The Best Defense is a Good Offense : U.S. Dispositional Balancing against China’s Financial Statecraft

Whether and how does the US react to China’s deployment of development finance for gathering allies from the developing world and even key Western partners that have contributed to sustaining the American-led liberal international order? We argue that Washington deploys dispositional balancing against Beijing by supporting projects of international developmental organizations (IDOs) such as multilateral development banks (MDBs) that target borrowing members of the Asian Infrastructure Investment Bank (AIIB). In theoretical terms, dispositional balancing consists of a relatively cheap strategy in which the hegemon (in this case the US) reacts to the emerging power (China) by signaling to old and potential allies that it is willing to match the rival’s benefits. We test our argument through logit and linear models and tackle potential endogeneity with the use of an instrumental variable strategy. In line with the logic of dispositional balancing, we identify that US favors AIIB members in IDOs/MDBs, particularly whenever they also display high levels of dependency on Chinese aid and Beijing competes with traditional donors from the Organization for Economic Cooperation and Development’s Development Assistance Committee (DAC). Our findings contribute not only to debates on hegemonic transitions, but also to the growing scholarship on soft balancing and financial statecraft