There is an emerging consensus that China is now a major player, maybe the major player, in global development finance. Recent studies have inspired headlines such as “China and U.S. ‘neck and neck’ in foreign assistance spending”. Contrasted against the Trump administration’s apparent contempt for longstanding American support for global development promotion, such headlines seem yet further evidence of China’s emergence as a leader of global economic governance and influence. Yet this new conventional wisdom is often misleading and unhelpful in that it tends to assume rather than question how China and its economic and diplomatic partners in the developing world and beyond understand and evaluate the actual “development” outcomes associated with the rising flows of official outbound Chinese finance.

The rising narrative that China is now a leader of international economic development, and of development finance in particular, has been bolstered by a set of recent studies. The first is by a research team called AidData, whose recent October working paper called “Aid, China, and Growth: Evidence from a New Global Development Finance Dataset” showed that Chinese government provision of what they call “official finance” to over a 140 countries between 2000-2014 amounted to over US$350 billion. The second is a series of studies by a team of co-authors at the Global Economic Governance Initiative (GEGI) at Boston University which argue that through a combination of its state-owned policy banks (the China Development Bank or CDB and the China Export-Import Bank) and new multilateral financial institutions like the Asian Infrastructure Investment Bank (AIIB), China “has become a global leader in development finance.” Both sets of studies are keen to point out that in a relatively short period of time, Chinese policy banks have equaled or surpassed the development assistance budgets of the United States or of the development financing provided by multilateral institutions such as the World Bank.

Yet beyond the headlines lie more complex realities. What both the AidData and GEGI studies find is that the lion’s share of what they both refer to as China’s “global development finance” comes not in the form of standard OECD official development aid (ODA), but instead in the form of commercial-term lending from China’s two policy banks. In practice, this means that less than 25 percent of what often gets lumped together under the umbrella of China’s “development assistance” comes in the form of grants, export credits and low interest (aka concessional) loans while the vast majority is in the form of commercial (aka non-concessional or near-market rate) loans. Indeed, since the China Export-Import Bank does the majority of concessional lending focused largely in Africa and Asia, this means the CDB is the dominant Chinese overseas lending institution specializing in commercial-term loans across a broad swath of regions including Latin America, Central Asia, and Russia.

Moreover, what both sets of studies show is that the vast majority of China’s commercial loans, but also a sizeable portion of the concessional ones, is directed at two sectors: energy and infrastructure. This means that China’s “development finance” is overwhelmingly in the form of commercial loans (and even the concessional loans are almost always in the service of commerce) for energy and transport infrastructure deals, often to middle or even high-income countries (e.g. CDB’s largest energy loans portfolios are to Venezuela and Russia1).

So why is any of this a problem? To be sure, both teams of researchers begin with the laudable objective of trying to shed light on the all-too-often opaque world of Chinese development aid and finance provided by China’s policy banks. But even though these studies highlight the dominance of CDB commercial loans for energy deals, for example, there is almost no follow up on whether it makes sense at either a broader or more specific level to view such loans as making a contribution to development outcomes per se, however those may be understood. Instead, while the authors of these studies are at pains to detail the nuances and wide range of effects on the countries receiving the loans from China, the idea that it’s all part of China’s contribution to “global development finance” is largely taken for granted.

One reason the “developmental” nature of China’s policy bank loans to other countries is often assumed or at least glossed over is to be found in the name: the China Development Bank. As one GEGI study claims, “the CDB is perhaps the largest development institution in the world.” But what exactly does it mean to claim that CDB is a “development institution” compared, for instance, to any of China’s other state-owned banks or enterprises? Another reason for the almost automatic association of China’s policy banks with “international development” activities is linked to the emphasis Chinese leaders increasingly place on China as an engine of economic development, broadly conceived. China, unlike the OECD countries, is not wedded to the idea that development is synonymous with aid. Given this fact, whether its policy banks are engaging in concessional or commercial lending, or its SOEs or private firms are engaging in trade and investment, the Chinese leadership wants the world and its own citizens to view the entire package as part of China’s contribution to global development. Ultimately, the overseas lending behavior of China’s policy banks must be put in the context of China’s broader industrial strategy and state-capitalist form of economic statecraft: the idea that state-owned banks engage in commercially oriented lending is not in the least incongruous with the rest of China’s political economy.

