Labor rights, as a key component of human rights and development, offer an insightful lens through which to evaluate the broader consequences of social change. Globalization, one of the most significant transformations since the 1990s, has had a profound impact on societies around the world. Thus, the effects of globalization on societies have long been a topic of discussion, with a particular focus on how it influences labor rights. The debate has often centered on how various forms of cross-border financial flows—such as trade, foreign investment, and development aid—influence the rights of workers in host countries. While existing studies primarily examine the effects of capital inflow from Western nations on labor rights (e.g. Biglaiser and Lee 2019; Blanton and Blanton 2012; Blanton and Blanton 2016; Dewit, Görg, and Montagna 2009; Greenhill, Mosley, and Prakash 2009; Gross and Ryan 2008; Malesky and Mosley 2018; Messerschmidt and Janz 2023; Mosley and Uno 2007; Olney 2013; Wood 2014), China’s substantial economic expansion since the 2000s has positioned it as a significant global actor. Especially, China aims to increase its global influence by strategically utilizing its development finance to extend its international presence. Thus, under state guidance, China has become the largest financier of development projects in the Global South (Dreher et al. 2021). Despite the significant increase in financial flows from China, there is limited understanding of the relationship between China’s development finance and the labor rights of the recipient countries.

How does China’s official finance (OF) affect labor rights in recipient countries? Building on the burgeoning literature on the effects of Chinese aid (Brautigam 2011; Dreher et al. 2018; 2021; Zhang and Smith 2017), we theorize and empirically test how China’s OF affects collective labor rights in recipient countries. Especially, we categorized China’s OF into official development assistance (ODA) and other official flows (OOF) to investigate their respective impacts. Both OOF and ODA are included in the OF but have distinctly different characteristics. OOF-like flows are mainly aimed at infrastructure projects in the energy and transportation sector to fulfill China’s commercial objectives. In contrast, ODA-like flows target the health, education, and governance sectors to promote development in recipient countries, though their underlying intentions are sometimes questioned. Given the distinct financial characteristics of these flows, we argue that OOF-like and ODA-like flows impact collective labor rights in recipient countries differently: OOF tends to undermine labor rights in recipient countries, while ODA tends to improve them.

To test our argument, we conduct a cross-country analysis of labor rights standards through several regression models. Using time-series cross-sectional data that cover 77 developing countries from 2003 to 2017, our analysis provides a nuanced understanding of the effect of Chinese OF on the collective labor rights in recipient countries. Specifically, we find that China’s OOF-like flows have a negative effect on the labor rights of recipient countries while ODA-like flows do not show significant negative effects. Furthermore, the negative relationship between China’s OOF and collective labor rights is more evident in de facto labor practices than in de jure labor laws.

These findings contribute to both labor rights and China’s foreign aid literature. First, with a few exceptions (e.g. Adolph, Quince, and Prakash 2017; Isaksson and Kotsadam 2018a; Yang 2023), existing literature focuses on how Western countries’ financial flows impact labor rights in recipients. With China’s growing global influence, it is crucial to explore the effects of Chinese development finance on labor rights in these countries. Second, by distinguishing between OOF-like and ODA-like flows, our research examined the heterogeneous effects of China’s OF. As a result, it shows that China handles its financial resources differently, leading to varying outcomes in recipient countries. It could enhance our understanding of the effect of Chinese aid by clarifying how China utilizes its finances to maximize its profits.

The remainder of the paper is organized as follows. First, we outline how international financial flows such as trade, foreign investment, and foreign aid affect the collective labor rights in developing countries. Second, we delve into the characteristics of China’s OF, which could be divided into ODA-like and OOF-like flows and then develop our hypotheses on how these types of finance impact labor rights in recipient countries. Third, we describe our data and empirical strategies, and the results of the empirical analysis are presented. The last section concludes and offers implications of our study.

Globalization has led to a substantial increase in cross-border capital flows such as trade and investment (Fischer 2003). International financial flows are regarded as significant opportunities for developed countries to find new markets, while also offering developing countries a chance to attract capital for economic development. At the same time, these financial flows influence various aspects of host countries, from economic conditions to political stability. Labor rights are one of the essential aspects of human rights and economic development, making them a key area affected by these financial flows. Among the various aspects of labor rights, this study focuses on collective labor rights referring to workers’ rights to organize unions and engage in collective bargaining. The International Labor Organization (ILO) has established collective labor rights such as freedom of association and expression, recognition of the right to collective bargaining, and protection against unjust and hazardous conditions of work as the fundamental principles of labor rights (ILO 1998). Thus, this focus aligns with existing research, as unionization is widely considered a cornerstone of labor rights advocacy. These rights can be categorized into de jure (legal provisions) and de facto (practical enforcement) labor rights (Kucera and Sari 2019). Labor law, de jure rights, indicates the rules of how things should be done and the extent to which legal protection exists for freedom of association and collective bargaining rights of workers. Labor practices, de facto rights, refer to the extent to which such laws are enforced in actual workplace settings (Lee and Woo 2021).

