The PRC’s Foreign Aid to Developing Countries as a Tool to Protect Chinese Companies’ Investments against Political Risks

Occupation: ember of the Russian Science Foundation (RSF) Research Project No. 23-28-01060
Affiliation: Institute for Advanced Strategic Studies, HSE University
Address: 20 Myasnitskaya str., Moscow, 101000, Russia

Journal name

Problemy Dalnego Vostoka

Edition

Issue 6

Pages

48-58

Abstract

The article is exploring the PRC’s experience in using foreign aid tools to mitigate political risks for its companies’ foreign direct investments in the countries of Global South. The author compares Chinese approach with the Western one, and identifies key exclusive features of China’s efforts towards mitigating risks for its companies. In particular, it has been found that the Chinese state-owned companies (SOEs) are the main proponents of kickstarting foreign aid projects with the aim of mitigating risks. Such projects are often implemented by the contractors from China, and encompass constructing social infrastructure in the recipient country, as a “bonus” to the principal commercial activity. Political risks are mitigated via subsidized loan contract terms, containing serious consequences for the recipient in the event of broadly defined changes in the regulatory regime and force-majeure detrimental to Chinese entities. Chinese SOEs can also protect their investments against the recipient’s harmful actions by prompting the PRC government to stop the foreign aid transfers, or by simply abstaining from proposing new aid projects in the future. The emphasis of political risk mitigation through foreign aid is on the legal-governmental (regulatory) risks, while the extralegal risks, such as terrorist attacks, worker strikes and civil protests, are not directly addressed, which can be explained by the adherence of the PRC to the principle of non-interference in internal affairs.

Keywords

China, foreign direct investments, political risk, international development assistance, foreign aid

Acknowledgment

This article was prepared with the support from the Russian Science Foundation, project No. 23-28-01060 (https://rscf.ru/en/project/23-28-01060/).

Received

16.11.2023

Publication date

27.12.2023

Number of characters

25082

Cite

GOST	Gomboin Z. The PRC’s Foreign Aid to Developing Countries as a Tool to Protect Chinese Companies’ Investments against Political Risks // Problemy Dalnego Vostoka – 2023. – Issue 6 C. 48-58 [Electronic resource]. URL: https://pdv.jes.su/S013128120028881-0-1 (circulation date: 16.05.2024). DOI: 10.31857/S013128120028881-0
MLA	Gomboin, Zorikto "The PRC’s Foreign Aid to Developing Countries as a Tool to Protect Chinese Companies’ Investments against Political Risks." Problemy Dalnego Vostoka 6 (2023):48-58. DOI: 10.31857/S013128120028881-0
APA	Gomboin Z. (2023). The PRC’s Foreign Aid to Developing Countries as a Tool to Protect Chinese Companies’ Investments against Political Risks. Problemy Dalnego Vostoka (6), pp.48-58 DOI: 10.31857/S013128120028881-0

100 rub.

When subscribing to an article or issue, the user can download PDF, evaluate the publication or contact the author. Need to register.

Number of purchasers: 7, views: 128

Readers community rating: votes 0

1. Bartenev V. I. Sodejstvie mezhdunarodnomu razvitiyu i politicheskie riski dlya vneshneekonomicheskoj deyatel'nosti: logika sopryazheniya tem (International Development Cooperation and Political Risks for Transnational Business: Linking Research Topics). Vestnik Moskovskogo universiteta. Seriya 25: Mezhdunarodnye otnosheniya i mirovaya politika. 2023. No. 15(1). S. 133–163. (In Russ.)

2. Bartenev V.I. Vliyanie mezhdunarodnoj pomoshchi na politicheskie riski dlya pryamyh inostrannyh investicij (Foreign Aid’s Effect on Political Risks for Foreign Direct Investment: A Literature Review). Vestnik MGIMO-Univesiteta. 2023. No. 16(5). S. 155–188. DOI: 10.24833/2071–8160–2023–5–92–155–188. (In Russ.)

3. Borokh O.N., Lomanov A.V. Novaya epoha Kitaya: ot obogashcheniya k usileniyu (China’s new epoch: From Seeking Wealth to Gaining Strength). Mirovaya ekonomika i mezhdunarodnye otnosheniya. 2018. No. 3(62). S. 59–70. DOI: 10.20542/0131–2227–2018–62–3–59–70. (In Russ.)

