Ásia-Pacífico Em destaque Política Internacional

Development Finance with Chinese Characteristics: Financing the Belt and Road Initiative – an interview with Hongsong Liu, Yue Xu, and Xinzhu Fan, by  Paulo Menechelli Filho  

The Belt and Road Initiative (BRI) has been one of China’s most prominent foreign policy efforts in recent years. According to Professors Hongsong Liu (Shanghai Jiaotong University), Yue Xu (University of Shanghai for Science and Technology), and Xinzhu Fan (Shanghai International Studies University), the BRI is clearly aimed at international development and designed to jointly build a regional economic cooperation framework that is open, inclusive and balanced. In the article Development Finance with Chinese Characteristics: Financing the Belt and Road Initiative, published in the special issue of Revista Brasileira de Política Internacional (Volume 63 – N. 2 – 2020), they argued that China, based on its development experiences, applies development finance with Chinese characteristics to the BRI projects, which benefits countries along the Belt and Road by facilitating their sustainable development.

To talk about those and other issues, Professors Hongsong Liu, Yue Xu, and Xinzhu Fan gave an interview to Paulo Menechelli Filho, Ph.D. candidate in International Relations at the University of Brasilia.  

The article states that development finance with Chinese characteristics is concessional and development-oriented, differing from Official Development Finance (ODF) defined by the OECD (the Organization for Economic Co-operation and Development). Could you briefly explain the main differences between these two development finance models?  

The OECD loosely defines ODF as a term “used in measuring the inflow of resources to recipient countries,” which includes: bilateral ODA; “grants and concessional and non-concessional development lending by multilateral financial institutions;” and “Other Official Flows for development purposes (including refinancing Loans) which have too low a Grant Element to qualify as ODA.” The definition of development finance with Chinese characteristics is relatively strict. It is concessional in nature, development-oriented and highly dependent on credit instruments. Although development finance with Chinese characteristics is concessional in nature, it does not require that development funds have to meet a threshold of concession, but seeks to bring financing cost down for recipient countries to that lower than market level while guaranteeing the security of the funds. 

In a recent article published in the RBPI, Vadell Lo Brutto, and Leite analyzed the Chinese Model of South-South Cooperation, which “is gaining prominence to the extent that it is seen as competing with the OECD model of cooperation and aid and perceived as a more attractive option for Global South countries.” How these two dynamics – international cooperation and development finance – are related to one another and, more broadly, to BRI and China’s foreign policy?    

In narrow sense, China’s South-South Cooperation refers to China’s foreign aid. But in broad sense, China’s South-South Cooperation includes China’s foreign aid and China’s development finance. Hence, development finance with Chinese characteristics is part of Chinese Model of South-South Cooperation. Actually development funds offered by China’s development banks are not included in China’s foreign aid. The two dynamics help implement the BRI and serve China’s foreign policy. 

The article employs an interesting image of China’s domestic experience with development finance: a transition from “blood transfusion” to “blood making.” Could you explain what does it mean and how it is related to the Finance Development with Chinese Characteristics? 

A transition from “blood transfusion” to “blood making” means that China’s development finance has upgraded traditional policy-based finance, and combined government credit and market mechanisms to create an investment and financing model of risk control, project screening, investment support and profit sharing. Applying this experience to international development finance, China emphasizes that a high degree of concession (“blood transfusion”) does not guarantee the effectiveness of development funds, and profit-seeking foreign investment often results in vigorous economic growth. Therefore, development funds do not have to meet a threshold of concession to be qualified as development finance with Chinese characteristics. They are deemed concessional if they are self-sustaining (“blood making”) given certain loan interest, fiscal interest subsidy, repayment term, interest-free period and other costs. 

The article highlights that the BRI is aimed at international development, and, despite differences in their nature and scope, the BRI and the 2030 Agenda for Sustainable Development share the goal of supporting global sustainability, which creates synergy between the two. Could you give us some examples of those synergies and ideas on how to expand them?   

The five BRI priority areas or pillars highlighted by the Chinese government and 17 SDGs proposed by the 2030 Agenda are closely related, sharing similar long-term visions and objectives. For instance, financial integration as the fourth pillar of BRI is closely related to SDG 17 and closer people-to-people ties as the fifth pillar of BRI have linkages with SDG 3, SDG 11 and SDG 17. In the First Belt and Road Forum for International Cooperation held in Beijing in May 2017, BRI was confirmed as a sustainable development-oriented initiative sharing the goal of supporting global sustainability with 2030 Agenda. 

Read the article 

Liu, Hongsong, Xu, Yue, & Fan, Xinzhu. (2020). Development finance with Chinese characteristics: financing the Belt and Road Initiative. Revista Brasileira de Política Internacional, 63(2), e008. Epub September 02, 2020.https://doi.org/10.1590/0034-7329202000208 

About the authors 

Hongsong Liu, Shanghai Jiao Tong University, School of International and Public Affairs, Shanghai, China  

Yue Xu, University of Shanghai for Science and Technology, College of Foreign Languages, Shanghai, China 

Xinzhu Fan, Shanghai International Studies University, School of International Relations and Public Affairs, Shanghai, China 

Paulo Menechelli Filho, Ph.D. candidate in International Relations at the University of Brasilia 

How to cite this interview 

Cite this article as: Editoria Mundorama, "Development Finance with Chinese Characteristics: Financing the Belt and Road Initiative – an interview with Hongsong Liu, Yue Xu, and Xinzhu Fan, by  Paulo Menechelli Filho  ," in Revista Mundorama, 03/09/2020, https://mundorama.net/?p=27636.