China’s foreign aid: How big is it and what is its aim?

ABSTRACT: From 2010 to 2012, China allocated a total of 89.34 billion yuan (14.41 billion U.S. dollars) worth of foreign assistance. This amount no doubt is much smaller than the official development assistance of some big traditional donors such as the United States. However, as a developing country, China has tried its best in this regard. There is no need to deny that, by providing foreign aid, China hopes to promote bilateral relations with recipient countries, and to enhance the economic and trade cooperation with them. But most importantly, China is committed to promoting poverty reduction and development of the recipient countries, so as to finally realize the goal of common development together with other developing countries. China is willing to shoulder its international responsibility.

At present China has become the second largest economy in the world and is more and more engaged in the Asian and African affairs. As a result, China’s foreign aid has become a heated topic all over the world. How big is China’s foreign aid? How much of it goes to Africa? What are China’s motives? These questions have constantly been raised by the international community. However, no final answers have been provided so far. This article aims to address the above questions from the perspective of Chinese scholars.

HOW BIG IS CHINA’S FOREIGN AID?

In 2008, NYU Wagner School released a report which pointed out that China’s foreign assistance and government-supported economic projects in Africa, Latin America, and Southeast Asia grew from less than $1 billion in 2002 to $27.5 billion in 2006. [1] In 2012 and 2013, AidData, based at the College of William and Mary, compiled a database of thousands of media reports on Chinese-backed projects in Africa from 2000 to 2011. According to the database, China financed 1,673 projects in 50 African countries, amounting to a total of $75 billion of Chinese government’s official financial aid commitments, roughly similar in volume with the U.S. Foreign Aid to Africa (which reached $90 billion in the same period). [2] Unfortunately, in the above statistics, China’s foreign aid to Africa was apparently exaggerated a great deal, for it muddled up China’s foreign aid to Africa with China’s investment in Africa.

China's Information Office of the State Council issued the first White Paper on China's foreign aid in 2011. According to the 2011 white paper, China’s total foreign aid provided from 1950s to the end of 2009 amounted to 256.29 billion yuan ( The Chinese government didn’t put it in US dollars in the White Paper), 45.7% of which went to African countries. [3] On 10 July 2014, a second White Paper on China’s foreign aid was released. According to the reported statistics in this paper, foreign aid offered by China totaled 89.34 billion yuan (about 14.41 billion US dollars), 51.8% of which went to African countries.

Just as what the foreign observers have noticed, China’s foreign aid has been increasing tremendously ever since 2000. Based on the information, data and references available, the writers estimate the amount of China’s aid and the percentages of foreign aid in GNI since 2000 .as follows: China’s foreign aid increased from $0.64 billion, accounting for 0.05% of GNI in 2000, to $5.04 billion, accounting for 0.095% of GNI in 2009. From 2010 to 2012, China allocated a total $14.41 billion worth of foreign aid, accounting for 0.06% of the GNI in this period.

Table 1 China’s foreign aid since 2000 and the percentage of GNI
cc Pz

So, factually, it can be demonstrated that that China’s foreign aid has fast increased over the past decade. However, the total volume of foreign aid from China is still small in comparison with the Western traditional donors’ aid. In fact, there still lies a great gap between China and the traditional donors in this regard. Take 2012 for example (Table 2). During that year, the United States offered a total of $30.824 billion worth of foreign aid to Africa, accounting 0.19% of its GNI; the United Kingdom offered a total of $13.892 billion, accounting for 0.56% of its GNI; Germany, France and Japan provided $12.939 or 0.37% of GNI, $12.028 billion or 0.45%, and $10.605 billion, or 0.17%, respectively. Although none of the above-mentioned countries reached the target of foreign aid accounting for 0.7% of its GNI, a goal set by the United Nations early in the 1970s, they did provide tremendous amount of foreign aid to developing countries.

