China's President Xi Jinping pledged US$60 billion in aid to Africa. This was triple the amount pledged at the previous diplomatic summit. President Xi promised ...
Chapter 22 Research Handbook Economic Diplomacy China’s foreign aid: towards a new normal? Arjan de Haan and Ward Warmerdam
In December 2015, in a speech at the 6th Forum on China-Africa Cooperation (FOCAC), China’s President Xi Jinping pledged US$60 billion in aid to Africa. This was triple the amount pledged at the previous diplomatic summit. President Xi promised that
China has the strong political commitment to supporting Africa in achieving development and prosperity … [and] the technology, equipment, professional and skilled personnel and capital needed to help Africa realize sustainable self-development.1
This expansion happens at a time when China’s economic growth rates are no longer as high as they used to be. The commodity boom is not driving the expansion of China-Africa economic relations as it used to do. The trade surplus Africa had been building up since the financial crisis became a deficit in 2014. African countries’ debt levels – particularly those of commoditydependent countries like Zambia, Angola and Ghana – have increased. The ‘rise of China’ is thus changing course, and it is too early to tell whether the commitments to maintain and even expand its aid relations will indeed materialize. Building on earlier writing that put aid in an economic diplomacy perspective (de Haan 2011), this chapter will discuss the impact of changing global economics on China’s foreign aid, the way it is used as its ‘soft power’, and how China contributes to the United Nations (UN) and Sustainable Development Goals, while it has gradually enhanced its position in international finance. Moreover, the chapter will argue that, as the consensus on ‘aid’ has shifted within the Organisation for Economic Co-operation and Development (OECD) and a growing number of ‘old donors’ have moved towards integrating ‘aid’ with ‘economic’ objectives, China’s aid programme is becoming less exceptional.
This chapter describes China’s aid, its current system and how this has evolved, focusing on its role in China’s broader foreign and international economic policies. Sections 22.1 and 22.2 provide a historical overview of China’s aid, highlighting its continued role in international organizations. Section 22.3 focuses on the period since the early 2000s, marking the ‘rise of China’, the economic and diplomatic determinants of how its aid system evolved. Section 22.4 reflects on how the 2007–08 global financial crisis increased the speed of China’s rise, and the ‘end’ of the commodity boom. Sections 22.5 and 22.6 discuss the differences and similarities between China’s aid model and that of the ‘old’ OECD, whether we are witnessing convergence, and how China is finding its new place in the international arena, with foreign aid as a tool to achieve this.
CHINA’S PROLETARIAN INTERNATIONALISM The way development aid evolves can be conceptualized as an interaction of the external environment with a country’s domestic environment, norms, interests and traditions (Stokke 1989).2 The Korean War is likely to have been a first push for the Chinese government to develop a foreign policy and aid orientation. In 1952 the Central People’s Government Commission established the Ministry of Foreign Trade, responsible for coordinating and distributing all goods and services provided as foreign aid, while the Ministry of Finance became responsible for financing those goods and services provided as aid. In 1954 China provided aid to Mongolia, Vietnam, Albania and North Korea (initially supporting war reconstruction, continued as an assistance strategy). In 1954 also, the ‘Five Principles of Peaceful Coexistence’ were articulated, which still feature in official Chinese rhetoric and became incorporated in texts of the NonAligned Movement, emphasizing mutual respect, non-interference and mutual benefit. China continued to provide aid through the Great Famine, as its ideological stance hardened, and differences with both the US and the Soviet Union sharpened. The administration of foreign aid was centralized under the State Council. During a visit to Africa in 1963–64, Premier Zhou Enlai announced eight principles of foreign economic cooperation, with a strong focus on garnering political support among the new African states, aid provided unconditionally, and focusing on mutual benefit.
The period of the Cultural Revolution (1966–76) was associated with ‘proletarian internationalism’, and the critique of Western aid practices – as being purely self-interested – intensified. Its aid expanded, and the number of recipient countries increased rapidly.
