Profiting from Precaution

July 2, 2013 Kevin P. Gallagher

China’s policy banks—China Development Bank (CDB) and China Export-Import Bank (China Ex-Im Bank)—are new leaders in the world of sovereign finance. Within a decade, they have surpassed levels of annual lending by the World Bank and many other counterparts. The Financial Times estimates that China’s policy banks provided some $110 billion in
financing to
 developing 
countries 
between 2009
 and 2010 compared to the World Bank’s $100 billion. Between 2003 and 2011, these two Chinese banks provided some $79 billion to Latin America, compared with $57 billion by the World Bank, surpassing even the $78 billion lent by the Inter-American Development Bank (IDB).

The Chinese banks’ liberal purse strings have been largely embraced by host country governments that have had trouble accessing international capital markets and lending from the international financial institutions for projects in infrastructure, energy, and mining. Yet some Chinese projects have met with political and social resistance in host countries on grounds that Chinese lending practices do not incorporate adequate social and environmental safeguards.

To help narrow this gap and encourage improved environmental standards worldwide, this policy memorandum identifies Chinese overseas environmental standards and compares them to those of the Western-backed lenders. The memorandum also aims to demonstrate why meeting—and beating—domestic and global environmental standards could be a shrewd business decision for China and its banks.

About the Author

Kevin P. Gallagher

Associate Professor of International Relations, Boston University ghallager

author

Kevin P. Gallagher is associate professor of International Relations at Boston University, where he is Co-Director of the Global Economic Governance Initiative. He is the coauthor of The Dragon in the Room: China and the Future of Latin American Industrialization and other books. Gallagher is co-chair of the university’s Pardee Task Force on Regulating Global Capital Flows. He serves on the investment subcommittee of the US Department of State’s International Economic Advisory Committee, as an advisor to the Investment Division of the United Nations Conference on Trade and Development, is an editor at the Review of International Political Economy, and is a member of the China-Latin America Working Group at the Inter-American Dialogue. He has served as a visiting or adjunct professor at Tsinghua University (China), El Colegio de Mexico (Mexico), Cedes (Argentina), and the Fletcher School of Law and Diplomacy at Tufts University. Gallagher is also a senior research associate at the Global Development and Environment Institute at Tufts University. He writes regular columns on global economic and development policy for the Financial Times, among others.