Book Project

Between State and Market: the Internationalization of China’s Development Finance.


Chen, M.  “Infrastructure Finance, Late Development, and China’s Reshaping of International Credit Governance.” European Journal of International Relations (2021). [OnlineFirst

How is the rise of China affecting international governance? This paper examines the domain of infrastructure finance by focusing on China’s two policy banks, which are the main creditors of China’s overseas infrastructure projects. While the incumbent international credit regimes led by the Organisation for Economic Co-operation and Development (OECD) distinguish development-oriented aid from commercially oriented export credits, emerging late-developed economies blur this dichotomy by largely funding development projects with state-backed export credits. The way China alters the OECD’s credit governance, this paper argues, demonstrates both the generality of late development and the peculiarity of “Chinese” development. Rather than directly subsidizing firms’ international business with the state’s fiscal revenue, policy banks financialized host country’s state-owned and state-coordinated assets using various market instruments. By doing so, they gave Chinese firms a comparative advantage in the markets of less developed regions, allowing them to undertake projects that firms from advanced industrial countries cannot. This financing mechanism has reshaped the international development regime by transforming the dominant means of credit allocation from state-led aid-giving to market-based exchange, and rewritten the liberal rules of the international export credit regime by financing the developing world in a both statist and liberalist manner. As a result, China has built a paralleled regime in regions insufficiently covered by the existing financial schemes of incumbent credit regimes.

Chen, M. “China‐Japan Development Finance Competition and the Revival of Mercantilism.” Development Policy Review (2020). [Early View]

Advanced industrial economies that used to advocate and implement charitable foreign-assistance have started to (re-)adopt mercantilist development finance by using official development-finance credits to support private firms. This seems to be in response to the mercantilist practice of emerging Southern development partners. This paper compares mercantilist practice by Northern and Southern development partners by examining how and why China’s and Japan’s public financial agencies offer state-backed credits to businesses in different ways. The paper finds that while Chinese firms rely largely on public financial agencies to win international contracts, Japanese firms borrow from public financial agencies primarily for overseas invest projects, which may also attract private finance. The comparison implies that although China’s rise has triggered Japan as well as other industrial economies to respond with mercantilist development finance policies that aim to encourage commercially-oriented investors to engage in development cooperation, the relatively looser state-business nexus in industrial economies makes it difficult to incentivize commercial actors to follow state-led strategies and invest in underdeveloped regions.

Chen, M. “Beyond Donation: China’s Policy Banks and the Reshaping of Development Finance.” Studies in Comparative International Development (2020).

This paper seeks to demystify and characterize China’s official development finance by examining lending mechanisms of China’s two policy banks—China Development Bank and Export-Import Bank of China. Using quantitative and qualitative data, the paper shows how and why policy banks implement a peculiar means of development finance, i.e., funding projects in developing countries with relatively high-interest rate loans, differing from low-interest rate development-finance credits from industrial countries. The paper argues that China’s official development finance is not only about practicing economic statecraft or facilitating export-led growth; it is also the internationalization of a development-finance model that has facilitated its own development in the past decades. In this model, the state does not play a direct role in allocating fiscal revenue; rather, it plays an indirect role in enhancing creditworthiness of projects and making them financially viable. The “state-supported, market-based” Chinese credits reshape development finance and offer an alternative option for the developing world.

Chen, M. “State Actors, Market Games: Credit Guarantees and the Funding of China Development Bank.” New Political Economy (2020).

This paper explores the role of the state in development by examining the funding mechanism of China Development Bank (CDB), the world’s largest development bank. In recent decades, CDB has gained its international reputation by lending massively to infrastructure projects inside and outside China. At first glance, this seems a typical story of state-led development, i.e. the state channels preferential capital to selected projects, thereby allowing policy-oriented investments to take place. But in fact, CDB raises most of its funds from the capital market. How can CDB afford loaning mostly to the usually long-term and low-profit public projects if its funding is directed by profit-driven market incentives? What does CDB’s fund-raising mechanism reflect about state-market relations in China and the role of the state in development? The answers, this paper argues, lie in the state’s guarantee for CDB bonds. Receiving credit ratings as high as government bonds, CDB supplements fiscal spending and creates a bond market of which the bank itself is a dominant player. Using quantitative data, historical documents and interviews, and comparing CDB to its counterparts in Japan and Germany, this paper characterises a mutually constitutive state–market relation in development finance.

Li, C & Chen, M. “National Champions, Reforms, and Industrial Policy in China.” The Oxford Handbook of Industrial Policy (2020).

This chapter examines the origin and evolution of China’s national champions industrial policy in the context of economic reforms. It reviews three key analytical perspectives on this issue: 1) the mainstream transition economics view; 2) the state capitalism view; and 3) the late industrialization and developmental state view. It then examines how state industrial policy has shaped the rise of China’s national champions in both the industrial and financial sectors. It shows that the central plank of China’s national champions industrial policy is to restructure the core assets and enterprise units of the socialist command economy into a batch of state-controlled corporations, business groups, and financial institutions viable in a predominantly market-oriented environment. China has chosen to reinvent the core of its ‘old structure’ by innovatively combining the existing bureaucratic institutions and resources with new governance forms and practices learnt from the advanced economies’ capital markets and big businesses. This process has involved continuous organizational learning and capability building at both government and enterprise levels and has led to some unique features of state‒business relations in China.

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