DevExplains: Chinese aid

MANILA — In the latest standoff between North Korea and the United States on the former’s nuclear arms threat, one superpower is caught in the middle: China. World leaders such as U.S. President Donald Trump and German Chancellor Angela Merkel are looking to the Asian giant to exert its influence on Kim Jong Un’s regime to curb its nuclear threats.

China’s role within the current tensions traces back to its relationship with North Korea. It has long been the country’s biggest source of support, militarily and economically. During the Korean War, Beijing sent its troops to aid the North Koreans, and remains North Korea’s biggest trading partner and source of aid. This remains the status quo despite international criticism on North Korea’s human rights abuses.

Whether that will change soon remains to be seen. But China’s decision to largely stay out of North Korea’s domestic affairs isn’t exclusive to its relationship to the pariah nation.

China is known for its adherence to non-interference, at least in matters of foreign assistance. There are a number of factors at play why Beijing adopts this tactic with North Korea, but in general, the principle has won hearts among government leaders who place huge importance on maintaining their own sovereignty. China has also refrained from calling itself a donor, and has placed itself more as a partner of developing countries. Beijing has emphasized its goals of win-win development cooperation, noting that China itself is a country that requires further development. This strategy has made Chinese aid “attractive” to recipient countries, said Dennis Trinidad, associate professor of international studies at De La Salle University, one of the top universities in the Philippines. Trinidad has written several papers on Chinese aid.

“When you say South-South cooperation, the provider and the receiver are partners. You’re both cooperators in development [as opposed to] one is donor, one is recipient; one is generous, one is grateful. That’s where power relations begin,” he told Devex.

Such actions have attracted their own set of negatives. By providing aid to authoritarian governments, China has been accused of failing to leverage its aid to promote good governance and respect for human rights. By providing loans to countries with less capacity to pay, China has been accused of only perpetuating poverty and exploiting these countries, either for their oil, natural resources or strategic geographical positions, for its own economic benefits and strategic interests. Such criticism ties in with China’s practice of employing Chinese companies and experts in a majority of projects it supports, another action that veers away from how traditional donors typically operate under the rules of untied aid set by the Organisation for Economic Co-operation and Development's Development Assistance Committee. The DAC is a platform often referred to as an elite club for the world’s most developed nations to discuss and set standards on the terms and provision of what can be considered official development assistance. Tied aid is a practice often attributed to emerging donors, such as South Korea, however, not just China.

China’s earlier uses of its aid to support communist groups or insurgents in Asia between the 1950s and 1970s, such as its alleged involvement in the infamous 1965 coup attempt in Indonesia and its foreign assistance to the Khmer Rouge, have also left a “legacy of suspicion and distrust” among ASEAN countries on China’s intentions, said Trinidad in his paper titled The Foreign Aid Philosophy of a Rising Asian Power: A Southeast Asian View.

In recent years, however, China has sought to change perceptions among its neighbors and the wider international community. In 2011 and 2014, it released two white papers detailing elements of Chinese foreign assistance, which some experts hailed as a positive step toward more transparency. In those white papers and elsewhere, China has been forthcoming of the principles it abides by, the total volume of foreign assistance it has provided since 1950, and the types of assistance it provides, which isn’t entirely limited to those prescribed by the DAC as official development assistance — although China isn’t obliged to follow those standards given it’s not an official member of the “club.” Chinese foreign assistance does include military assistance, export credits, construction of government offices and other infrastructure projects that are not wholly development driven. The Chinese government has also started to actively participate in international forums and international meetings, and engage in different partnerships to project a “good neighbor” image, said Trinidad.

But such information remains a drop in the bucket. It has done little to satiate the aid community’s thirst for information on Chinese development aid. And it has done little to expand on the scarce amount of official information and disaggregated data provided to date. Such information is key to understanding how China manages its aid portfolio, how and where the money is spent, and what the primary motivations are. With China’s rising influence and growing role in the international development scene, the answers to those questions are more crucial than ever.

Who handles and manages China’s foreign aid?

