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  • Seminar,

Erica Perego (CEPII)

Published on October 30, 2024 – Updated on October 30, 2024
Date
Le 05 November 2024 De 12:15 à 13:15
Location
Pôle Tertiaire - Site La Rotonde - 26 avenue Léon Blum - 63000 Clermont-Ferrand. 
Room 212

Research seminar. China Development Aid in Emerging Markets: Project Financing versus Government Debt

Erica Perego
CEPII 
Coauthor: Pablo Winant (ESCP Business School, CREST, CEPII)

Abstract

Recent evidence shows an increase in China development aid to emerging and developing countries (EMDEs) and a change in its nature over time: from first lender to EMDEs to a lender of last resort. This happened at the same time of a switch from China lending mostly to state-owned enterprises (SOE) in EMDEs in the period before the Belt and Road Initiative (BRI) (2000-2013) and during the early-BRI period (2014-2017) to mostly government borrowing in the late-BRI period (2018-2021). This paper focuses on the role of different borrower agents and studies the implication of SOE borrowing from China for debt sustainability in EMDEs. First we establish empirical evidence that i) a country borrows through SOE when the fiscal space of the government is reduced; ii) the higher is the SOE share of borrowers in a country the higher is the probability to receive a rescue loan from China and iii) to face default. We then write a model able to explain the transition from SOE borrowing to government rescue financing and study the implications for debt sustainability.