A large body of literature explores the impact of international finance, particularly trade and investment, on labor rights in developing countries. One strand of scholars argues that host countries will engage in a ‘race to the bottom’, ultimately contributing to the deterioration of labor standards. Specifically, developing countries may face pressure to lower their domestic labor standards in order to attract more financial flow by maintaining lower employment standards and looser employment protection (Blanton and Blanton 2016; Dewit, Görg, and Montagna 2009; Gross and Ryan 2008; Mosley and Uno 2007; Olney 2013). Other scholars suggest the ‘climbing to the top’ effect of globalization. That is, increased financial flows can lead to improved labor conditions by stimulating economic growth, job creation, and increasing wages (Biglaiser and Lee 2019; Blanton and Blanton 2012; Greenhill, Mosley, and Prakash 2009; Javorcik 2015; Malesky and Mosley 2018; Messerschmidt and Janz 2023; Mosley and Uno 2007).

As with trade and investment, foreign aid serves as an important external resource for countries with pressing needs (Richards, Gelleny, and Sacko 2001). However, unlike trade and FDI, foreign aid is focused on humanitarian and development purposes. While the former aims at economic benefits and market expansion, the latter seeks to promote economic development and welfare in recipient countries (Radelet 2006). Thus, foreign aid is being used by developed countries as an essential tool to improve the living standards of developing countries. In terms of the influence of aid on labor rights, it plays a positive role.¹ Three mechanisms explain why foreign aid enhances labor rights in recipient countries. First, foreign aid can directly promote labor rights or related human rights within developing countries. In particular, Wood (2014) found that foreign aid directed at civil society and non-governmental organizations (NGOs) can improve workers’ rights by strengthening their ability to mobilize and bargain with the owners of capital. Second, foreign aid can indirectly enhance labor rights by promoting the spread of global norms. Donor countries with strict standards on human rights transfer these norms to countries receiving their aid by threatening to withdraw aid to countries if they violate human rights (Demirel-Pegg and Moskowitz 2009; Nielsen 2013). Moreover, aid from international institutions like the World Bank can improve labor rights by imposing penalties for human rights violations (Lebovic and Voeten 2009). Finally, recipient countries can voluntarily improve the quality of labor institutions and regulations in expectation of future aid. Especially, this improvement is made more evident in labor institutions regarding minimum wage, collective bargaining rights, and working hours than in hiring and firing rules, worker dismissal requirements, and conscription (Niu et al. 2024).

In addition to the type of international finance a country receives, the provider of finance is an important factor influencing labor rights in recipient countries (Greenhill, Mosley, and Prakash 2009). Since countries are not homogeneous, a given country may face competing pressures from different international financiers who have varying labor standards. Greenhill, Mosley, and Prakash (2009) show that trade or investment from strong regulatory environments brings ‘best practices’ to developing countries, leading to positive spillovers to local firms while the practices of foreign firms from lower labor standards environments can diffuse to local firms through competitive pressures. This phenomenon is known as the ‘California effect’.

With its rapid rise China has become a major player in the global economy. In contrast to Western countries, China’s distinct characteristics are prompting a reconsideration of the existing perspective — the California effect. In other words, a lot of recent literature explores how China’s financial flow affects the labor rights of developing countries. For instance, Adolph, Quince, and Prakash (2017) suggest the ‘Shanghai Effect’, which means that African countries involved in trade with China started to adopt their lower labor standards. Yang (2023) finds that FDI from China harms collective labor rights in host countries, whereas FDI from other countries does not exhibit the same negative impact. In terms of foreign aid, Isaksson and Kotsadam (2018) show that African countries receiving Chinese development projects experience a decline in individual trade union involvement, potentially leading to a weakening of labor rights.

In line with this recent trend, this article examines the effects of China’s OF on labor rights in recipient countries. OF includes ODA and OOF. Interestingly, Chinese OF, unlike that of other countries, has intertwined aspects of international finance, blending China’s private benefit with the development of recipient countries (Dreher et al. 2021). However, existing studies pay less attention to this aspect of Chinese OF. Although Isaksson and Kotsadam (2018) consider the impact of Chinese aid on labor rights, they focus solely on the effects of ODA, which represents only one component of the development of finance.² Furthermore, they explore individual-level labor rights using survey data instead of assessing national-level collative labor rights. Also, their analysis only focuses on African countries. This approach has limitations in understanding the overall effect of China’s OF. Therefore, we aim to address and fill the gaps not covered by previous studies.

Characteristics of China’s Official Development Finance

Since the early 2000s, China has experienced remarkable economic growth and significant improvements in its national capabilities. With its notable growth, China seeks to strengthen its global position, particularly by leveraging its economic power. These initiatives have led to a significant rise in China’s OF. Following the Forum on China-Africa Cooperation summit in 2006, China greatly expanded its foreign development projects, establishing itself as a leading force in South-South Cooperation (Gray and Gills 2016). Subsequently, China’s expenditure on its development finance has continued to increase, more than double that of the United States and other major powers. Specifically, since launching the Belt and Road Initiative (BRI) in 2013 as a global infrastructure strategy, it has allocated \$85 billion annually to its overseas development programs, compared to the \$37 billion spent by the United States (Malik et al. 2021). Figure 1 illustrates this trend.

