Daniel McDowell, associate professor of political science, has published an essay exploring the implications of Chinese bank expansion abroad in the 2022-23 Wilson China Fellowship Report “Understanding China Amid Change and Competition.”

In his piece, “Lending Tree: The Motives Behind and Implications of Chinese Bank Branch Growth in Foreign Markets,” McDowell shares what may result from the massive growth of China’s four largest banks in recent years. One potential consequence, he says, is the diminished ability by the U.S. government to leverage financial sanctions on China as a bargaining tool.

McDowell also explores the links between the Belt and Road Initiative (BRI) and branch locations while considering how branch presence may affect the use of China’s currency in cross-border trade settlement. The BRI is a global infrastructure development strategy adopted by the Chinese government in 2013.

“Chinese investment in infrastructure and related development ventures in a foreign market relies heavily on Chinese firms, especially state-owned enterprises (SOEs), to execute the projects. Foreign activity of Chinese SOEs, then, generates the need for financial services between the mainland and overseas investment locations, which should provide incentives for major Chinese banks—which operate as financial arms of the state—to expand into these same foreign markets,” McDowell says in the essay.

He adds, “In the medium-term, the presence of Chinese branches in these markets could facilitate deeper ties between host-country businesses and China. More importantly for U.S. interests, these branches could help facilitate cross-border payments in China’s currency, the renminbi, diminishing the dollar’s role in these markets and weakening Washington’s capacity to use financial sanctions as a coercive tool.”

The Wilson Center selected McDowell last year for a 2022–23 Wilson China Fellowship. The China-focused non-residential fellowship is supported by the Carnegie Corporation of New York. The Wilson Center is chartered by Congress as the official memorial to President Woodrow Wilson and is a nonpartisan policy forum for tackling global issues through independent research and open dialogue.

By Michael Kelly