Table 2 Net foreign aid of main donors and its percentage in GNI in 2012
cc Pz

Source: OECD, “DAC Members' Net Official Development Assistance in 2012”,
http://www.oecd.org/statistics/(2014-07-22)

Measuring the volume of China’s foreign aid has sparked a huge debate about what should be counted as aid and what should not. Some foreign analysts and scholars just mix the government concessional loans with other commercial loans by the Export-Import Bank of China, China Development Bank and other commercial banks. Some have simply confused China’s foreign aid with investment. Consequently, they exaggerated a great deal the actual volume of China’s foreign aid. The financial resources for China’s foreign aid mainly include three types: grant (aid gratis), interest-free loans and concessional loans. From 2010 to 2012, China provided a total of 32.32 billion yuan worth of grants, accounting for 36.2% of its foreign aid volume; 7.26 billion yuan worth of interest-free loans, taking up 8.1% of its foreign aid volume and 49.76 billion yuan worth of concessional loans, accounting for 55.7% of its total foreign aid volume. The concessional loans are raised by the Export-Import Bank of China on the market, with the loan interests lower than the benchmark interest of the People’s Bank of China, the central bank， and the difference is covered by the State in the form of financial subsidies. At present, the annual interest rate of China’s concessional loans stands at 2% to 3%, and the period of repayment usually ranges from 15 to 20 years (including five to seven years of grace).

It should be noted that China Development Bank doesn’t provide foreign aid at all, and the concessional loans granted by the Export-Import Bank of China are just one part of its business. Both banks support Chinese enterprises in conducting overseas businesses through offering commercial loans and providing financing and investment services. For example, in recent years, the Export-Import Bank of China financed the Ethiopian Oriental Industrial Park and the Ethiopian Railway Project; China Development Bank offered financial support to the Guangdong Guangken Rubber Group Co., Ltd. for the construction of its manufacturing/processing base in Southeast Asia, namely the Oman Salalah power Generation and Sea Water Desalination Project, and invested $198 million to support Wanbao Grains & Oils Co., Ltd in the construction of Mozambique Agribusiness Project, the largest one of its kind by China in Africa which can create an integrated chain from crop planting, food processing and warehousing to distribution. However, the funds offered for all the above-mentioned projects by the afore-mentioned banks are non-concessional development funds. They can’t therefore be counted as foreign aid at all.

As a developing country, China by no means plans to keep up with Joneses in regard to foreign aid. According to the poverty standard set by the UN, China still has more than 100 million people living in poverty, which means that China still faces the difficult challenge of poverty reduction and development. On the other hand, when you take the size of its economy into consideration, China is indeed a big power, and in fact it is ranked as one of the fastest developing countries in the world in recent years. Accordingly, the international community expects China to shoulder more and more international responsibilities. Offering foreign aid to underdeveloped countries especially those suffering from humanitarian crises, is also an important way for China to demonstrate and prove that it is a responsible power. Thus, it can be predicted that China will surely increase its foreign aid concomitant with its economic development in the coming years.

WHAT IS THE AIM OF CHINA’S FOREIGN AID?

During the past decades harsh criticism has been leveled against China, accusing China of using aid to recipient countries, to scramble for resources and overseas markets there; to dig for political support from them or especially to maintain close relations with some rogue states.

There is no need to deny that China’s foreign aid serves its overall foreign relations and national interests. China also expects to deepen relations with recipient countries and win the hearts and minds of the people of those countries - just as Western donors do. By providing foreign aid, China demonstrates its willingness to shoulder more and more increasing responsibilities. These can facilitate China to enhance its soft power and image within the international community. At the same time, by helping recipient countries build some economic development-related projects, China expects to reap trade, investment and contracts opportunities overseas, especially for Chinese enterprises going abroad. As a developing country, China never considers foreign aid simply as a donation, but an important form of South-South cooperation to advance the mutual benefit, win-win and common development of China and other developing countries.

The international community should also recognize that, other than the pursuit of its own national interest, China’s foreign aid prioritizes poverty reduction and economic development of the recipient countries. The Chinese people, just like any other people in the world, are imbued with a strong sense of humanitarianism. Although the Chinese political system is different from that of Western countries, the Chinese government is fully aware of its international responsibilities beyond its national interests and strives to fulfill them adequately. Currently, China is dedicated to the path of peaceful development and the realization of common development and prosperity of the whole world. As we all know, many developing countries and regions of the world are facing challenging problems related to poverty, civil wars, conflicts, humanitarian crisis and so on. It is so manifestly obvious that China is doing its best to shoulder more international responsibilities by helping recipient countries tackle the above-mentioned problems, through providing foreign aid to them.

Just as the 2014 White Paper on China’s foreign aid put it, the Chinese government “has endeavored to integrate the interests of the Chinese people with the interests of the people of other countries, providing assistance to the best of its ability to other developing countries within the framework of South-South cooperation to support and help other developing countries, especially the least developed countries.”

