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State Actors, Market Games: Credit Guarantees and the Funding of China Development Bank

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  • Muyang Chen

Abstract

This paper explores the role of the state in development by examining the funding mechanism of China Development Bank (CDB), the world's largest development bank. In recent decades, CDB has gained its international reputation by lending massively to infrastructure projects inside and outside China. At first glance, this seems a typical story of state-led development, i.e. the state channels preferential capital to selected projects, thereby allowing policy-oriented investments to take place. But in fact, CDB raises most of its funds from the capital market. How can CDB afford loaning mostly to the usually long-term and low-profit public projects if its funding is directed by profit-driven market incentives? What does CDB's fund-raising mechanism reflect about state-market relations in China and the role of the state in development? The answers, this paper argues, lie in the state's guarantee for CDB bonds. Receiving credit ratings as high as government bonds, CDB supplements fiscal spending and creates a bond market of which the bank itself is a dominant player. Using quantitative data, historical documents and interviews, and comparing CDB to its counterparts in Japan and Germany, this paper characterises a mutually constitutive state–market relation in development finance.

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  • Muyang Chen, 2020. "State Actors, Market Games: Credit Guarantees and the Funding of China Development Bank," New Political Economy, Taylor & Francis Journals, vol. 25(3), pages 453-468, April.
    • Handle: RePEc:taf:cnpexx:v:25:y:2020:i:3:p:453-468
    DOI: 10.1080/13563467.2019.1613353
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    Cited by:

    1. Hongying Wang, 2021. "Regime Complexity and Complex Foreign Policy: China in International Development Finance Governance," Global Policy, London School of Economics and Political Science, vol. 12(S4), pages 69-79, May.
    2. Gong, Xue, 2021. "Logics of appropriateness: Explaining Chinese Financial Institutions’ weak supervision of overseas financing," World Development, Elsevier, vol. 142(C).
    3. Fan, Wei & Ying, Qianwei & Meng, Guo, 2023. "The signaling effect of policy loans: Do commercial banks follow up or stand by?," Finance Research Letters, Elsevier, vol. 56(C).
    4. Naqvi, Natalya, 2022. "Economic crisis, global financial cycles, and state control of finance: public development banking in Brazil and South Africa," LSE Research Online Documents on Economics 115781, London School of Economics and Political Science, LSE Library.
    5. Arth Mishra, 2023. "The infrastructure catalyst: analysing the impact of development finance institutions on private infrastructure financing in developing countries," CSAE Working Paper Series 2023-13, Centre for the Study of African Economies, University of Oxford.

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