Comment on “Is China’s Development Finance a Challenge to the International Order?”

• Published date: 01 July 2018
• Date: 01 July 2018
• Author: Kenichi Ueda
• DOI: http://doi.org/10.1111/aepr.12230

Comment on “Is China’s Development Finance

a Challenge to the International Order?”

Kenichi UEDA†

The University of Tokyo

JEL codes: E22, E61, F35

Accepted: 22 January 2018

Dollar (2018) illustrates the key characteristics of China’sofficial development aid (ODA).

Notably, China’s development finance has been focusing on infrastructure

(e.g. transportation and power generation). However, it imposes weaker standards on envi-

ronmental and social safeguard than international standards, for example, those adopted

by the World Bank (WB) and the Asian Development Bank (ADB). In practice, China lets

each country stay in charge of environmental and social safeguards, while the WB and

ADB themselves engage in the planning and monitoring of such safeguards. This does not

necessarily show China’s practice is less welcomed than the international standards. Indeed,

despite China’sfinancing being on more market-based terms, developing countries often

prefer China’sdevelopmentfinance to financing from the WB or the ADB because the lat-

ter involves lengthy and costly assessments on environmental and social safeguards.

China apparently recognizes these criticisms. So far, China’sdevelopmentfinance has been

mostly done bilaterally via the China Development Bank (CDB) and the China Export–Import

Bank (EXIM Bank), whose disclosures and practices do not seem transparent. However, China

created the Asian Infrastructure Investment Bank (AIIB), which is expected to replace the CDB

and the EXIM Bank as the intermediaries of China’sdevelopmentfinance to some extent.

China created the AIIBfollowing the Zedillo Report’s recommendations for the reform

of MultilateralDevelopment Banks (MDB). Comparedwith a prototypical MDB, the AIIB

is characterized by: (i) its allocation of larger voting shares to developing countries; (ii) its

lack of a resident board; (iii) its highly leveraged lending capacity; (iv) its focus on infra-

structure; and (v)its streamlined environmentaland social safeguards.

Dollar (2018) then argues that the AIIB is likely to be more transparent than the

CDB and the EXIM bank, which are secretive about lending amounts, terms, and pro-

jects’names. In particular, via the AIIB, China’s development finance is expected to

strengthen the environmental and social safeguards it requires.

I agree with this assessment. To keep the quality at the AIIB at the highest level,

it would better for some advanced countries to be involved in the decision-making

process at the AIIB. However, it is natural that the advanced countries are also have

†Correspondence: Kenichi Ueda, Graduate School of Economics, The University of Tokyo, 7-3-1

Hongo, Bunkyo-ku, Tokyo 113-0033, Japan. Email: uedak@e.u-tokyo.ac.jp

© 2018 Japan Center for Economic Research 299

doi: 10.1111/aepr.12230 Asian Economic Policy Review (2018) 13, 299–300