At one point in the mid-1990s, China was the world's biggest recipient of development assistance from the developed countries of the OECD.  According to the most recent OECD data, in 2006-07, China was still a major recipient of official development assistance (ODA).

How can this be?  Next year, China will become the world's second biggest economy.  It has invested trillions of dollars in the US.  Development practitioners will tell you that they are still fighting poverty, and promoting democracy and sustainable development in China.

It's a bit rich, isn't it.  All the more so, given that China is now emerging as a major donor in Africa, Southeast Asia and Latin America.  According to one estimate, development assistance provided by China may even have been as high as $25 billion in 2007.

What's the story in China's foreign aid game?

Things in China are usually a bit different from other countries.  And so it is with its development assistance.  First, there is no official data, Western scholars are forced to make guesstimates.

What could be considered to be official development assistance does not accord precisely with OECD definitions.  Some aid may be closer in nature to foreign direct investment.  But many such investments are supported by the Chinese government and provide benefits to recipient countries that would otherwise not be available.  These investments are secured by official bilateral agreements, do not impose real financial risks on the Chinese companies involved, and do not result in Chinese ownership of foreign assets.

China's aid is not driven by the missionary zeal to fight poverty, and bring freedom to the world's poor.  It is driven mainly by the need its natural resources and to a lesser extent by the diplomatic objective of isolating Taiwan.  This does not mean that China's aid is any less beneficial for fighting poverty.  Indeed, being firmly economic in nature, it may be more effective.

China's aid is not burdened by ideological, political, economic, social and environmental conditions, nor is it burdened with bureaucratic procedures, in sharp contrast to Western and multilateral donors.  This can upset some Western governments, and China is now responding to pressure to encourage more ethical and responsible behaviour in countries like the Sudan.

China does not have a central aid agency.  Its aid is mainly administered by its Ministry of Commerce, and to a lesser extent the Export-Import Bank of China, the Ministry of Finance and the Ministry of Foreign Affairs.  This is not necessarily a bad thing.  One problem that OECD countries have, despite having dedicated aid agencies, is that their development co-operation policies are often inconsistent with their trade, agriculture, environment, technology and other policies.  A single agency does not guarantee policy coherence.

The main forms of Chinese assistance are government-backed investments and concessional loans.  Grants and debt concellations make up a very minor share.

China often promotes economic projects in countries, areas and sectors that Western governments and corporations have avoided for being too difficult and unfriendly.

Many of China's public works projects in foreign countries are cultural centres, stadiums and highways, which are launched with great fanfare, symbolising friendship between China and the country in question.  In Chinese culture, it is important to establish friendship as a precondition for doing business.

Over the period 2002-2007, 44% of aid was allocated to Africa, 36% to Latin America nd 20% to Southeast Asia.  Aid activities in Africa and Latin America serve China's economic interests, while aid to Southeast Asia has more diplomatic or strategic objectives.  In Africa and Southeast Asia, Chinese infrastructure and public works projects are the most common form of aid.  In Latin America, China-sponsored resource development activities are more prominent.

While China is not counted by the OECD as a major provider of official development assistance to Southeast Asia, some reports suggest that it is one of the largest sources of economic assistance in the region.  A decade or more ago, China was treated with suspicion in Southeast Asia.  But then it went on a mega charm offsensive, including playing a major stabilising role in the 1997 Asian financial crisis.

In the past few years, China has become a major financier and investor in infrastructure, energy, agriculture and mining in the Philippines.  In 2006, China was reportedly the 3rd largest source of bilateral development assistance to the Philippines, after Japan and the UK.

What does all this mean?

In short, China is now matching its economic power with diplomatic and soft power.  Some argue that it is clearly outplaying the US diplomacy (with its cowboy unilateralism, despite Obama) and also Japanese diplomacy, which is invariably culturally tone deaf and has appalling linguistic capabilities.

There is one thing which will always limit the success of China's efforts.  It is too big and powerful to be trusted.  But that is wrong.  China has too many things to worry about at home, to be interested in expansionism.  And as the US and Japan have shown in the post-war period, foreign investment is the best form of de facto colonialism.

 
Reference:
China's Foreign Aid Activities in Africa, Latin America, and Southeast Asia by Thomas Lum, Specialist in Asian Affairs, Hannah Fischer, Information Research Specialist, Julissa Gomez-Granger, Information Research Specialist, and Anne Leland, Information Research Specialist.

Congressional Research Service, February 2009
www.crs.gov

OECD Official Development Assistance statistics.

www.oecd.org