China–Japan development finance competition and the revival of mercantilism

Muyang Chen

Development Policy Review, 2021, vol. 39, issue 5, 811-828

Abstract: Motivation Advanced industrial economies that used to advocate and implement charitable foreign assistance have started to (re)adopt mercantilist development finance by using official development finance credits to support private firms. This seems to be in response to the mercantilist practice of emerging Southern development partners. Purpose This article compares mercantilist practice by Northern and Southern development partners by examining how and why the public financial agencies of China and Japan offer state‐backed credits to businesses in different ways. Approach and methods The practices of China's two national policy banks—China Development Bank (CDB) and Export‐Import Bank of China (Chexim), were compared to those of Japan's two public financial agencies—Japan International Cooperation Agency (JICA) and Japan Bank for International Cooperation (JBIC). Quantitative data was obtained from published primary sources, including official histories, annual reports and financial statements of the agencies as well as public financial almanacs and policy documents. In the absence of official data, open‐source secondary data collected by research institutes and agencies was used. Between 2016 and 2019, the author conducted 59 interviews in China and 15 in Japan with officials of the financial agencies, their clients, other stakeholders and researchers. Findings Chinese firms rely largely on public financial agencies to win international contracts. Japanese firms borrow from public financial agencies primarily for overseas investment projects, which may also attract private finance. Policy implications China's rise has triggered Japan as well as other older industrial economies to respond by (re)adopting mercantilist development finance policies to encourage commercial investors to engage in development co‐operation. However, the looser relations between state and firms in older industrial economies such as Japan makes it harder to encourage private firms to follow state strategies and invest in underdeveloped regions.

Date: 2021
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