International Development Financing in the Second Cold War: The Miserly Convergence of Western Donors and China

Abstract

China's rise as a major development financing provider is widely seen as challenging traditional donor states’ influence over the norms and institutions of global development and over aid recipients. Amid intensifying geopolitical rivalry, now often called a new or second Cold War, some argue that traditional donors are adopting Chinese-style practices to compete with China for developing countries’ allegiance. This article supports the convergence thesis but argues further that Chinese practices are also converging with those of traditional donors. Moreover, this convergence is on a less generous middle ground that will likely be worse for developing countries than the logic of geopolitical competition suggests. Rather than mobilizing additional resources, both sides are retrenching. This is because geopolitical competition is mediated through domestic political economy models entailing limits to providers’ generosity: China's commercial model confronts recipients’ declining repayment capacity, while traditional donors, unwilling to devote fiscal resources for aid, rely on mobilizing reluctant private finance.