how this then bears, can bear fruit for those African countries. It doesn’t always work.
And sometimes there are issues that emerge, but this idea of shared opportunity, shared risk, I think this is something that the Chinese would say differs from how, let’s say some of the traditional Western lenders, private and public have approached Africa.
ERIC OLANDER: Kevin, can I get you to quickly weigh in on how the traditional donor recipient relationship has changed in this era of greater Chinese influence?
KEVIN GALLAGHER Well, countries get more choice. And what we outline in the book is that those countries that get financing from China tend to get better terms from the multilaterals, the Western back multilateral, less conditionality, more infrastructure finance, and some better pricing in some areas. And so it’s given countries in the global South some more agency.
But as I alluded to earlier, when things get much more difficult, it’s led to some real fragmentation. China is only 8% of Africa’s foreign debt, whereas the World Bank and the multilaterals is 44% and the private sector is 39%. And so these ideas about creating that China’s played the key role in creating all the debt distress in Africa couldn’t be further from the truth.
And it gives you a picture of why China doesn’t feel like it’s got the right seat at the table when it comes to debt restructuring. Because whenever you read an article, except for in your paper, everyone says, well, China’s the largest bilateral debtor in the region, which is true, but bilateral is relatively small, right? Multilaterals 44% and the private sector is 39%.
But countries like this, and we’ve also done some research and we outlined this in the book, that when it comes to economic growth, Chinese finance in Africa has spurred economic growth and also created what we call regional spillovers. You had our colleague Yan Wang on about her paper on that. And these papers that we cite, there’s four or five from aid data, from Axel Dreher in Germany, and from the Chinese Academy of Social Sciences.
They’re all finding that A, Chinese finance in Africa is correlated with economic growth, but World Bank is not. All these studies find that. So countries like this alternative and it’s helping from the outside in enhance the kinds of deals and hopefully eventually the performance of the Western-backed institutions in the region.
ERIC OLANDER: Yeah. I’d like to close our discussion with a reflection on the current moment that we’re in. Obviously, these are unprecedented times with the transformation of the US role in international order.
But in the book, you talk about this transitional period that we’re in. And this is where the Bretton Woods institutions are diminished in power, certainly still very influential. We cannot write them off entirely, but they are less influential than they were at a time when China was not as powerful as it is today.
But at the same time, the Chinese development finance system is still changing. I mean, just in Belt and Road, we’ve gone from Belt and Road to small but beautiful, small yet beautiful. Yet at the same time, Christoph Nettepoel, you know, he had his Belt and Road report for 2025 for the first half and showed that it’s surging up.
Lots of conflicting signals now as we go into this pluralistic order that is uncertain and the rules aren’t written. Help us understand the moment that we’re in this period of transition as a final thought for us. Greg, I’ll go with you, and Kevin, you’ll then get the last word.
GREGORY CHIN: Yeah, I’ll try to be very precise. We’re in this very, the situation of a much more negotiated order, a situation of flux. The overused metaphor of the old is dying and the new is yet to be born.
But we do see the emergence of these new arrangements. Kevin’s, the GDP Center’s been doing really interesting work on tracking BRI lending, for example, and just outward Chinese finance. I’ll defer to Kevin on that.
But I think we are in a very interesting situation. And I think China, I’ll maybe say just one thing. I think China’s at a very interesting moment.
It is really stepping up on the global leadership front. And I think it’s going to be interesting to see how China leverages its public sources of financing and investment outwards, but also its companies, the Chinese state companies and the Chinese national champions that might be so-called private. I think we’re going to see a lot happening and it’ll be really important to track it.
And this also includes BRI. BRI is written into the constitution of the party. It’s not going away.
It’s just evolving. And so I think moving forward, really important to track. Over to Kevin.
KEVIN GALLAGHER One question that we raise is the extent to which perhaps China may be hitting its limits in its success inside the Western-backed institutions. Because it’s been so successful, that’s led to a lot of the backlash. So the U.S. just decided, hey, we’re going to stay in. And and to quote Scott percent in his speech just two weeks ago, and now we’re in it to win it. And what he means there is we’re going to reassert ourselves in these institutions. We don’t think that certain countries, i.e. China and certain issues, i.e. climate change and gender should be so core to these institutions. And the U.S. is going to go back into sort of the kind of bullying roles that it had in the 1980s and the 1990s in there, but perhaps on steroids. And so what this framework that we put together on two-way countervailing power would suggest that if the U.S. is going to try to more neutralize China in these institutions or perhaps even try to push them out on some level, we did hear in the same speech that the U.S. wants China to quote unquote graduate from the World Bank, meaning no longer being a borrower. So what our framework would suggest is that we should start looking at some of these things on the outside to see if now that they have all of these rulemaking institutions outside of the system, are we going to see more investment there?
And Eric, at the very beginning of the podcast, you talked about the Shanghai Cooperation Summit a few weeks ago. And one of the things that they also announced there is a new development bank just for that group. And so will we be seeing more from that?
I think China will feel like it has made some smart investments to have some of these alternatives that provide some of the same services if it gets shut out or more neutralized. But we really are at a crossroads and it’s a real, the United States is in a pinch here because if it reasserts itself and tries to stem voice and representation by countries that deserve more voice and representation according to the rules that the United States wrote into these institutions, it threatens the legitimacy of the institutions. And that would be a real shame.
We need these institutions. These institutions provide global public goods, but it’s not 1944 anymore. We live in a multipolar world and what many people call a polycrisis where we need to be dealing with multiple issues.
Yes, climate change. Yes, gender inequality. These things are systemic things that if we don’t deal with them, they provide public goods.
So one, if the US is going to be in it to win, it can’t win if you’re not addressing the problems of the day and you can’t have legitimacy if you’re calling all the shots, but you’re a shrinking part of the world economy and you’re not committed to multilateralism. So we are in a crisis here. And what we hope is that in the short term, perhaps the flourishing of some of these outside institutions will create enough pressure on the legacy ones for them to eventually reboot a new multilateralism for the 21st century.
ERIC OLANDER: And of course, the irony is that if the US alienates these global South countries, it could potentially push them even deeper into China’s new governance architecture with the AIIB, the NDB, the BRICS, the SCO, and all of that. So very interesting to watch. The book is China and the Global Economic Order.
It’s a very important book at this moment in time. Again, it’s free and it’s short. Two things you don’t hear from scholars very often, free and short.
So we will put a link to it in the show notes, cannot recommend it enough that you read it and check it out. Some of the ideas are extremely timely. Gregory Chin and Kevin Gallagher, both from the Global Development Policy Center at Boston University, are the authors.
We want to thank you both for taking the time to join us today. Thanks for having us on. Thank you.
We want to thank everybody for joining us. We’ll be back again next week with another episode of the China Global South podcast. If you’d like to follow all the great work that CGSP is doing in Asia, Africa, and now Latin America in Spanish, our editor Maria from Lima, Peru, chinalasamericas.com.
You can see the link to it in the show notes, doing daily news on what China’s doing in Latin and South America and Central America. So for all of our Spanish speakers, you have a brand new service, one of its kind, and we’ve got some exciting new newsletters and podcasts and videos coming in Spanish as well. And we’re going to be showcasing a lot of the work that the Global Development Policy Center does specifically on South America to this audience in Spanish.
Very exciting. So that’ll do it. We’ll be back again next week with another episode.
Until then, I’m Eric Olander. Thank you so much for listening.