REFORMS POST-1976 There was a sharp drop in aid from 1976 to 1980, as there were questions whether China should be providing aid when it was itself still a ‘poor’ developing country. Following this short period of decline, it was decided that foreign aid was a crucial tool in China’s foreign policy and economic development strategy. Aid modalities were made more flexible, away from the previous strong ideological overtones. As levels of aid started to pick up in the early 1980s, technical cooperation became more important. In 1982, the Ministry of Foreign Economics and Trade was established under the State Council, signalling greater emphasis on economic considerations in China’s international relations. The principles of China’s foreign aid, announced during Premier Zhao Ziyang’s tour of Africa in 1982–83, similarly indicate this shift. China’s economic reforms post-1989, and as the 1989 crackdown led to economic sanctions by Western countries and diplomatic isolation, found reflection in the organization of its aid programme. In 1993 the Ministry of Foreign Trade and Economic Cooperation was established, and became responsible for the aid programme. The Foreign Aid Fund for Joint Ventures and Cooperative Projects was set up to support Chinese small- and medium-sized enterprises in creating joint ventures. In 1995 the China Exim Bank was established, with responsibility for concessional loans, and providing export and import credits – with the China Development Bank these became the main sources for Chinese official assistance. Compared to the earlier period, the provision of aid became less political. China’s economic interest in Africa in particular became a more important driver. At the same time, consistent with China’s ‘going global’ strategy, the private sector was mobilized for aid efforts, while a contracting system was put in place. Aid delivery also became more decentralized, with a larger number of government departments participating. The ideological emphasis continued to be on international solidarity and noninterference, and an alternative to the way aid was provided by the West.3 For example, the State
Council highlighted that during 1960–2010, ‘China had provided a total of 256.29 billion yuan ($37.7 billion) in aid to foreign countries, including 106.2 billion yuan ($15.6 billion) in grants, 76.54 billion yuan ($11.3 billion) in interest-free loans and 73.55 billion yuan ($10.8 billion) in concessional loans.’4 Also, China, which returned to the UN in 1971, has continued to promote high-level participation in and leadership of international bodies, including various UN agencies like the World Health Organization (WHO), and international conferences such as on gender in Beijing in 1995 (de Haan and Warmerdam 2013).5
THE ‘NEW SCRAMBLE FOR AFRICA’
While East Asia remained key to China’s international diplomacy and economic relations, relations with African nations became increasingly important. As Figures 22.1 and 22.2 show, trade and investment started to grow significantly in the early 2000s. China’s investment in infrastructure has become particularly visible.6 China surpassed the US in 2009 as Africa’s biggest trading partner. Chinese investment in commodities has attracted most media attention, but closer scrutiny of data shows a diversity in forms of economic links. Chen et al.’s (2015) analysis of firm-level data from MOFCOM shows that China does indeed heavily invest in resource-rich countries, but this pattern is not different from other countries. The number of projects in the natural resources sector were small, contrary to common perceptions, while most projects were in services, and a significant number in manufacturing.7 Aid expenditures had started to increase again in the 1990s, and expanded rapidly in the 2000s. While there is debate about the definitions of Chinese aid, and hence varying estimates, according to Brautigam, officially recorded Chinese expenditures are comparable to Western aid, including grants, zero-interest loans and subsidies – excluding export credits, which form the large bulk of Eximbank`s foreign flows.8 In 2011, China allocated US$2.5 billion in aid, showing
a gradual increase from US$0.55 billion in 2000.9 Between 2000 and 2014, Chinese banks, contractors and the government extended US$86 billion in loans to Africa.10 Reflecting its growing international role in Africa, China established the Forum on China-Africa Cooperation (FOCAC). Policy documents on China’s African Policy and China’s Foreign Aid released in 2006 and April 2011, respectively, highlighted the institutionalization of aid, and ‘an effective mechanism for China and friendly African countries to have collective consultation and dialogue … a long-term and permanent institutionalized platform for the ways of aid, with promoting Africa’s economic development as the core’.11 It was at the 6th FOCAC meeting in late 2015 that President Xi Jinping pledged the US$60 billion in aid to Africa quoted at the start of this chapter.12
END OF COMMODITY BOOM? The global financial crisis of 2007–08 had a significant impact on China. Its fiscal resources allowed for a stimulus that may have averted some of the most negative consequences of the economic shock, while its strong financial position elevated its role in the global economy and diplomacy. It started a process of diversification from its export-oriented model, and is trying to move towards a service and consumption-oriented economic model.13 The gross domestic product (GDP) annual growth rate remained at over 9 per cent until 2011, but has declined to 6–7 per cent since, with weakening exports. Globally, China increased its role in international finance by participating in the BRICS New Development Bank established in 2014, with initial authorized capital of US$100 billion. This approved its first set of loans worth US$811 million in 2016, supporting the development of 2370 MW of renewable energy.14 Also in 2014, China launched the Asian Infrastructure Investment Bank (AIIB) – opposed by the US.15 These new multilateral development finance institutions are often interpreted as a challenge to the hegemony of the Washington institutions, but can equally plausibly be seen as a response to the growing financing gaps for infrastructure. The AIIB lent US$1730 million – in nine infrastructure projects in seven countries – in its first year of operation, often collaborating with other investment banks.16