China’s OF has several distinct characteristics when compared to those provided by traditional donors including OECD DAC countries. First, unlike traditional donors, who prioritize social sectors such as health, education, and social protection, China focuses its development projects on infrastructure construction in the energy and transport sectors (Zeitz 2021). Thus, Chinese OF is often channeled through projects and in-kind contributions, often related to commercial interests (Brautigam 2011). Second, China frequently bypasses standardized environmental review procedures, allowing for faster project allocation compared to Western counterparts when providing development finance (Zeitz 2021). This makes projects carried out by China progress more quickly. Lastly, the most notable aspect of Chinese development finance is that it typically does not impose institutional conditionality on development projects. While OECD DAC donors often impose conditions related to governance or policy changes on their aid, China emphasizes “non-interference” and mutual respect for sovereignty, requiring no commitment from the recipient countries (Blair and Roessler 2021).

Despite these differences, China’s OF is not substantially different from that of traditional donors (Kobayashi 2008). Based on OECD-DAC criteria, it can be categorized into two types: ODA-like flows and OOF-like flows.³ China’s ODA-like flows meet the OECD-DAC’s criteria for ODA, which focus on promoting economic development and welfare in recipient countries and include a grant component of at least 25 percent (Dreher et al. 2018). Specifically, ODA-like flows include all grants, technical assistance, loans with large grant elements, and debt relief. These projects are overseen by the Ministry of Commerce (MOFCOM) and the Ministry of Foreign Affairs (MOFA) (Zhang and Smith 2017). OOF-like flows, on the other hand, refer to finance that does not meet ODA criteria due to their lack of concessionality and developmental purpose. OOF projects are usually decided by two state-owned banks: The Export-Import Bank of China and the China Development Bank. Since banks need to generate financial returns, OOFs are inevitably directed toward more profitable projects (Brautigam 2011; Corkin 2011). In other words, OOF-like flows primarily focus on enhancing national economic interests, like promoting exports and economic cooperation, rather than on development goals for recipient countries (Dreher et al. 2021). Thus, OOF is intended to help Chinese firms penetrate the recipient country’s market, establish stable trade relations, and secure future contracts (Chen and Orr 2009). As shown in Figure 1, OOF constitutes most of China’s OF. In sum, development projects with unique Chinese attributes are mainly reflected in OOF-like flows, while ODA-like flows align more closely with those of traditional donor countries. Furthermore, the differing objectives of finance lead to variations in the sectors targeted by ODA and OOF-like flows. Figure 2 highlights the distinct focus of China’s OF. ODA-like flows are largely concentrated in areas such as education, government and civil society, and health sectors, reflecting efforts to support human capital development and strengthening of institutions in recipient countries. In contrast, OOF-like flows are directed toward energy, mining, and transportation, aligning closely with China's broader economic interests and infrastructure-driven development approach. These financial flows are often linked to Chinese construction, manufacturing, and mining companies, enabling them to gain a foothold in host countries.

How does Chinese aid affect labor rights in developing countries?

Given the distinct interests and goals of China’s official development finance types, how does each affect collective labor rights in recipient countries? We argue that China’s ODA-like flows will improve labor conditions, while OOF-like flows will have a detrimental effect on labor rights in the recipient country.

As mentioned above, OOF-like flows are intended to generate economic advantages for China, rather than supporting the development and welfare of the recipient country. Therefore, Chinese OOF-like flows can erode collective labor rights in the recipient country through the following mechanism. First, China’s OOF-like flows typically concentrate on large infrastructure projects such as energy, industry, mining, and construction (Figure 2). Large-scale infrastructure development leads to the weakening of labor rights and increased safety risks for workers in developing countries (Hoagland-Grey 2009). the immense scale and cost-driven timelines of these projects often prioritize rapid completion over worker welfare, leading to compromised safety standards; Chinese firms may exploit regulatory gaps in host countries with weaker labor laws, providing minimal protection and operating below international labor standards; insufficient provision of safety equipment and inadequate training elevate accident rates on construction sites (Akorsu and Cooke 2011); local governments often lack the resources or capacity to effectively monitor and regulate these projects, resulting in poor enforcement of labor laws; and the influence of Chinese government support can lead to regulatory leniency, all of which place workers in vulnerable positions, undermining their rights and exposing them to harmful conditions (Hoagland-Grey 2009). Moreover, China’s non-interference policy does not necessarily require any modifications to enhance the quality of the construction process (Isaksson and Kotsadam 2018a; Jacobs 2011). As a result, the increase in infrastructure projects due to the influx of Chinese OOF can exacerbate labor rights in recipient countries.

