China’s Challenge: Managing Debt and Development: China’s Financial Statecraft in the Americas

Lindner Family Commons. In a region with a history of commodity shocks and debt crises, why has China maintained financial ties with many economically risky countries in the Americas? Why does China explicitly criticize austerity and policy conditionality, yet implicitly support these same policies through its IMF partnership? This project develops a theoretical framework for global financial statecraft. The traditional approach to sovereign debt sustainability, led by the IMF and Paris Club, emphasizes the short-term viability of sovereign borrowers by promoting financial disclosure and economic reform. China participates in such multilateral initiatives, signaling its willingness to be a global stakeholder, but often prefers bilateral discretion to avoid recognizing bad debts or requiring significant reform. China’s approach to debt relief reflects a two-tier strategy of bilateral-multilateral interactions in borrowing nations, striking a balance between the twin goals of maximizing its commercial influence and helping ensure regional financial stability. China’s financial statecraft is thus conditional on the geoeconomic importance of its strategic linkages, and its financial power within international financial institutions (i.e., the IMF). Otherwise, when there is a low-level financial statecraft, where China invests in diplomatic prestige projects, overcapacity outlets, or basic infrastructure, debt relief is more firmly concentrated multilaterally. To examine these patterns, this manuscript conducts a multi-method analysis using cross-national statistical tests (spanning 18 countries from 1991-2022) and a comparative case study analysis of five Latin American countries, finding that China’s commercial conditionality reflects important strategic linkages that yield a greater prevalence of bilateral restructurings. Ironically, rather than acting as a competing lender of last resort to the IMF, China’s bilateral debt negotiations are often facilitating multilateral debt relief in the Americas, particularly following the IMF’s 2016 reforms. These findings have important implications for the literature on the political economy of sovereign debt, financial globalization, U.S.-China economic relations, and international development. Doors will open no sooner than 15 minutes before the event start time. The Elliott School can coordinate with the university to reasonably accommodate most disabilities. If you need specific accommodations, please contact the Sigur Center at [email protected]. Requests should be made as soon as possible, but at least three days prior to the program to ensure accommodation.