Chinese Investments in Central Asia and the Role of Official Development Finance in Mitigating Political Risks

The article unveils the particularities of Chinese approaches to investing in Central Asian countries, assessing political risks for doing business, and using tools of official development finance to mitigate such risks. The analysis highlights the centrality of China in the structure of foreign direct investment inflows in the region. The approaches of representatives of the academic community and business from China to assessing regional and country political risks are considered. The paper also confirms that China has become the largest provider of official development finance in Central Asia countries, and has surpassed key Western donors in terms of funding. Also examined are the main tools used by the PRC to protect its businesses from growing investment risks in the context of increasing interstate competition in the region. It is shown that in Central Asia China uses its trademark to mitigating political risk with development finance toolkit, but these practices in the region have specific features. For example, in cooperation with the political elites of the Central Asian countries China often uses aid as an inducement, and in order to influence ‘extralegal’ risks, it supplies equipment to law enforcement agencies of partner countries, but refrains from assisting them in reforming institutions, improving judicial and legal systems, countering corruption, etc. The conclusion is drawn that the political risks are mitigated predominantly by the Chinese Export & Credit Insurance Corporation (Sinosure), whose insurance activities support the provision of investment loans by Chinese state-owned banks.

International development cooperation, political risks, foreign economic activity, foreign direct investment, aid, insurance, Central Asia, China