Chinese Development Finance and Debt Crises in the Global South

The multilateral system is falling short in mobilizing the level and composition of capital flows necessary for countries in the Global South to raise living standards and avoid the catastrophic costs of climate change. Rather than channeling a stepwise increase in resources, net capital flows to emerging market and developing countries have turned negative. This predicament would have been much worse if not for the emergence of Chinese overseas finance, yet it too has turned net negative in recent years. The resumption of payments on a significant amount of external debt that China had suspended during the COVID‐19 pandemic, together with the lack of overall borrowing space in the Global South, has exacerbated the current predicament. This paper puts Chinese development finance in the context of recent net negative transfers and considers future prospects for how and why China may revive overseas development finance to the Global South, including a round of bilateral refinancing and new loans, foreign direct investment, and trade. Such an approach would not only help countries in the Global South restart growth trajectories but also bring significant benefits to China.