Chinese or western finance? Transparency, official credit flows, and the international political economy of development

Abstract

Abstract Why do some developing countries obtain more official finance from China vis-a-vis Western sources? This study finds borrower transparency significantly affects which governments borrow more from China. From a supply side perspective, Chinese lending agencies have incentives to lend more to untransparent borrowers. From a demand side perspective, untransparent borrowers have incentives to use Chinese finance to avoid Western pressure to become more transparent. These findings and explanations have three implications. First, they help explain variation in external debt composition across developing countries using official credit. Second, they have implications for the international political economy of developing countries’ financial ties to China. Third, they imply the use of Chinese finance may allow untransparent governments to remain so, an important implication for the political economy of development.