While other, more established, donors have multiple departments involved in their foreign aid programs, they usually have a dedicated agency or department largely in charge of their countries’ aid portfolio. Not China. In its first white paper, published in 2011, the State Council identified the different ministries, departments and entities involved in handling and managing Chinese foreign assistance, but that description fell short in providing clear lines of responsibility between each ministry involved in Chinese foreign aid, or how one interacts with another.

Several researchers have tried to put structure to the chaos. In a report written by Herbert Ferguson-Augustus from the University of Minnesota in 2016 on Chinese aid systems in Africa, he identifies the Ministries of Commerce, Finance and Foreign Affairs as the main ministries under the State Council playing a key role in Chinese foreign aid work. The Export-Import Bank of China, or Eximbank, meanwhile is in charge of loan and credit disbursements to foreign governments.

Research on Chinese foreign aid to Africa by Li Xiaoyun, a professor at the China Agricultural University, meanwhile, shows a whole list of offices and divisions under the Department of Foreign Aid and the Executive Bureau of International Economic Cooperation — which work under the Ministry of Foreign Affairs — as being involved in the process.

A paper by Denghua Zhang, who used to serve in the Chinese government and has written several papers and analyses on Chinese aid, and Graeme Smith, a research fellow at the Australian National University, published in June 2017, however, provides some of the most detailed information and perspectives on China’s hierarchical aid structure.

In their paper, the authors emphasize the role of China’s top decision-making body — the Central Committee of the Communist Party of China — as the main decision-makers behind China’s foreign policy. Under the Committee is a Foreign Affairs Leading Group, headed by Chinese President Xi Jinping, Deputy President Li Yuanchao and Yang Jiechi, China’s former foreign minister, who sits as secretary general.

The research underscores the important role played by the Ministry of Commerce, to whom many other agencies and ministries report, but also how its actions regarding China’s foreign assistance are driven by economic interests. The Ministry of Commerce, often referred to as MOFCOM, “is the statutory body on economic development and the caretaker of Chinese companies overseas,” according to the paper.

Two particular entities working under it are worth noting. One is the Executive Bureau of the International Economic Cooperation, which is in charge of, among other things, project design, contractor prequalification as well as bidding. The other is the Economic and Commercial Counsellors’ offices found in “almost all” Chinese embassies overseas, and which is staffed by MOFCOM. They have on the ground presence, and therefore have the advantage of working in close proximity with country officials and locally based Chinese companies, as well as the ability to aid projects. However, the offices are often short staffed, lack technical know-how and often lack interest in aid projects, according to Zhang and Smith. Instead, staff at the Economic and Commercial Counsellors’ offices focus more on China’s trade and investment work, which bear more weight in annual assessments for which their promotions are based.

Zhang and Smith also argue that the role of the Ministry of Foreign Affairs is just as important, especially given the Chinese government’s emphasis on foreign aid also serving its political interests — though it is hardly the only government to do so. This is apparent in China’s use of aid in isolating Taiwan in international fora and diplomatic missions for instance. Another of the most prominent examples of this came when the Chinese government gained favor at the United Nations General Assembly in 1971, winning over votes — largely from African states to whom it has given foreign assistance — to stand as the representative of the Chinese nation at the global body.

The Ministry of Finance, meanwhile, is the one in charge of approving the aid plan and including it in China’s national budget. They are also in charge of allocating aid funding to the different ministries handling foreign aid, as well as in China’s contributions to multilateral institutions including the U.N.

Philippa Brant, a foreign policy expert who researches China’s foreign aid, has written about why understanding the links between these different actors in China’s foreign aid system is important to researchers, analysts and developing country officials engaging with China. She said understanding who the key actors are and their roles will help developing countries in better planning and managing Chinese assistance. This could also help allay delays and confusion that sometimes result from Chinese companies signing agreements and proposing projects without the knowledge or proper coordination with the Ministry of Commerce or the Eximbank of China, she said in an article published on the Lowy Institute.

“Not all donors are good at this. But the unclear links between the Chinese government, state-owned enterprises and commercial interests make this more of an issue within the Chinese aid system,” she wrote.

Which countries and sectors receive Chinese assistance?

