Banking on Beijing: The Aims and Impacts of China's Overseas Development Program

A new 400-page book from five leading scholars chronicles China’s transformation—in the space of a generation—from a net recipient to a dominant provider of international development finance.

May 5, 2022
Alex Wooley

A new 400-page book from five leading scholars chronicles China’s transformation—in the space of a generation—from a net recipient to a dominant provider of international development finance. At the end of the 20th century, China’s overseas development program was on par with that of a small, Northern European donor like Denmark. However, during the first two decades of the 21st century, Beijing became the world’s largest official creditor, with annual lending volumes that exceed those of the World Bank, the International Monetary Fund, and all Paris Club creditors combined. Since it launched the Belt and Road Initiative (BRI), Beijing has outspent Washington on a more than 2-to-1 basis, Brussels on a more than 4-to-1 basis, and London on a more than 8-to-1 basis. It has accomplished this extraordinary feat by building a war chest of foreign exchange reserves worth more than $3 trillion and positioning itself as the developing world’s go-to banker for big-ticket infrastructure projects. 

Join us on May 10th from 11:00am - 12:30pm ET for a live-streamed #CGDTalks virtual event and book discussion with AidData's executive director Brad Parks on his new book on China's global development finance program, Banking on Beijing. Register or watch the recorded event here:

Banking on Beijing, published by Cambridge University Press (CUP), synthesizes the results of a ten-year, interdisciplinary research collaboration between scholars in the US, Hong Kong and Germany. It provides a treasure trove of new findings about the aims and impacts of China’s overseas development program. Written by Axel Dreher, Andreas Fuchs, Brad Parks, Austin Strange and Michael Tierney, the book will be published on May 5, 2022. Advance copies are available to the media by contacting Alex Wooley (details below) and CUP. The authors are available to the media upon request.

The book debunks popular myths about China’s overseas development program, including the idea that Beijing uses aid to prop up rogue regimes and debt to ensnare and subordinate unsuspecting governments. Its central conclusion is that Beijing is neither the global development “hero” promoted by its allies and clients nor the “villain” caricatured by its rivals and critics. China’s willingness and ability to implement big-ticket infrastructure projects on an expedited basis has generated major economic benefits for developing countries, but also significant risks, including corruption, conflict, environmental degradation, and debt distress. These risks, according to the authors, need to be carefully managed and mitigated—especially among countries that treat China as their international financier of first resort.

Some key findings from Banking on Beijing:

  • In an average year during the BRI era, China spends about $85 billion on overseas development projects. The US spends less than half of that amount—about $37 billion each year. 
  • But Beijing behaves more like a banker than a benefactor: for every dollar of aid that it provides to low-income and middle-income countries, it provides 9 dollars of debt. The US, by contrast, finances nearly its entire overseas development program with aid. 
  • China uses aid and debt for very different purposes. Beijing uses aid to reward countries that diplomatically recognize it instead of Taiwan, as well as countries that support its foreign policy positions in the UN General Assembly. This is why Chinese aid projects cater to these interests of governing elites—by supporting the construction and rehabilitation of presidential palaces, parliamentary complexes, museums, theaters, and convention centers in major urban centers and by allowing presidents and prime ministers to steer funds to their domestic political supporters.
  • However, when Beijing issues loans or export credits that are priced at or near market rates, it does not give much weight to foreign policy considerations; Chinese state-owned lenders favor “bankable,” revenue-generating  projects—like oil refineries, steel mills, and toll roads—that can turn a profit and facilitate debt repayment.
  • The BRI is often characterized as a grand strategy for building alliances, projecting influence abroad, and reshaping the international balance of power. But the authors find that the BRI is, first and foremost, a strategy for managing structural economic problems inside China. The rapid expansion of Beijing’s dollar-denominated international lending program addresses three domestic challenges—an oversupply of foreign currency, high levels of industrial input overproduction, and the need to secure natural resources that the country lacks in sufficient quantities at home. Consequently, when overseas borrowers agree to buy construction inputs (like steel and cement) that are oversupplied in China and absorb the country’s surplus dollars, they are helping Beijing manage its own economic problems. By accepting loans that are collateralized against future natural resource export receipts, they are also helping fuel China’s continued economic growth.  
  • The authors find that Chinese government-financed development projects have major impacts on economic growth in the countries and subnational localities where they take place. Their statistical analysis reveals that the average Chinese development project increases a host country’s economic growth rate by 0.95 percentage points two years after the funding for the project is approved. These results imply that, if a recipient country with a baseline economic growth rate of 2% chooses to accept three additional Chinese development projects, it can reasonably expect to increase its rate of economic growth to 4.85% (within two years of China agreeing to fund the projects). The authors find that these economic impacts materialize quickly (within 2-5 years) and they are especially strong in Africa. 
  • Another important discovery is that BRI-like projects—involving roads, railways, bridges, and tunnels—substantially reduce economic inequalities within the districts and provinces where they take place. The authors find that the implementation of one additional Chinese government-financed transportation infrastructure project generates a 10 percentage point reduction in the concentration of economic activity within the average district in a low-income or middle-income country. 
  • While Chinese development finance is effective, the authors of Banking on Beijing find that it is not particularly safe: Chinese development projects fuel corruption and political capture, instigate conflict, degrade the natural environment, and create debt sustainability challenges.
  • According to the authors, there is rot in the system that China created to fast-track the approval and implementation of development projects: Beijing asks for project proposals and loan applications from politicians rather than technocrats (usually in the Office of the President or the Prime Minister), which often leads to projects being green-lit that disproportionately benefit the core political supporters of the President or Prime Minister. The average political leader’s home province sees an increase of 52% in funding from Beijing during the years when he/she is in power, but this political capture effect vanishes when the leader leaves power. The authors also document that, in the run up to elections, politically consequential jurisdictions see sharp increases in Chinese government funding. 
  • Another finding from the book is that Chinese debt-financed development projects are especially vulnerable to corruption. No-bid commercial contracts are being issued to Chinese state-owned enterprises (SOEs) that already have a presence on the ground and thus the ability to quickly mobilize as soon as a loan application is approved. Chinese SOEs and the host country politicians who are responsible for submitting loan applications have institutionalized a simple but effective deception: they first inflate the cost of the underlying commercial contract that the loan will finance, and then develop a side agreement to split the “extra profits” (illicit proceeds) from the commercial contract.
  • Banking on Beijing also explains why the BRI has become a lightning rod for controversy. China’s allies and clients lavish praise on Beijing for its willingness to bankroll the “hardware” of economic development—highways, power plants, electricity grids, and telecommunication systems—and address local needs that traditional donors and creditors have neglected. However, China’s critics and rivals claim that its projects have an array of negative side effects. The authors argue that neither side is entirely right—or wrong. Global public opinion about the BRI is divided because of a fundamental tension between safety and efficacy—or risk and reward—that lies at the heart of China’s overseas development program.
  • Given that China will remain a major source of international development finance for the foreseeable future, the authors stress that developing world leaders need to step up their efforts to mitigate the risks of relying upon Beijing as a financier of first resort. 

Beijing has taken far-reaching measures to shield its foreign lending and grant-giving activities from public scrutiny. However, the authors of Banking on Beijing overcame this impediment by collaborating with AidData—a research lab at William & Mary—to assemble the world’s most detailed and comprehensive dataset of Chinese government-financed development projects in low-income and middle-income countries.

The book’s publication comes at a moment when countries that were initially eager to jump on the Belt and Road bandwagon are showing signs of “buyer’s remorse,” with some political leaders suspending or canceling Chinese development projects and distancing themselves from Beijing. In response to rising discontent among BRI participants, the G-7 and the EU have launched infrastructure programs of their own—the Build Back Better World (B3W) initiative and the Global Gateway initiative—to lure countries out of Beijing’s orbit. With BRI now entering its tenth year of implementation, questions are swirling about the costs and benefits of Chinese development projects and Beijing’s true intentions. 

Is China a “rogue donor” that uses its largesse to prop up corrupt regimes and gain access to natural resources? Does Beijing bankroll politically motivated and economically inefficient ‘‘white elephants,” or high-impact projects that help host country economies grow? Who benefits most—and least—from these projects? What are the risks of borrowing from Beijing? Do Chinese development projects fuel corruption, instigate conflict, degrade the natural environment, or saddle countries with unsustainable debts? The existing debate about China’s overseas lending and grant-giving activities is for the most part guided by opinion and conjecture rather than rigorous evidence. With comprehensive data that is global in scope, careful statistical analysis, and in-depth case studies, Banking on Beijing sets the record straight. 

A sample of pre-publication reviews

  • Robert B. Zoellick, the former President of the World Bank, has described the book as “pathbreaking.” 
  • Steve Radelet, the former Chief Economist of USAID, has called it “unquestionably the finest book available on China’s overseas development [program].” 
  • Justin Yifu Lin, the Dean of the Institute of South-South Cooperation and Development at Peking University and Former Chief Economist of the World Bank, says that Banking on Beijing is “a must read for anyone concerned about China's new role in the global development community.” 

Media contact:

Alex Wooley


Alex Wooley is AidData's Director of Partnerships and Communications.