The commodity boom – driven to a large extent by China’s growth (both rates and type), and in turn driving growth particularly in commodity-dependent African countries (Angola, Nigeria) – came to an end in 2012–13.17 Investment and trade in minerals is no longer driving the expansion of China-Africa economic relations as it used to do.18 The trade surplus Africa had been building up since the financial crisis became a deficit in 2014.19 African countries’ debt levels – particularly that of commodity-dependent countries (Zambia, Angola, Ghana) – have increased. President Xi’s comment at the 2015 FOCAC meeting reflected this new reality, stressing the need to move China’s relationship with the continent beyond the raw materials focus, and to promote industrialization.20 This is less of a challenge than may be assumed, though the decline in commodity prices makes it less likely that the large investments and loans can continue to grow.21 As mentioned, only a part of Chinese investments are in natural resources exploitation, and there is a large diversity in terms of firm size, sectors and export orientation.
HOW DIFFERENT IS CHINA’S AID? Much of the international discussion on China’s aid has focused on its distinctiveness, often informed by a concern that it is an instrument of its foreign economic and political interests. This section will argue that its aid programme is in fact not that distinctive. An important starting point for this observation relates to the nature of the ‘aid industry’ in OECD countries. First, the way aid is organized across OECD countries varies widely, from the single-department structure in the UK (since 1997) to the US model where aid is implemented by a wide range of government organizations. Second, despite moves to ‘untie’ aid and focus on aid effectiveness under the Millennium Development Goals (MDGs) agenda, political and economic considerations were never absent in countries’ motivations. Finally, some of the characteristics of China’s aid – such as emphasis on mutual benefit, private sector mobilization – are mirrored in the rhetoric of and recent approaches by OECD donors. China’s modern form of aid is a combination of project aid, grants and loans, debt relief (but not budget support), humanitarian aid, human resource development and technical assistance. It is often argued that there is a strong emphasis on support to infrastructure; this
picture is distorted with a conflation of aid and commercial investment (as mentioned above, Chinese reporting does allow for separating the two, with aid in the narrow sense forming some 10 per cent of the large packages of collaboration). Also, arguably, China’s support to infrastructure filled a gap left by the old donors. China’s aid programme is implemented by a large number of government agencies. A central office administering the aid programme has existed for a long time, and is currently called the Department of Foreign Aid and housed in the Ministry of Commerce, but this manages only a small part of the total portfolio, and has a very small number of employees. This set-up makes it very different from the UK but is very similar to that of the US, for example. During the 13th National People's Congress in March 2018, a restructuring of China’s foreign aid system was announced. An international development cooperation agency is to be established, directly under the State Council (China Daily, 2018). This restructure would resemble the UK’s foreign aid system, and return it to what existed during the Cultural Revolution (Warmerdam, 2015). It is often noted that China does not officially sign up to a Development Assistance Committee (DAC)/OECD ‘consensus’, for example, with respect to budget support, debt relief and conditionalities. However, very few of the old donors actually implement these,22 and evaluations of budget support have produced mixed results. Analysis of debt sustainability remains disputed with Chinese emphasis on commercial and private sector investment leading to different questions than the more social sector-oriented approaches of the old donors. Chinese officials have also demonstrated they are eager to learn from the experiences of other donors. It joined a China-DAC study group (despite not being an OECD member), and a number of trilateral development cooperation projects. The government acknowledges that the Chinese model is still evolving and has shortcomings. China uses the language of cooperation rather than ‘aid’.23 It emphasizes ‘noninterference’ and avoiding prescribing partners’ national policies.24 It points to the failure of the conditionality and governance agendas of the old donors since structural adjustment, and the fact that low-income countries can learn from China’s development path. Given China’s history in the Non-Aligned Movement, the language of cooperation clearly has a big impact. However, the emphasis on cooperation is not too dissimilar to debates over the nature and objectives of aid of
the old donors, for example, in the perennial discussion over the terms development assistance versus cooperation. Old donors too have emphasized the need for recipient countries to define the use and objectives of aid, as the Paris Principles attest.
