The Rise of China's Patient Capital: A Tectonic Shift in Global Finance in Developing Countries?

43 Pages Posted: 1 Feb 2018 Last revised: 14 Jun 2019

See all articles by Stephen B. Kaplan

Stephen B. Kaplan

George Washington University - Department of Political Science; George Washington University - Institute for International Economic Policy (GWIIEP)

Date Written: June 5, 2019

Abstract

As the United States has retreated from its lead role in globalization -- first because of the 2008 financial crisis, and now under President Donald Trump’s leadership -- China has become a major global financial player. China, as the world’s largest saver, has rapidly expanded its cross-border lending since the crisis, more than doubling its overseas banking presence. This article develops a theory about how China’s emergence as a global creditor affects national policymaking. The international and comparative political economy literature has long-debated the extent to which international capital mobility constrains national autonomy, but has mainly focused on private capital flows. Incorporating China’s state-led capitalism into this political economy framework, I expect that Chinese credit enhances national governments’ room to maneuver. It is a distinct form of patient capital, characterized by a long-term horizon and a lack of policy conditionality, that endows governments with more fiscal space to intervene in their economies. Employing an originally-constructed dataset, the China Global Financial Index, cross-national tests (spanning 15 Latin American countries from 1990-2015) find that left governments tend to borrow directly from China when they can dilute market-oriented investment laws. However, independent of this partisan choice, Chinese state-to-state lending reduces reliance on conditionality-linked Western financing, leading to higher budget deficits

Suggested Citation

Kaplan, Stephen B., The Rise of China's Patient Capital: A Tectonic Shift in Global Finance in Developing Countries? (June 5, 2019). Available at SSRN: https://ssrn.com/abstract=3108215 or http://dx.doi.org/10.2139/ssrn.3108215

Stephen B. Kaplan (Contact Author)

George Washington University - Department of Political Science ( email )

Department of Political Science
Monroe Hall 470, 2115 G Street, N.W.
Washington, DC 20052
United States
202-994-6680 (Phone)

George Washington University - Institute for International Economic Policy (GWIIEP) ( email )

1957 E Street, N.W.
Suite 502
Washington, DC 20052
United States

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