The Effects of Sovereign Debt: China’s Non-Developmental and Non- Concessional Aid





Published date: 

June, 2023


Szu-Ning Ping
Greg Chih-Hsin Sheen


The international community has many doubts about China’s opaque financial aid, and their critiques mainly lie in the differences in aid between China and traditional aid donors. However, there is little empirical research on whether China is contributing to the accumulation of sovereign debt. The most controversial issue is that China’s foreign aid cannot be categorized in accordance with the traditional definition of ODA. The purpose and conditions underlying China’s foreign aid have many commercial overtones. China’s foreign aid is neither developmental nor concessional, similar to the other official flows (OOFs) that comprise most of its financial flows. This paper argues that OOFs are ineffective in relation to debt reduction when the developmental or concessional element is lacking. However, due to the lower political costs, China’s OOFs and Western countries’ conditional aid are more welcomed by the recipient countries. In the case of China’s pursuit of overseas resources in particular, both China and resource-rich recipient countries have an abundance of resources that can be used as collateral and are more risk-acceptable in the event of default. This paper aims to discuss China’s OOFs using AidData’s Global Chinese Development Finance Dataset to test the hypothesis that when China offers more OOFs, the accumulated debt of recipient countries will increase. The regression analysis confirms the results, and ODA does not have the same effect.