Second, and importantly, China manages development projects throughout its entire implementation process, depending on Chinese contractors and workers in the recipient countries (Brautigam 2011; The Economist 2020). Their presence could affect local labor conditions (Isaksson and Kotsadam 2018a). Given that China has limited domestic traditions for labor rights—where workers lack the rights to strike, bargain collectively, or organize independent labor unions (Yang 2023)—Chinese development projects implemented by Chinese contractors are likely to disregard the labor rights of local workers. Many Chinese firms supported by the Chinese government employ anti-union strategies, including open intimidation (Jauch and Baah 2009), exemplifying the “Shanghai effect,” where China’s lower domestic labor standards spread to other countries. Furthermore, because Chinese construction companies prioritize commercial interests, they aim to reduce labor costs during the project execution phase, often resulting in diminished labor rights and poorer working conditions for workers in recipient countries (Isaksson and Kotsadam 2018a). This combination of direct project control, low domestic labor standards, anti-union practices, and cost-cutting measures contributes to the erosion of labor rights abroad.

Third, and related, local firms seeking to engage in Chinese-led development projects often lower labor conditions to enhance their competitiveness (Yang 2023). Because China’s domestic labor standards are relatively low, Chinese contractors tend to favor partnerships with companies that can match these conditions. This creates a strong incentive for local firms to weaken their own labor standards such as offering lower wages, cutting employee benefits, ignoring safety protocols, or extending working hours without proper compensation to align with the expectations of Chinese contractors. In developing countries, the opportunity to participate in large-scale projects represents significant revenue potential, so many firms are willing to compromise on labor rights to secure these contracts. Even if the host country has robust labor laws, enforcement may be lax, allowing Chinese contractors to apply their own standards unchecked. This scenario leads to a "race to the bottom" among local firms, where companies systematically undercut each other by degrading labor conditions to become more attractive to Chinese-led projects, ultimately eroding overall labor standards in the country.

We also report some examples where labor rights in recipient countries appear responsive to the development projects. In particular, we will examine how companies involved in China's development projects interact with and manage their workforce. Through the analysis of these cases, we can better understand how labor rights have evolved in response to Chinese OOF. Starting with Ghana, workers at Ghana Utensils Manufacturing Company Limited (GUMCO), a Chinese multinational firm, are officially protected under a collective bargaining agreement (CBA). However, the company has frequently been accused of disregarding its commitment to labor unions. For instance, although the CBA stipulates an annual salary increment, no such increase has been implemented, and repeated attempts by the union to negotiate wages have been unsuccessful. Furthermore, according to the union representative, the local union official was coerced into undergoing training, allegedly as a means of co-opting him to align with the firm's interests (Akorsu and Cooke 2011).

Further evidence from Ghana highlights labor issues associated with Chinese construction firms: Sinohydro Corporation, which the local government contracted in 2007 for the Bui Dam project—the largest Chinese-funded initiative in Ghana. Backed by the Chinese government, Sinohydro linked its aid to construction services but faced criticism for its anti-union strategies, including open intimidation that prevented the establishment of labor unions at the Bui Dam site (Jauch and Baah 2009). Additionally, Otoo et al. (2013) revealed that most of the 1,836 Ghanaian workers employed during the construction phase were casual laborers without proper contracts, lacking basic protections like minimum wage, defined working hours, and secure employment agreements. Despite the Bui Power Authority being responsible for enforcing local labor laws and several regulations such as employment contracts, minimum wage, and working hours, these regulations were often ignored. Workers reported that contract renewals were tied to satisfactory performance, leaving many in precarious employment conditions (Otoo et al. 2013).

Similarly, in Zimbabwe, Chinese construction firms, including the state-owned Anhui Foreign Economic Construction Company (AFECC), have carried out major infrastructure projects under China’s ‘Going Out’ strategy, such as the construction of the Joshua Nkomo and Victoria Falls Airports and the expansion of the Robert Mugabe International Airport (Chipaike and Marufu 2020). Despite Zimbabwe’s comprehensive labor laws, which permit termination by mutual agreement in writing (Mucheche 2017), Chinese companies in the country have been accused of violating ILO conventions and local labor regulations (Chipaike and Marufu 2020; Zwinoiran 2018). Reports suggest that workers are denied paid leave, forced to work excessive overtime, and threatened with dismissal if they fail to comply (Kaplinsky 2008).

What about the ODA-like flows? In contrast to OOF-like flows, we argue that China’s ODA-like flows could have a positive effect on the labor rights of the recipient countries. It is related to the characteristics of ODA. Specifically, China’s ODA-like flows are more associated with projects in the health, education, and governance sectors (Figure 2). That is, ODA-like flows are nominally intended to promote economic or social development and are provided at levels of concessionality consistent with the ODA criteria established by the OECD-DAC. In effect, China’s ODA-like flow has significantly contributed to the development of civil society in Africa (Lönnqvist 2008). As a result, China’s ODA-like flows are expected to improve labor conditions, as they function similarly to aid provided by traditional donor countries (Wood 2014). Furthermore, ODA-like projects primarily target sectors related to public infrastructure development, particularly in health and governance. These projects primarily focus on building hospitals, schools, or government offices, which might not align with China's commercial interests. Thus, households residing in areas with Chinese aid projects experience better education and lower child mortality rates. Enhanced education levels empower workers by increasing their awareness of labor rights, enabling them to understand and advocate for better working conditions (Martorano et al. 2020). Moreover, because ODA-like projects are generally smaller in scale, they pose a lower risk of labor rights violations compared to OOF-like projects that focus on larger infrastructure initiatives.

