The Political and Pragmatic Determinants of Chinese Development Finance in Latin America, 2008-2019

Between 2008-2019, Latin American (LAC) countries borrowed $132 billion from Chinese development finance institutions (DFIs) and $155 billion from the World Bank. Over 20 LAC countries have become signatories of China’s Belt and Road Initiative since its inception. Additionally, LAC was the first region that United States officials visited to promote the US’s own infrastructure development program, Build Back Better World (B3W), after its announcement in 2021.

The region has become a battleground in ongoing competition between the US and China in the past decade, and development finance is one tool these great powers can use to exert influence or impose consequences on the region. 

What are the potential drivers for LAC countries in choosing foreign development partners and how do they diversify their development finance between the US and China?  

A new journal article published in Latin American Politics and Society by Zara C. Albright investigates the conditions under which LAC countries choose to borrow from Chinese DFIs, the China Development Bank (CDB) and Export-Import Bank of China (CHEXIM), versus their US-backed counterpart, the World Bank, using data on 18 LAC countries’ borrowing from 2008-2019 and a case study of Ecuador. The author also qualitatively traces the interactions between different explanatory factors through interviews with government officials in Ecuador, one of the LAC countries that has borrowed the most from China.

The results show that while political considerations, such as ideology and views of the United States, set the stage for borrowers’ decisions, pragmatic factors, including the project sector and amount of financing needed, are more proximate influences on policymakers.

 Main findings:

• Statistical results show that leftist political parties prefer borrowing from China, and interviews suggest that these political considerations are an important component at a higher level and earlier phase of decision-making.
• Countries’ borrowing decisions are not only influenced by China’s relative power, but also by their relative foreign policy alignment towards the US. Interviewees highlighted China’s emergence as an alternative to traditional institutions and described their goal to diversify their financing.
• LAC countries strategically borrow from different lenders for distinct types of projects, preferring loans from Chinese DFIs when borrowing for infrastructure projects with larger loan sizes, based in part on Chinese companies’ interest and expertise.
• Officials in borrowing countries are aware of the tradeoffs between different types of financing and seek to maximize the development benefits from each.
• Pragmatic considerations such as the amount of available financing and the project sector are very strong predictors for where a state will borrow.

Overall, the results demonstrate that in development finance, great powers do not dictate terms to their borrowers.

This study contributes a more nuanced picture of the drivers of China’s development finance, especially the micro-level insights into the decision-making process within borrowing countries. It demonstrates that the story is not a simple case of countries taking whatever they can get, even for countries like Ecuador who face constraints on their access to financing. The findings have important implications for understanding how developing countries navigate power transitions, a key question for the prospects of global stability in the coming decades as the US and China compete for global influence both with and beyond development finance.

A previous version of this journal article was published as a working paper in September 2024.