Stephen Kaplan’s Globalizing Patient Capital: The Political Economy of Chinese Finance in the Americas joins the list of the growing literature centered on the relationship between Latin America and China (e.g., see Enrique Dussel Peters, ed., China’s Financing in Latin America and the Caribbean, 2020; Barbara Stallings, Dependency in the Twenty-First Century? The Political Economy of China-Latin America Relations, 2020; and Carol Wise, Dragonomics: How Latin America Is Maximizing (or Missing out on) China’s International Development Strategy, 2020). Kaplan’s book is an important contribution to this area of study because it offers a detailed and nuanced analysis of the interactions between China’s state-led financing and Latin American countries’ economic and financial institutional structures.
Using a mixed-method approach to examine an array of new loan data—including interviews and primary documents—Kaplan convincingly argues that China’s policy banks have higher risk tolerance and offer longer time horizons and more flexible conditions to borrowing countries than do Western financial institutions. This allows their governments to have greater fiscal space to pursue their own political agendas (p. 15) yet does not come without costs for both creditor and borrower. China uses its own metrics to assess a country’s credit risk, thus offering loans with less stringent conditions than those of Western financial institutions. This can lead to the overextension of credit and the increased risk of defaulting by borrowing countries with weaker investment structures, such as Ecuador and Venezuela. Chinese policy banks also use different financial instruments to ensure repayment. This means that, despite how attractive Chinese loans may appear to be, Latin American countries face a trade-off between policy conditionality and commercial conditionality.
These arguments are explained in two parts. The first part of the book sets the theoretical framework and focuses on the main question of what makes Chinese global financing different from its Western counterparts. Kaplan’s answer is centered on China’s patient capital, which is “a distinct form of long-term capital characterized by a risk-tolerant domestic financial system that deploys credit internationally to states without policy conditionality” (p. 40). Chinese policy banks can offer cheaper long-term credit to developing countries because they receive subsidies from the central government. Moreover, because China is more willing to experiment with its state-to-state interactions, its policy banks adjust their financial tools according to each recipient’s investment institutional structure. This leads them to offer what Kaplan defines as “commercial conditionality.” Unlike the strict policy conditions that are typically demanded from Western financial institutions (i.e., budget discipline), commercial conditionality’s aims are twofold: to promote Chinese commerce (the use of Chinese firms and content) and to minimize sovereign risk by collateralizing their loans with developing countries’ resource endowments.
This kind of flexibility has allowed some Latin American governments to have more fiscal space to pursue their domestic agendas. By borrowing from China with no policy conditionality, these governments can spend more to reduce income inequality and fund infrastructure (p. 147). Kaplan tests this claim in chapter 4 using an econometric analysis and, in the second part of the book, through several case studies. The econometric analysis provides strong evidence that Latin American governments appear to have more fiscal space when Chinese loans are higher, but the analysis does not fully explain whether the extra budget room is used to provide better public services.
In fact, the cases explored by Kaplan indicate that weak institutions, corruption, and political instability can distract governments from addressing their countries’ socioeconomic issues. The second half of the book analyzes the cases of Argentina, Brazil, Costa Rica, Ecuador, Jamaica, and Venezuela to further explain Chinese financing in the region. The underlying question in this section is whether Chinese financing can be a development opportunity for Latin America: the answer depends on each country’s political and economic institutions and structures. According to Kaplan, left-leaning governments tend to engage more in the state-to-state framework when borrowing from China and are subjected to Chinese policy banks’ commercial conditionality. Venezuela and Ecuador are examples of when this kind of conditionality can become costly for both debtor and creditor. In addition to the greater exposure to defaults, countries that use commodities as guarantees face the challenge of reducing resource production for local consumption and markets. Commodity dependency can also be reinforced, and industrial development can become stagnant as investments are destined for non-manufacturing sectors. For Chinese policy banks, their patient capital becomes patient (debt) restructuring (p. 233).
In countries with stronger procurement laws and structures, Chinese financing is channeled through firms and specific projects. The state or the government is not necessarily the main or only “partner.” The presence and dominance of market mechanisms allow the participation of the private sector and the selection of Chinese financing through concessions. The examples of Costa Rica and Jamaica show that countries can obtain Chinese capital without risking debt sustainability. The case of Brazil also shows how stronger procurement laws can lead to the rejection of financing from China. In this sense, one of the main contributions of the book’s second half is the examples of the choices Latin American leaders make, given their countries’ financial regulations, the alternatives they have, and their own political agendas.
As explained by Kaplan, the governments of Ecuador and Argentina, for example, changed procurement laws and made one-time exceptions to receive Chinese financing (p. 200), respectively. Ecuador’s Correa viewed China’s financing as an alternative to relying on Western economic institutions and thereby helping diversify the country’s financing options (p. 228). For Argentina, China became an important commercial partner and financier as Kirchner’s government faced yet another default and the potential depletion of its reserves. Courting Chinese loans allowed for more financial flexibility, and it helped increase Kirchner’s popularity (pp. 238–39). Yet Chinese credit was not enough to solve existing and new fiscal challenges. Even if they offer more flexibility, Chinese policy banks are not that different from regular creditors because they also need repayment. As Kaplan highlights, countries that choose Chinese financing may believe that there is no limit for their indebtedness with China (p. 232), and although Chinese capital may be patient, it is not limitless.
Globalizing Patient Capital is a rich resource for scholars and policy makers who are interested in how China is reshaping the financial landscape in Latin America and the developing world in general and how Chinese loan recipients are also learning how to negotiate with China as a creditor. Kaplan’s careful analysis of loan data, interviews, contracts, government announcements, news articles, and related academic literature provides a wealth of new information and in-depth examination of the different financial instruments that Chinese policy banks employ abroad. Although it remains to be seen whether Chinese capital is always patient and is used in all sectors—Kaplan mainly addresses the extractive, energy, and infrastructure sectors—this book offers a deeper understanding of China’s growing financial influence in the world.
