Beyond Policy Banks: The Overseas Development Investment Funds Financing the Belt and Road Initiative

By Oyintarelado Moses and Laura Gormley

Through the ‘Going Out’ strategy and the Belt and Road Initiative (BRI), China has become the largest source of official bilateral development finance.

However, after reaching a peak in 2016, overseas development finance from China’s two main policy banks, the China Development Bank and the Export-Import Bank of China, has since waned. Amidst this trend, a diversification of finance beyond policy bank loans to foreign direct investment and other forms of finance is expected.

Since 2007, Chinese special investment funds targeting overseas development projects, termed overseas development investment funds (ODIFs), have emerged as a source of available capital. A new working paper from the Boston University Global Development Policy Center tracks, codifies and analyzes China’s ODIFs and assesses the potential role of ODIFs in China’s future overseas economic engagement.

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Given the novelty of China’s ODIFs and their available capital, these funds are poised to become more active sources of finance in China’s Belt and Road Initiative (BRI). Several recent policy directives from China indicate that a future increase in the use of ODIFs is likely. ODIFs have been mentioned in several Chinese policy documents such as the 2019 Belt and Road Forum List of Deliverables, the Forum on China-Africa Cooperation (FOCAC) Dakar Action Plan and the 2022 National Development and Reform Commission (NDRC) Green BRI guidelines. Mentioning ODIFs as future financing tools in these policy documents not only conveys their significance, but also signals how they could be better utilized in the coming years.

Dynamics in BRI countries may increase demand for financing from China’s ODIFs. As some Global South countries are currently managing debt distress or the risk of debt distress and considering alternative financing sources for domestic development, they will have to weigh the advantages and disadvantages of ODIFs.

The working paper contributes to a growing, empirically based understanding of the diversification of China’s overseas investment and development activity, channeled through equity and dedicated funds. ODIFs demonstrate a range of shareholders and fund structures across funds with similar goals of equity investment for overseas development. Further transparency is needed to understand the potential impacts of ODIFs, especially regarding disbursements. In addition, policy research is needed to understand the governance of ODIFs, especially at the project level.

As China’s overseas activity diversifies and China’s leaders promote the concept of a green BRI, a deeper understanding of ODIFs will be necessary to mitigate social, environmental and financial risks and maximize benefits of investment for development.

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Laura Gormley is a Research Assistant with the Global China Initiative and an MA Candidate in Global Policy at Boston University.

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