Indeed, China promotes South-South Cooperation by aligning its foreign aid efforts with various United Nations (UN) agencies such as the UN Development Programme (UNDP), the Food and Agriculture Organization of the UN (FAO), and the UN Industrial Development Organization (UNIDO) (United Nations Office for South-South Cooperation 2024). By collaborating with these UN-affiliated organizations, China ensures that its development projects are integrated with internationally recognized standards and best practices. These organizations, particularly the UNDP, have a longstanding commitment to advancing workers’ rights and promoting decent work conditions globally. Through such partnerships, ODA-like flows from China are subject to stricter international standards. For example, projects undertaken in conjunction with the UNDP should comply with the UN’s core labor standards, which include the right to collective bargaining, the elimination of forced or compulsory labor, the abolition of child labor, and the elimination of discrimination in respect of employment and occupation. This compliance helps safeguard workers’ rights by ensuring that development initiatives uphold fundamental labor protections. This alignment enhances the overall welfare of workers in developing countries by upholding protections that may exceed local standards. This pattern indicates that China’s ODA-like flows significantly improve the Human Development Index (HDI) of the recipient countries. Yuan (2020) points out that countries receiving Chinese foreign aid tend to perform better in areas like health, education, and income, leading to better conditions for workers and their rights.

Based on the preceding discussion, we propose the following hypotheses:

Hypothesis 1: China’s OOF flows are likely to be negatively associated with the level of labor rights in recipient countries.

Hypothesis 2: China’s ODA flows are likely to be positively associated with the level of labor rights in recipient countries.

Furthermore, we analyze the impact of Chinese development projects on labor law and labor practice separately. The differentiation between formal labor rights laws and their actual implementation is crucial, considering that the presence of such laws does not guarantee their enforcement, especially when governments lack the capacity to effectively monitor and apply these standards (Greenhill, Mosley, and Prakash 2009; Lee and Woo 2021). In this study, we expect that the impact of Chinese ODA-like and OOF-like projects on collective labor rights are more pronounced in labor practices than in labor laws, reflecting the characteristics of Chinese development finance. As discussed above, China adheres a non-interference principle in its aid policy. This focus allows recipient countries to avoid pressure to enhance labor rights standards. Moreover, China’s OF is given in the form of material rather than cash (Brautigam 2011; Dreher et al. 2021), meaning that the projects led by China in the recipient countries significantly influence labor rights.

Hypothesis 3: The effects of Chinese OF flows are likely to be greater on labor rights in practice than in law.

Variables and Data Sources

We test our hypotheses by using data from Yang (2023), which includes collective labor rights scores for 77 developing countries from 2003 to 2017.⁴ Given the availability of reliable labor rights, we focus on these specific countries and periods, acknowledging that this remains challenging for analysis.⁵ Despite its limitations, this data offers a broader scope than previous studies. Specifically, previous labor rights literature has widely employed data from Mosley and Uno (2007), as referenced in various studies (Biglaiser and Lee 2019; Blanton and Blanton 2012; Blanton and Blanton 2016; Greenhill, Mosley, and Prakash 2009; Lee and Woo 2021). Although their dataset offers comprehensive measures of workers’ rights, it only covers the period from 1986 to 2002. Thus, it has limitations to fully understand the impact of Chinese development finance, which has been increasing since 2000.⁶ Yang (2023), on the other hand, provided a more recent and updated measure of collective labor rights by combining scores developed by Marx, Soares, and Acker (2015) and Kucera and Sari (2019),⁷ thus expanding the labor rights score coverage from 2003 to 2017.⁸ The dataset compiled by Marx, Soares, and Van Acker (2015) builds upon earlier work by Kucera (2002) and Mosley and Uno (2007), extending the data for the period from 2003 to 2012. Kucera and Sari (2019) further update this dataset for the years 2015, 2016, and 2017, addressing the limitations of Kucera’s (2002) original methodology by expanding the number of textual sources from three to nine and increasing the assessment criteria for collective labor rights and trade union organizations from 37 to 108. This enhanced version places a stronger emphasis on violations committed against trade union officials, thereby offering a more nuanced and detailed depiction of labor rights conditions over time.

In order to test our hypotheses, we utilize Yang’s two measures of labor rights as our dependent variables: (1) labor laws, which measure de jure legal labor rights requirements, and (2) labor practices, which indicate the de facto level of respect for labor rights. Using these distinct variables, we examine whether and how Chinese foreign aid impacts legal protection and practical implementation of labor rights in recipient countries. The differentiation between formal labor rights laws and their actual implementation is crucial, considering that the presence of such laws does not guarantee their enforcement, especially when governments lack the capacity to effectively monitor and apply these standards (Greenhill, Mosley, and Prakash 2009; Lee and Woo 2021). These scores range from 0 to 10, where 0 represents best practices and 10 indicates worst practices. We inverted the score so that higher values indicate a greater degree of respect for labor rights for ease of interpretation.

