How domestic economic imbalances shape foreign economic policies: understanding the emergence and mechanics of Chinese overseas lending, 1978-2017

Paduano, Stephen (2023) How domestic economic imbalances shape foreign economic policies: understanding the emergence and mechanics of Chinese overseas lending, 1978-2017. PhD thesis, London School of Economics and Political Science.

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Abstract

Why did China become the developing world’s largest official creditor? The literature on China’s overseas lending, and China’s lending in Africa specifically, explain this as a function of geopolitical or financial interest. However, the transformation of the China-Africa relationship over the past half decade has revealed misunderstandings of the dynamics of Chinese lending. This was particularly evidenced by the non-occurrence of the “debt trap” (e.g., collateral seizures) and China’s high non-performing loan ratio — implying a lack of geopolitical and financial gain, respectively. Moreover, as Chinese lending to Africa has come to a near-halt since 2020, a further misunderstanding has surfaced: while the presumed drivers of China’s overseas lending still exist, they are no longer driving China’s overseas lending. Observing such shortcomings, this dissertation develops a new framework for understanding overseas lending, which we apply to Chinese policy and commercial banks’ activities in sub-Saharan Africa. Part I reviews the rise of China’s overseas lending and examines IPE’s difficulties explaining it. Part II builds upon IPE’s “macroeconomic regime” and “growth model” literature to develop our analytical framework, synthesizing a large literature of mainstream and heterodox IPE, and updating it to reflect contemporary dynamics of global capital flows. Part III applies our framework. Reviewing the 1980s reforms of China’s macroeconomic policies, we analyze how the establishment of China’s current account surplus regime led to large-scale overseas lending in the 1990s. Reviewing the subsequent build-up of exchange-rate pressure and financial sector difficulties in the 2000s, we analyze how the evolution of China’s macroeconomic regime financed the expansion of policy and commercial banks, driving an increase in China’s Africa lending in the 2010s. In sum, we argue China’s overseas lending should be understood as a function of its macroeconomic imbalances and the policies used to maintain them, rather than through its geopolitical and financial interests. The implications of this for the future of China’s overseas lending, as well as other activity in the global economy, are discussed in the conclusion.

Item Type:	Thesis (PhD)
Additional Information:	© 2023 Stephen Paduano
Library of Congress subject classification:	D History General and Old World > DS Asia H Social Sciences > HG Finance J Political Science > JA Political science (General) J Political Science > JZ International relations
Sets:	Departments > International Relations
Supervisor:	Alden, Christopher
URI:	http://etheses.lse.ac.uk/id/eprint/4803

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