The mutually transforming effect: a comparative study on European and Chinese development finance in Central and Eastern Europe

The 21st century has witnessed a profound transition in global development finance after emerging powers have become important creditors for the developing world. Explaining these actors of global development finance and the factors shaping their financing behavior has been widely discussed in the scholarly literature. With its large amount of overseas financing and alternative economic growth model, China has emerged as the top creditor amongst traditional financial actors. Therefore, diversification and competition between traditional Western and Chinese creditors have become the main focus of scholars and policymakers. Yet, current changes in the global development finance show that the likelihood of convergence and cooperation are increasing between Western and China-led development finance. While China is integrating more into multilateral cooperation and abiding by international standards, Western actors have begun to change their financing policies by looking at nations’ needs rather than structural adjustments first. This thesis examines the interactions between Chinese (CDB and CHEXIM) and traditional European (EIB and EBRD) development banks in Central and Eastern Europe. By doing so, this thesis argues that a ‘mutually transforming effect’ exists between Chinese and European development finance as a result of their interactions. While Chinese banks cooperate more with European banks and the EU's financial mechanisms to fulfill their structural weaknesses, the European banks provide more credits on riskier infrastructure projects and state-owned enterprises in the CEE region.