CONCLUDING REMARKS Perhaps the most controversial question on China’s aid since the early 2000s has been about the extent to which it has been used as an instrument to serve China’s own interests. This no doubt is the case. The description above indicates that since the 1980s economic considerations have become more important in China’s international cooperation. Recent analysis – separating aid from non-concessional flows – shows that the former is more strongly informed by political considerations, and the latter by economic interests.25 The recent restructuring of the aid system seems to underline this trend. By moving the responsibility for aid planning and strategy from under the economic focus of the Ministry of Commerce to a separate institution directly under the political auspices of the State Council, Chinese foreign aid is likely to be even more driven political and foreign policy considerations. Whether this pattern, and how it evolves over time, is different from that of other donors remains an empirical question. No doubt, the emphasis on untying aid and focus on recipient countries’ needs in old donors’ aid programmes has led to distancing aid from donors’ selfinterest. But that separation has been partial, continues to depend on the national politics in donor countries, and recently aid has become increasingly tied to (old) donors’ interests. While China’s global economic interests are evolving, and its global political role continues to increase, this may not have a major impact on the way China’s foreign aid will evolve. It will continue to be part of – as it is for other countries, and in a way used to be before ‘China’s rise’ of the 2000s – its ‘soft power’ (Kurlantzick 2007), integrated in the global compact now symbolized by the Sustainable Development Goals. Moreover, as the consensus on ‘aid’ has shifted within the OECD and a growing number of ‘old donors’ have moved towards integrating ‘aid’ with ‘economic’ objectives, China’s aid programme seems to be becoming less exceptional.
The way the 2016 US elections – and, for example, the appointment of ‘China hawk’ Peter Navarro as head of the new National Trade Council, or President Trump’s position on Taiwan – will impact these dynamics can of course not be assessed at this point. At the same time, the Chinese President at the 2017 World Economic Forum in Davos emphasized its responsible global role, suggesting it will continue to push for the new normal suggested at the FOCAC mentioned at the beginning of this chapter, even if old powers may be retreating from the global order. There are a growing number of initiatives, as described in this chapter, providing empirical evidence on the role of China including its aid programme in Africa. These are important to help understand the impact aid has, but, and perhaps equally important in the current period of political polarization, also the way China’s aid is embedded in its broader political and economic international relations.