In its 2014 white paper, China disclosed it has provided a total of 89.34 billion Yuan ($13.4 billion in current rates) in foreign assistance to 121 countries from 2010 to 2012. The amount, when added to the figures it says it has provided since 1950, equals to 345.63 billion Yuan ($51.9 billion).

The figures represent a mix of grants, interest-free loans and concessional loans, the latter covering the bulk of China’s foreign assistance portfolio. For 2010 to 2012, concessional loans made up 55.7 percent of the country’s total aid volume.

A number of countries in Asia (30) and Africa (51) receive Chinese aid, but it’s not entirely limited to these continents. Nineteen countries in Latin America and the Caribbean, nine in Oceania and even 12 countries in Europe receive Chinese assistance. Chinese aid is mostly known for its economic infrastructure projects, but China also does provide assistance on goods and materials; technical cooperation, including dispatch of agricultural experts and medical experts; scholarships and other education-related assistance; debt relief; and humanitarian assistance.

In light of China’s push for connectivity and better trade, among the infrastructure projects it actively supports are railways, bridges and highways, in line with its One Belt, One Road initiative. A number of hydropower dams have also been built with Chinese funding in Asia, including in Mekong countries such as Laos and Cambodia.

But given that China does not provide disaggregated data on its foreign assistance, it’s difficult for researchers and analysts to independently confirm the accuracy of the amounts provided in the white paper. And because, to date, the data provided by China on its foreign assistance corresponds to multiple years, it’s difficult to assess how much it’s actually providing on an annual basis.

However, separate efforts have been made to track Chinese assistance to countries. AidData is one of the most prominent, and it has tried to separate Chinese aid to Africa that qualifies as ODA as per the definition set by the DAC, and other financial flows. Its findings show China ODA to Africa was roughly $31.5 billion between 2000 and 2013. AidData will be coming out with a new dataset that specifies Chinese assistance globally — not just in Africa — in early October, Devex was told.

What impacts does Chinese aid have, really?

For those working in development, the ultimate goal is to assess the impacts Chinese aid has in communities, in countries’ bottom lines, and in alleviating poverty — goals often expected from anyone involved in development work.

There's been some progress on this front. Stories such as the mining conflicts in Ghana, in which a number of Chinese businessmen are involved, or the displacement of thousands of people in communities surrounding a newly built, Chinese-funded hydropower dam in Stung Treng province, Cambodia, underscore the complications of Chinese development, while those on their role in climate financing or technical assistance in the fields of agriculture and health in the Pacific help contribute to the discussion on what Chinese aid is accomplishing.

There clearly is a need to expand this knowledge to better understand China as an aid actor and provide a broader and more nuanced assessment of its contributions to development, not just the array of negativities often associated to it.

China often faces criticisms of its perceived disregard on social and environmental safeguards, on how its projects often perpetuate poverty, and over exploitation of countries' natural resources. But such criticism can hardly be limited to China. Far more established donors are often criticized for not adhering to social and environmental safeguards, and being unable to target their aid where it is needed most. Given the different players involved in Chinese aid, however, it’s a question whether such criticisms can be traced back to government intentions or are a consequence of having too many cooks in the kitchen, or are due to limited government controls, particularly in the monitoring and evaluation of aid projects. As Zhang and Smith have highlighted in their paper, Chinese companies, considered “powerful players” in China’s politics and are heavily involved in the implementation of its foreign assistance, can circumvent policies or manipulate projects for their profit gains. Country governments may also opt to enter into an alliance with these companies for their own political gains.

Li Hong, Chinese representative to the U.N. Economic and Social Commission for Asia, admitted in an interview with Devex, that the nation still has a “long way to go for internal institutional arrangements for the management” of their aid, but said they are learning and cooperating with more established institutions.

In the next few weeks, Devex plans to help further the understanding of China’s foreign assistance through the partnerships they engage in, as well as through the projects they’ve been or are involved in, including in the areas of humanitarian assistance, climate finance and even in the growing bubble of technology and innovations.

In this six-week special series, Devex examines China's expanding role in aid and development across the globe. From tensions in Ghana to projects in Pakistan, from climate financing to donor partnerships, from individual philanthropy to state-financed investment, this series traces the past, present and future of Chinese aid and development. Join the conversation on our Facebook discussion forum.