From 2010 to 2012, China helped build 80 residential housing and affordable housing projects in other developing countries, totaling about 600,000 square meters in floor space; China helped build about 80 medical facilities projects in recipient countries, providing them with about 120 batches of medical equipment and medicine, and dispatching 55 medical teams composed of 3,600 medical workers to nearly 120 medical centers in 54 countries, treating nearly 7 million patients. Moreover, China donated 1.5 billion yuan worth of materials and cash assistance in emergency humanitarian aid to more than 30 countries. [4]

At the same time, China attaches great importance to fundamentally enhancing development capacities of recipient countries when providing aid for them. China not only gives them the fish, but most importantly, teaches them how to fish so as to help those countries blaze a path of self-dependent development. From 2010 to 2012, China undertook the construction of 580 complete projects, and completed 170 technical cooperation projects in 61 countries and regions related to transportation, communication, electric power, energy, industry, agriculture and education. In recent years, China increased cooperation with developing countries in the field of human resources development by holding training sessions for officials and technical personnel and on-the-job academic education programs in China, and shared with them China’s experience with regard to poverty reduction, development and public administration.

China provides foreign aid mainly in the form of undertaking projects instead of delivering money directly to the recipient countries. China is in charge of the allocation and expenditure of money and the projects are undertaken, constructed and managed by Chinese enterprises, to make sure that the money is made good use of and spent as it should, to enhance the efficiency of the aid projects and to ensure that the money will not be embezzled or pocketed by some greedy and corrupt officials in recipient countries. In fact, even the Associated Press (AP), an American news agency highlighted the advantage of this model. In an article published - on 9 February 2012 and titled: “China skirting African corruption in direct aid”, AP pointed out that “instead of giving cash, the Chinese government prefers to pay Chinese companies to build roads and structures, bypassing local politicians, powerbrokers and construction crews, and to deliver them completed”, adding that, “this model helps defeat the inefficiencies and cash-pocketing corruption associated with other systems of foreign aid delivery”, and “Beijing's efforts to produce turn-key projects are winning fans.” [5] At the same time, since the cost of Chinese personnel, materials and management are lower than those of Western countries, China, compared with Western countries, can achieve more in Africa in terms of development with similar amount of foreign aid.

Nevertheless, to succeed in the long term, China still needs to gradually adjust its foreign aid policy to the new situation whereby China is becoming a more and more global player shouldering increasing responsibilities. Measures can be taken as the following. First, China needs to reduce its tied-aid and open part of its foreign aid market to the international society and especially to the recipient countries. Thus, the recipient countries can participate more in the aid projects so as to create more employment opportunities for the locals and give them new skills. Second, to enhance aid efficiency and effectiveness in the future, China needs to invite more Chinese and African NGOs to participate in the foreign aid. Third, China needs to lower the annual interest rate of concessional loans, and increase grants to the least developed countries. Last but not least, when adhering to the “non-interference” principle, China needs to actively take advantage of foreign aid to help the recipient countries strengthen the building of governance capacity to realize political stability and good governance. If all other developing countries opt for the path of development and good governance, it will contribute to the peace and development of the whole world. Without any doubt, China will benefit a lot from that.

END NOTES

[1] NYU Wagner School, “Understanding Chinese Foreign Aid: A Look at China’s Development Assistance to Africa, Southeast Asia and Latin America”, April 25, 2008.

[2] Austin Strange, Bradley Parks, Michael J. Tierney, Andreas Fuchs, Axel Dreher & Vijaya Ramachandran, “China’s Development Finance to Africa: A Media-Based Approach to Data Collection”, Center for Global Development, Working Paper 323, April 2013.

[3] Jonathan Weston, Caitlin Campbell & Katherine Koleski, China’s Foreign Aid Assistance in Review: Implications for the United States, U.S.-China Economic and Security Review Commission, Updated September 1, 2011, pp.1-14; Michael Klare & Daniel Volman, “America, China & the scramble for Africa’s Oil”, Review of African Political Economy, No.108, 2006, pp.297-309; Thomas J. Christensen, “Shaping China’s Global Choices Through Diplomacy”, testimony before the U.S. – China Economic and Security Review Commission, March 18, 2008.

[4] Information Office of the State Council of PRC, “China's Foreign Aid (2014)”, July 2014, Beijing.

[5] Rodney Muhumuza, “China skirting African corruption in direct aid”, Associated Press, February 9, 2012.

∗ Luo Jianbo, director and professor of the Center for African Studies, Party School of Central Committee of CPC. His study covers China-Africa relations, African integration, China’s foreign aid. Zhang Xiaomin is associate professor of Beijing Foreign Studies University. His field covers China-Africa relations and China’s foreign aid.

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