NOTES 1. http://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1321614.shtml. 2. See Warmerdam (2015) for a detailed application of this framework in the case of China; also Warmerdam and de Haan (2015). 3. Aidoo and Hess (2015) describe the continuity and contradictions in China’s approach as a pragmatic way to maintain diplomatic relations. 4. http://www.chinaafricarealstory.com/2013/10/chinese-aid-how-much.html. 5. Arguably, and notwithstanding the emphasis on distinctiveness of its aid, the international assistance provided to China played an important role in the way its aid evolved. 6. https://www.theguardian.com/global-development-professionals-network/2016/dec/22/the-new-scramble-forafrica-how-china-became-the-partner-of-choice?CMP=share_btn_tw; https://openknowledge.worldbank.org/bitstream/handle/10986/2614/480910PUB0Buil101OFFICIAL0USE0ONLY 1.pdf?sequence=1. 7. See also Brautigam et al. (2016) for diversity in investments in four countries, and Warmerdam and van Dijk (2013) for research in Uganda. 8. Since 2005 China has granted zero-tariffs on some commodities from least developed countries in Africa; see http://www.focac.org/eng/xsjl/xzzs/t1131873.htm. Also see http://www.uniheidelberg.de/md/awi/forschung/dp620.pdf. 9. http://www.chinaafricarealstory.com/2013/10/chinese-aid-how-much.html. 10. https://static1.squarespace.com/static/5652847de4b033f56d2bdc29/t/5768ae3b6a4963a2b8cac955/1466478245951/ CARI_PolicyBrief_11_2016.pdf. A quarter of these went to Angola, and many of these loans were oil-backed. 11. http://www.focac.org/eng/xsjl/xzzs/t907005.htm. 12. The US$60 billion package includes US$5 billion in grants and interest-free loans and US$35 billion in loans and export credits; see http://www.nytimes.com/2015/12/05/world/africa/china-pledges-60-billion-to-aid-africasdevelopment.html. 13. http://www.brookings.edu/research/opinions/2016/02/09-worry-about-chinese-economy-kroeber.
14. http://www.ndb.int/first-set-of-loans-approved-by-the-board-of-directors-of-the-new-developmentbank.php#parentHorizontalTab2; https://www.devex.com/news/what-is-new-about-the-brics-led-new-developmentbank-88126. 15. https://www.washingtonpost.com/news/monkey-cage/wp/2015/04/06/how-to-stop-worrying-and-love-the-asianinfrastructure-investment-bank/?utm_term=.37744cc085a2. 16. http://euweb.aiib.org/html/2016/NEWS_1222/199.html. 17. http://www.reuters.com/article/us-africa-investment-idUSBRE93P0HX20130426. 18. http://foreignpolicy.com/2015/09/16/mapping-the-worlds-winners-and-losers-from-china-trade-deficit-surplusrecent-impact/. 19. http://uk.businessinsider.com/fathom-report-on-chinese-trade-with-africa-2015-12; http://www.nytimes.com/2016/01/26/world/africa/african-economies-and-hopes-for-new-era-are-shaken-bychina.html; http://static1.squarespace.com/static/5652847de4b033f56d2bdc29/t/56aa3a95a12f44bc3732d26e/1453996965486/C ARI_PolicyBrief_9_Jan2016. 20. The need to promote industrialization, and the possibilities of learning from China’s development model (and moves of low-skill export manufacturing from China) has been emphasized by former World Bank Chief economist, now at PKU, Justin Yifu Lin (2016). 21. https://static1.squarespace.com/static/5652847de4b033f56d2bdc29/t/5768ae3b6a4963a2b8cac955/1466478245951/ CARI_PolicyBrief_11_2016.pdf. A quarter of these went to Angola, and many of these loans were oil-backed. 22. An OECD 2009 report (pp. 23–4) on aid predictability notes that only 13 of the 41 surveyed donors could provide estimates for budget support expenditure for 2009–11, and that the average of DAC members’ funding for budget support was 5 per cent of country programmable aid in 2007. 23. While China is often criticized for bringing in large numbers of Chinese workers for projects, it prides itself on the fact that its aid workers do not receive high salaries and live in the luxurious conditions of Western experts. 24. Brautigam (2009, p. 149) quotes a former Sierra Leone government minister: ‘The World Bank will say: “you must not have so many teachers on your payroll. You must employ some expatriate staff. You must cut down on your wages.” The Chinese will not do this. They will not say, “You must do this, do that, do this!”’ 25. http://www.uni-heidelberg.de/md/awi/forschung/dp620.pdf.
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Chinese FDI versus US FDI to African flow Source: http://www.sais-cari.org/data-chinese-and-american-fdi-to-africa/ (accessed 4 March 2018).
