Chinese Development Finance and the Erosion of U.S. Diplomatic Influence

Abstract This paper asks whether Chinese development finance erodes U.S. soft power, defined as the ability to influence countries’ positions on salient multilateral issues. We construct a novel country-year measure of U.S. diplomatic influence based on the gap between a country’s ideal-point distance from the U.S. across all UN General Assembly votes and its distance on resolutions identified by the State Department as important and actively lobbied. Instrumenting Chinese finance with cyclical variation in China’s production of construction inputs interacted with recipients’ predetermined industrial structure, we find that a one-standard-deviation increase in Chinese finance lowers U.S. influence by 0.73 standard deviations. The effect is confined to U.S.-important votes, absent in an EU-based placebo, and weaker in countries hosting U.S. troops or with stronger trade and historical political ties to Washington. Alignment with China does not rise on average. Chinese finance thus appears to weaken U.S. leverage by expanding recipients’ outside options rather than by drawing them toward Beijing. These findings suggest that Chinese finance primarily operates by expanding recipients’ outside options and weakening U.S. diplomatic leverage, while longstanding security, economic, and political ties continue to anchor U.S. influence.