Banking Unconditionally: The Political Economy of Chinese Finance in Latin America

Globalization scholars have long-debated to what extent economic integration, and specifically, mobile private capital constrains national policymaking. With Western capital reeling from the 2008 financial crisis, state-owned capital made inroads globally. China, as the world's largest saver, expanded its cross-border lending, funneling almost US$300 billion to developing countries since the crisis. What are the implications for debtor governments' room to maneuver? I argue that China's rapid financial expansion globally has helped increase national-level policy flexibility by removing the budget constraint traditionally imposed by the IMF and global markets. Unlike their stringent borrower conditionality, Chinese investors tend not to impose onerous policy conditions. Given the recent emergence of Chinese financing, I employ a comparative case study analysis of two of China's largest debtors — Brazil and Venezuela — before and after the introduction of Chinese credit. I find that government budget deficits increase as Chinese state-to-state financing accounts for a larger share of total external public financing. These findings offer important new insights for the study of globalization, the Latin American left, and China-Latin American relations, by helping explain the structural conditions that enable nations to veer from Western governance models.