Our primary independent variable is the amount of China’s official development finance. To capture this variable, we rely on AidData’s Global Chinese Development Finance Dataset (Goodman et al. 2024). Specifically, we include the OF provided by China in our statistical analysis in order to evaluate the overall effect of Chinese development projects on collective labor rights. Then, we divide it into OOF and ODA to test our hypotheses, arguing that their respective characteristics lead to different impacts. To measure these variables, we use the amount of commitments rather than disbursements, as reliable data on disbursements is unavailable due to China’s lack of transparency regarding its development projects (Dreher et al. 2021). To address this issue, Dreher et al. (2021) suggest applying a two-year lag, given that the average project duration is approximately 664 days from commitment. Therefore, we apply a two-year lag to capture the delayed impact of financial commitments on labor rights and related outcomes. Then, we convert all independent variables to their natural logarithm, adding 1 to all values to avoid skewing the distribution.

In addition, we control for several factors suggested by previous literature on labor rights. First, we consider economic conditions, as better economic status generally correlates with improved labor rights protection (Greenhill, Mosley, and Prakash 2009; Mosley and Uno 2007). Specifically, we include both GDP per capita and GDP growth to capture different dimensions of economic conditions. GDP per capita reflects the overall economic capacity of a country and serves as an indicator of long-term wealth and development, which can influence labor rights protection by providing a stable foundation for policy enforcement. In contrast, GDP growth measures the short-term economic dynamics and fluctuations that might create pressures or opportunities affecting labor rights in the immediate term. Also, countries with larger populations tend to experience more frequent violations of collective labor rights, suggesting a higher likelihood of such violations with increasing population size (Mosley and Uno 2007). Therefore, we control for economic conditions—GDP per capita (logged), GDP growth, and population (logged)—using data from the World Development Indicators (WDI).

Second, we account for the domestic political environments of labor rights. Previous studies have shown that democracies and leftist governments tend to advocate for labor rights because workers represent substantial parts of the electorate and are essential to their constituencies in developing countries (Blanton and Peksen 2016; Neumayer and Soysa 2006; Lee and Woo 2021). We control for democracies, using the Polity 2 score that ranges from -10 indicating full autocracies to 10 representing full democracies (Marshall and Gurr 2020) and government ideology from Data of Political Institutions (DPI), coding leftist governments as 1 and others as 0 (Beck et al. 2001). In addition, a vigorous civil society supports better labor standards by mobilizing resources and negotiating capital with the state (Wood 2014). Data for civil society came from the Variety of Democracies (V-dem) project (Coppedge et al. 2024). Countries experiencing civil conflict are likely to have poorer labor rights due to the prevalent violence within the country (Biglaiser and Lee 2019). Data for the civil war comes from the Uppsala Conflict Data Program/International Peace Research Institute, Oslo (UCDP/PRIO) Armed Conflict Dataset (Gleditsch et al. 2002).

Lastly, we include international variables that might influence labor rights. The level of a country’s integration into the global economy can have an ambivalent effect. While economic globalization can boost labor rights through economic growth and investments, it can also lead to downward pressure on labor rights by increasing competition for workers (Mosley and Uno 2007). We use trade as a share of GDP and FDI inflows as a share of GDP to assess this effect, with data sourced from the WDI. In addition to economic globalization, political globalization can affect labor rights in a country (Blanton and Blanton 2016). Given the global spread of norms regarding labor standards, international pressure plays a significant role in promoting collective labor rights. To assess this, we control for the ratification of International Labor Organization (ILO) conventions and the regional peer effect. Specifically, we include whether the country has ratified two core ILO conventions related to the freedom of association (C87) and collective bargaining (C98), as well as the regional average overall collective labor rights scores within a given year (Yang 2023).

Summary statistics for the variables mentioned above are presented in Table 1.

To explore the relationship between Chinese development finance and collective labor rights, we estimate linear regression models with panel -corrected standard errors (PCSE). The PCSE model is commonly employed for panel data analysis, particularly when the number of countries is larger than the number of time periods as is the case with our dataset (Beck and Katz 1995)⁹ PCSE helps address issues of heteroskedasticity and contemporaneous correlation across panels, ensuring robust standard error estimation. Also, Wooldridge tests indicate the majority of our models exhibited first-order serial correlation. Thus, we use the Prais-Winsten regression with a panel-specific AR(1) error structure to mitigate the serial correlation between the errors. The Prais-Winsten estimator is particularly suitable for our data, as it accounts for serial correlation within panels without discarding observations, unlike first-differencing methods. By employing a panel-specific AR(1) correction, we allow the error structure to vary across countries, providing a more flexible approach that captures unique temporal dynamics within each country. In addition, we use country-fixed and year-fixed effects, which account for time-related shocks that could affect labor rights, as well as any unobserved time-invariant characteristics of the country. Lastly, we lag all control variables by one year to prevent the possibility of endogeneity that can lead to obtaining biased estimates. Lagging these variables allows us to better capture the temporal relationship between economic and political conditions and labor rights, minimizing simultaneity bias and enhancing the validity of our inferences.

