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Paper short abstract

This study examines how post-2020 sovereign debt crises are reshaping overseas development finance amid US–China rivalry. Using Sri Lanka and Kenya, it shows how US led financial architecture constrains Chinese lenders while enabling a more state-driven resurgence of US development finance.

Paper long abstract

Ongoing geopolitical rivalry between the United States and China, combined with a wave of sovereign debt crises, is currently reshaping overseas development finance. Recent sovereign defaults have challenged China’s position as the leading development financier of Global South. During debt restructurings, Chinese actors have been pushed into a subordinate role due to the structural power exercised by US-led institutions within the international financial architecture. Chinese policy banks were compelled to operate within frameworks set by the IMF and Paris Club in which US influence remains substantial, making Chinese creditors to occupy a subordinate position. This shift has moved Chinese overseas lending from the assertive expansion of the previous decade toward a more defensive posture. Conversely, US has adopted proactive approach in overseas lending as evident in Development Finance Corporation (DFC) lending to Kenya. Against this backdrop, this study explores political economy factors that explain apparent contrasting approaches in overseas development finance by China and US after post 2020 debt crises. Research uses Sri Lanka and Kenya as case studies, and draw insights from major loans provided by China and US to both countries after 2020. Through examining these loans, study investigate the political economy of four interrelated elements namely; nature of lending approach, assessment of risk, institutional structure and global debt architecture that shapes development finance choices. Preliminary findings suggests that fragmented and commercially driven Chinese policy banks are compelled to adopt a risk averse approach while political preferences of current US administration had strengthen state driven lending.