Ideas to Action:
Independent research for global prosperity
This January, China’s State Council, the country’s chief administrative authority, released a long-awaited update to its White Paper on development. The landmark document marks the culmination of a series of reforms on China’s approach to aid in the last decade, and follows on from two White Papers on foreign aid.
President-elect Biden has stated his intention to rebuild values-based alliances and reassert the United States’ role in promoting democracy abroad. Limiting the spread of the digital authoritarianism model that China has pioneered at home and abroad will be key to this effort. To succeed, the US must rally like-minded liberal democracies around a set of principles for the digital age that promote shared prosperity and personal freedom. Failure to do so will allow countries like China and Russia to exert greater influence on the digital governance rules that other countries choose to follow.
To understand the impact of the lockdown on China’s SMEs and the extent of their recovery, the Enterprise Survey for Innovation and Entrepreneurship in China project team conducted two rounds of telephone interviews in February and May 2020. The survey probed SMEs’ work resumption and production situation, the main difficulties they faced, their efforts to adapt, demands for appropriate assistance policies, and the reach of lockdown-related business assistance programs.
As the possibility of a new Cold War between the US and China gains traction in some foreign policy circles, the scale of Chinese development finance has taken center stage. A closer examination suggests the cost to China of this lending is distinctly underwhelming. It would be cheap for the US and Europe to match China’s lending numbers –and in the interest of global development if it was done right.
Since China introduced far-reaching economic reforms in 1978, it has experienced rapid economic growth and social development that has significantly improved the overall well-being of the Chinese population and lifted an enormous number of people out of poverty. But at the same time, income inequality in China has increased dramatically over the past three decades, and there is a significant divide between urban and rural areas as well as between regions.
Last year, economists Sebastian Horn, Carmen Reinhart, and Christoph Trebesch put forward estimates of the Chinese government’s external (“overseas”) lending in a working paper. Their work was a landmark effort in a number of respects. Perhaps not surprisingly for a working paper, Horn et al. also attracted critics. In a new note for CGD, Horn et al. respond to this criticism.
We are so accustomed to the Chinese government’s lack of transparency that the opaqueness of China’s overseas loans seems unremarkable at this point. But as we face what inevitably looks like a global debt crisis, one that is likely to hit low-income countries particularly hard, a clear accounting of the scale of the problem is critical.
In new research, we find that China’s role as a creditor has likely been a key driver of more burdensome lending terms in the form of higher interest rates, shorter maturities, and shorter grace periods for lower-income countries.
Since the COVID-19 outbreak began in Nov. 2019 in Hubei Province, China, business activity in the world’s second-largest economy has ground to a halt. China’s small and medium enterprises (SMEs), which generate 90% of employment, constitute 80% of exports, and account for 70% of GDP, have been hit particularly hard.
When it comes to the United States, the reality is that the Global Fund is winning the fundraising game hands down. China, meanwhile, doubled its contribution to IDA—contrast that with the country’s longstanding indifference to the Global Fund. Clearly the world’s most important emerging donor views the multilateral architecture differently than the world’s most important traditional donor does.
Commentary Menu