Main Results

Table 2 reports our main findings using the Prais-Winsten estimators. Models 1 and 2 present the results accounting for the impact of Chinese development finance on de jure labor rights, whereas Models 3 and 4 depict its effect on de facto labor rights. Additionally, Models 1 and 3 explore the impact of overall development finance, while Models 2 and 4 analyze the distinct effects of OOF and ODA. Consistent with our theoretical framework, China’s OOF-like and ODA-like flows exhibit different influences on labor rights. Specifically, China’s OOF-like flows have a negative effect on labor rights while ODA-like flows have a positive effect on labor conditions in recipient countries. Notably, these impacts are more pronounced in labor practices than in labor laws, reflecting the characteristics of Chinese development finance. As discussed above, China adheres a non-interference principle in its aid policy. This focus allows recipient countries to avoid pressure to enhance labor rights standards. Moreover, China’s OF is given in the form of material rather than cash (Brautigam 2011; Dreher et al. 2021), meaning that the projects led by China in the recipient countries significantly influence labor rights. Therefore, the findings presented in Table 2 support our Hypotheses 1 and 2.

Regarding control variables, the results align with existing findings in the labor rights literature. The size of the economy, trade openness, and ILO ratification have positive and statistically significant effects on labor laws in recipient countries. On the other hand, the inflow of FDI has a negative effect on labor practices. Surprisingly, the population shows contradictory coefficients in labor laws and labor practices, which may reflect the gap between laws and practices. The results for the other variables are not statistically significant.

Robustness Check

To verify our empirical findings, we conduct additional empirical tests. First, some may worry about missing data. Developing countries, the object of our analysis, could show substantial deficiency of economic covariates. Lall (2016) found that missing data is more prevalent among poorer countries and those with weaker democratic institutions, a pattern referred to as “advanced democracy bias.” Especially, our dependent variable – labor right – has a two-year gap in the middle. This could make our results inefficient and biased. To deal with this issue, we impute missing data via multivariate imputation by chained equations (MICE) in our dataset. Multiple imputation is beneficial when missingness is largely a factor of observed characteristics such as development and state capacity (Arel-Bundock and Pelc 2018). Table 3 reports the results with imputed data. Our main findings remain consistent after imputation.

Second, some may be concerned about potential endogeneity issues. It is possible that there is a mutual interdependence between our independent variables and the level of labor rights in recipient countries. That is, China does not allocate its finance randomly and may strategically choose the distribution of development finance based on the labor rights conditions in recipient countries. For instance, given the differing purposes of finance (development versus commercial), countries with stronger labor rights may have a higher likelihood of attracting ODA, while those with weaker labor rights may be more likely to attract OOF. To address this concern, we re-run our models using a system Generalized Methods of Moments (GMM) estimation (Blundell and Bond 1998).¹⁰ GMM approach “takes the first difference of the data and then uses lagged values of the endogenous variables as instruments” (Roodman 2009), allowing us to address endogeneity while incorporating multiple endogenous variables within a model without requiring external instruments. It not only mitigates potential biases arising from simultaneity but also helps account for reverse causation—where countries with stronger labor rights might receive more ODA from China. Table 4 reports estimation results using the two-step system GMM. The GMM estimator supports our hypotheses 1b and 2b. Chinese development finance has a greater impact on labor practices rather than on labor laws. In particular, the coefficient of OOF is negative and significant in Model 8. However, the ODA variable does not yield consistent results compared to the Prais-Winsten regression. This discrepancy may be attributable to the endogenous link between ODA and labor rights. As mentioned earlier, China’s ODA-like flows often align with international ODA standards. This means that countries with better labor rights may attract more ODA, which might lead to concerns about reverse causation. In this case, by producing an unbiased estimation, GMM makes different results. Thus, hypothesis 2b is partially supported. On the other hand, hypothesis 1b is also strongly supported in the GMM model, reflecting the commercial objectives underlying China’s OOF-like flows. These flows, which prioritize commercial interests, particularly in infrastructure investments, tend to deteriorate labor practices in the regions where the projects are implemented, rather than influencing labor laws (Isaksson and Kotsadam 2018b).

