Cofinancing and Infrastructure Project Outcomes in Chinese Lending and Overseas Development Finance

In recent years, the concept of cofinancing has gained currency in policy discussions on development finance. Cofinancing, having multiple financiers in development projects from government agencies, development banks and private actors, is acknowledged as an important tool to bridge the finance gap in developing countries. Yet, relatively little is known about outcomes for cofinanced projects. 

As a major player in development finance, Chinese institutions are actively seeking increased cooperation and cofinancing with host countries. What is the role of cofinancing in shaping Chinese lending and overseas development finance infrastructure projects in terms of implementation outcomes and environmental performance?

In a new journal article published in World Development, Yangsiyu Lu, Cecilia Springer and Bjarne Steffen find there is a positive link between cofinancing and project outcomes in Chinese development finance, although the effects vary. 

Main findings:

• Cofinancing correlates with higher infrastructure project completion rates, as cofinanced projects are 3.3-7.0 percentage points less likely to be canceled or suspended than non-cofinanced ones. 
• Cofinancing with certain partners suggests specific benefits: 
  • Cofinancing with partners from the host country is associated with more localized implementation.
  • Cofinancing with international partners has demonstrated improved environmental performance, with a 2.7 percent lower CO2 emissions intensity power generation units and lower biodiversity risk. 

The results suggest that cofinancing can be an effective tool to enhance infrastructure project success and achieve greater sustainable performance in Chinese lending and overseas development finance. The research highlights the importance of a collaborative approach to financing infrastructure development projects in the Global South. By leveraging the resources and expertise of multiple partners, cofinancing can generate more inclusive and sustainable infrastructure that leads to economic growth and development.

A previous version of this journal article was published as a working paper in April 2023.