But this just underscores how important it is to move past simplistic assumptions, and propaganda, about the developmental nature of China’s “global development finance” and ask if and how the Chinese government’s provision of overseas finance, in both its concessional and commercial versions is, in fact, contributing to development outcomes both outside and inside of China. To begin, it might behoove analysts and policy makers to do a thought experiment by disassociating the term “development” from such concepts as China’s “global development finance” or even from the name of the China Development Bank itself. What if, for instance, we simply asked how China’s state-owned policy banks provision of either commercial or concessional loans impacted specific issue areas, such as debt sustainability, in the host countries as well as in China itself? We might equally ask such questions of China’s energy or infrastructure finance without prejudging its developmental aspects.

In fact, both the AidData and GEGI studies engage in exactly such an exercise when, for instance, they look at the growth, environmental, and social impacts on the countries receiving loans from China’s policy banks. The results, inevitably, highlight complex outcomes but at the very least when they show that China’s “less concessional and more commercially-oriented types of official finance do not boost economic growth” in host countries, or that the energy-focused nature of CDB and export-import lending often exacerbates existing environmental and social concerns in those countries, it is all the more reason to ask if and how China’s state-provided global finance is contributing to specific development outcomes. Broader, structural concerns about commodity dependency tied to Chinese loans-for-commodities deals in regions like Latin America and Africa simply underscore the need to question the developmental outcomes tied to China’s official global finance.

Certainly, the finding that the majority of China’s official finance is based on commercial terms and that it does not contribute to economic growth in the host counties should be as headline grabbing as anything. But just as important as such questions are for the countries on the receiving end of Chinese state-led provision of international finance, they are just as or even more important for China itself. For example, to what extent does Chinese state lending overseas create new financial risks or exacerbate existing concerns about domestic debt sustainability? Chinese officials, as well as bank and SOE leaders, often argue that state support is necessary for energy deals in order to guarantee energy security or that China’s own record in building infrastructure is definitive proof that it can and should finance and build infrastructure abroad. But to what extent are such arguments justified versus simply justification for seeking preferential access to subsidized government finance and other forms of support? In a country where the lending of hundreds of billions of dollars abroad by its policy banks is largely immune from public scrutiny and criticism, China’s citizens are left with little choice other than to simply trust that their leaders are, in fact, doing the good work of “development” that they say they are.

For now, at least, the CDB and Export-Import Bank will continue to lead the way in terms of China’s provision of official finance abroad. Yet China has already begun to diversify the institutions and approaches it uses to provide international finance and promote development beyond its borders more broadly. Especially compared to its unilateral policy banks, there is reason to hope that new China-led but multilateral financial institutions such as the AIIB and New (or BRICS) Bank, as well as China’s continued participation in existing multilateral institutions like the World Bank and United Nations, will be more conducive to addressing hard but important questions about the meaning and content of “development” both for China and its developing country partners.

Yet no matter the form or institutional vehicle, what all of the recent and worthwhile efforts to shine a light on China’s notoriously opaque flows of official finance demonstrate is that neither rigorous analysis nor good policy is possible in the absence of clear concepts. Any efforts to better understand China’s growing role in global development finance, and its impact on development outcomes more generally, must confront head on the difficult but crucial question of what is and what should be the meaning and content of development itself.  

1AidData reports that Russia, at $36.6 billion, is the top recipient of China’s commercial or “other official finance” while Venezuela comes in fifth at $10.8 billion. Yet Kevin Gallagher, the head of the GEGI projects, has found in his database of Chinese lending to Latin America that Venezuela alone has received over $60 billion in Chinese policy bank loans since 2007. Obviously this figure would place Venezuela as by far the top recipient of Chinese government loans.

This article originally appeared in China-U.S. Focus.