Lastly, others may wonder if the effect of Chinese OF stands out compared to other donors in terms of labor rights. To answer this question, we conduct a placebo test by using official financing provided by OECD DAC. Unlike China, Western donors explicitly commit to advancing good governance and enhancing citizen engagement in recipient countries (Demirel-Pegg and Moskowitz 2009; Nielsen 2013). For instance, they prioritize ‘Good Governance’ as a central pillar, focusing on promoting citizen participation to ensure accountability from governments and private sector partners. Furthermore, they incentivize governance improvements by employing a performance-based allocation mechanism, which gives considerable weight to country performance ratings in institutional development and governance (Bourguignon and Gunning 2020). Thus, this placebo test allows for a direct comparison between the effects of Chinese official finance and those of OECD DAC on labor rights. Table 5 shows the results of the development finance from the OECD DAC, which were used as independent variables. The findings reveal a notable difference between the impacts of OECD DAC finance and Chinese finance. Specifically, while the OECD DAC’s development finance—including both ODA and OOF—demonstrates a positive and statistically significant effect on labor laws, there is no significant effect on labor practices. These results suggest that OECD DAC aid is generally associated with stricter labor standards and governance conditions, contributing positively to the legal framework of labor rights in recipient countries. This aligns with previous studies that highlight the positive influence of foreign aid on labor rights (Niu et al. 2024; Wood 2014). In contrast, Chinese official finance, particularly OOF flows, tends to have a significant negative impact on labor practices, rather than on labor laws. This distinction suggests that while Western aid efforts aim to strengthen the institutional and legal structures supporting labor rights, Chinese OOF flows, which are primarily driven by commercial objectives, may contribute to a decline in the actual enforcement and practice of these rights. The differences between the effects of OECD DAC and Chinese official finance underscore the contrasting motivations and conditionalities behind their aid programs, highlighting the nuanced implications of Chinese development finance on labor rights compared to those of Western donors. These findings make the impact of Chinese OF even more pronounced.

International financial flows profoundly affect the labor standards in recipient countries. This article enhances the understanding of this dynamic by investigating the impact of official development finance provided by China, which has unique institutional and political traits. Specifically, we categorize China’s OF into OOF and ODA and examine their impact on collective labor rights in recipient countries. Analyzing data from 77 developing countries between 2003 and 2017, we find that total OF has no statistically significant effect on labor rights in recipients. However, we find that OOF-like development finance is negatively associated with de facto collective labor rights in recipient countries, while ODA-like finance does not exhibit such a negative relationship. Also, we observe that development finance from OECD DAC improves the de jure labor rights in recipient countries. The results consistently confirm the existence of the Shanghai effect, highlighting that China’s development projects produce different outcomes compared to those from the Western countries.

We acknowledge a few limitations of our work. First, there are limitations related to the data used in this study. Estimating labor rights is an incredibly challenging task. Although many scholars have developed different approaches to tackle this issue, there remains a scarcity of consistently comparable data. Especially, no dataset consistently tracks labor rights from earlier periods to the present. In this study, we try to overcome this problem by appending two datasets. In addition, limitations also exist regarding the measurement of Chinese OF used as an independent variable. Due to China’s lack of transparency, we rely on commitment data from the GCDF dataset, which compiles information from media articles and government reports. However, commitments often do not reflect actual disbursements, potentially leading to an overestimation of the aid’s impact on labor rights. We attempt to mitigate this issue by applying a two-year lag to the commitment data.

Second, while our study provides an extensive analysis of the impact of China's two primary types of development finance – OOF and ODA – on labor rights in recipient countries, it does not explore all underlying mechanisms. Future research could examine how the specific attributes of recipient countries affect the influence of Chinese OF on labor rights. For example, could the regime type or economic characteristics of the recipient country mitigate the negative effect of Chinese capital on labor rights? A lot more remains to be understood about how the various mechanisms of domestic politics can control increasing amounts of international financial flows on their labor standards.

Despite these possible limitations, our findings hold several important implications for collective labor rights. First, we contribute to the emerging quantitative literature exploring the previously poorly understood impact of globalization on labor rights. This study deepens our understanding of the relationship between Chinese OF and labor rights in developing countries. Specifically, we introduce the ‘Shanghai effect,’ which underscores the nuanced role of Chinese finance in South-South Cooperation frameworks. While South-South Cooperation is often viewed as mutually beneficial, our findings suggest that Chinese engagement is primarily driven by China’s economic self-interests rather than genuine partnership. Through OOF-like projects, Chinese industries, including manufacturing and construction firms, establish footholds in host countries under the guise of cooperation. Although these projects may provide short-term benefits, such as job creation and infrastructure development, they risk eroding local labor standards and markets in the long term, potentially triggering a ‘race to the bottom.’ This challenges the optimistic narrative of South-South Cooperation, highlighting the need to balance economic gains with the protection of human rights to achieve sustainable and equitable development.

Second, our findings provide policy recommendations to address the adverse effects of OOF-like flows on labor rights. Policymakers in recipient countries need to take proactive measures to minimize and prevent these adverse effects. By doing so, they could collaborate with international organizations, such as the ILO, which offers robust monitoring systems to safeguard and promote labor standards in member states. Given the risks associated with OOF-like projects, policymakers might establish stricter oversight mechanisms and engage more actively with ILO staff rather than relying solely on local unions. They should also closely assess labor conditions under Chinese firms and consider introducing supplementary legislation to prevent these contractors from exploiting legal loopholes. For instance, appointing more credible government supervisors and ensuring consistent communication with workers could strengthen enforcement and accountability. These measures aim to mitigate the negative impacts of Chinese development projects and promote more equitable labor practices.