4. Gelpern A. et al. How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments. Center for Global Development. March 31, 2021. URL: https://www.cgdev.org/publication/how-china-lends-rare-look-into-100-debt-contracts-foreign-governments (accessed: 06.10.2023).

5. Guillon M., Mathonnat J. What Can We Learn on Chinese Aid Allocation Motivations from Available Data? A Sectorial Analysis of Chinese Aid to African Countries. China Economic Review. 2020. No. 60. Pp. 101–265.

6. Huang X., Wei Q. Why Chinese Firms Invest in Politically Risky Countries: Mapping the Cause. Würzburg International Business Forum 2018 Conference Proceedings. 2018.

7. Kennedy Charles. Political Risk Management: International Lending and Investing Under Environmental Uncertainty. New York: Quorum Books. 1987.

8. Moses O., Springer C., Gallagher K. P. Demystifying Chinese Overseas Lending and Development Finance: Why China Became the World’s Largest Official Bilateral Lender. Boston University Global Development Policy Center. April 1, 2023. URL: https://www.bu.edu/gdp/files/2023/04/GCI_PB_018_Chinas_OLDF_FIN.pdf (accessed: 10.10.2023).

9. Ping S.N., Wang Y.T., Chang W.Y et al. The Effects of China’s Development Projects on Political Accountability. British Journal of Political Science. 2022. No. 1(52). Pp. 65–84.

10. Sutherland D. et al. Policy, Institutional Fragility, and Chinese Outward Foreign Direct Investment: An Empirical Examination of the Belt and Road Initiative. Journal of International Business Policy. 2020. No. 3 (3). Pp. 249–272.

11. 吕建中等: “在“一带一路”国际产能合作中建立企业主导与政府推动的协同机制”(Lv Jianzhong et al. Establishing a Business-Led & Government-Driven Cooperation Mechanism in International Production Capacity Cooperation along the Belt and Road Initiative). 国际石油经济. 2017年. 第218期. 第1–6页. (In Chin.)

12. 周永发: “资源型海外投资政治风险及其应对策略” (Zhou Yongfa. The Political Risk of and Countermeasures for Resource-oriented Overseas Investment). 资源. 2014年. 第6期. 第60–63页. (In Chin.)

13. 曾涛, 李媛媛, 王芳菲: “伊拉克局势新变化与中国石油企业风险管控” (Jian Tao, Li Yuanyuan, Wang Fangfei. New Changes in Iraq and Risks Control for Chinese Enterprises). 经营管理. 2020年. 第28期. 第84–91页. (In Chin.)

14. 王欣: “一带一路”沿线国家收入不平等与恐怖风险” (Wang Xin. Income Inequality and Terrorism Risk in “the Belt and Road” Countries). 情报杂志. 2020年. 第3期. 第29–35页. (In Chin.)

15. 王淼: “对外援助、制度质量对中国对外直接投资区位选择的影响研究” (Wang Sen. Impact of Foreign Aid and Institutional Quality on Location Selection of China’s Outward Foreign Direct Investment). 投资研究. 2023年. 第473期. (In Chin.)

16. 谭立力, 刘小莞: “中国企业对东南亚投资的政治风险及其调节因素” (Tang Lili, Liu Xiaoguan. Political Hazards of Chinese Enterprises' Investments in Southeast Asia and the Moderating Factors: An Empirical Analysis Based Micro-data). 云南财经大学学报. 2020年. 第218期. 第104–112页. (In Chin.)

17. 邹志强, 孙德刚: “中国参与“21世纪海上丝绸之路”: 沿线港口建设的政治风险探析” (Zou Zhiqiang, Sun Degang. The Politicization of Ports: Political Risks of China’s Participation in Port Construction along the 21st Century Maritime Silkroad). 太平洋学报. 2020年. 第10期. 第80–94页. (In Chin.)

18. 携手构建人类命运共同体：中国的倡议与行动 (A Global Community of Shared Future: China's Proposals and Actions). 中华人民共和国中央政府官网. 26.09.2023. URL: https://www.gov.cn/zhengce/202309/content_6906335.htm (accessed: 01.11.2023). (In Chin.)

19. 新时代的中国国际发展合作 (China’s International Development Cooperation in the New Era). 中华人民共和国中央政府官网. 10.01.2021 URL: https://www.gov.cn/zhengce/2021–01/10/content_5578617.htm (accessed: 25.10.2023). (In Chin.)