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Easy Money, Evil Money: China’s Unwanted Foreign Aid

Easy Money, Evil Money: China’s Unwanted Foreign Aid

china, aid, economicsIt may seem hard to remember a time where China wasn’t looked at around the world as this rapidly expanding force of nature that can out manufacture and under price most any other nation. Wherever you sit at this very moment, chances are something within reach says “made in China” on it. The news media produces consistent China reports with the same reoccurring theme, China is on the rise, they are the future, and anywhere you look in the world, the Chinese money, labor, and know-how is probably involved – especially in the developing world.

Last month the story broke that 29 Chinese workers who had been kidnapped in Sudan had been released. Days later the new African Union headquarters opened in Addis Ababa, an $200 million dollar gift designed and built by China. As each story is told, a powerful idea comes along with it: Chinese aid is underhanded, having many strings attached and little moral criteria; it is Rogue Aid.

As powerful as the myth of China as a renegade aid source, what do the available facts and statistics tell us about the reality? Is there something so fundamentally different from the United States, the European Union, or any other nation, in terms of the money, choice of projects, and political implications surrounding Chinese aid? Would the truth challenge or reenforce this movie-like villain screenplay starring the world’s fastest growing economy?

Nothing new
To begin with lets dissect the idea that because China over the past 10+ years has had tremendous economic success and now use their aid program to support this newfound hunger for resources and influence. What is rarely looked at or discussed in terms if history, is that China has actually been a major aid giver globally since the nation was founded in 1949. In those days the nation might not have been wealthy or a world power, but the government made international aid an ideological imperative, resulting in low interest loans particularly for communist North Korea. By 1956 China began to engage in aid projects in non-communist nations, including Africa, which would eventually be drastically increased in the 1970’s when Mao Zedong sought a leadership role among developing nations of the world. By the 1980’s market forces had been introduced in China, and aid began to take this into consideration, a more cautious but still very active approach. Following the Tiananmen Square massacre of 1989, the aid program became a means to improve damaged relations around world, which gave way a decade later to an era that still continues today- the era of joint ventures and a focus on mutual benefits for recipients as well as the donor nation. Mongolia needs roads and infrastructure that China can build, China benefits by having roads that can efficiently transport extracted resources like Coal and Iron into its borders – this is the quintessential way Chinese aid functions.

figure Number of aid projects completed

Supporting corruption
A look back at historical data reveals that the idea of Chinese aid as a new phenomenon is incorrect, the 21st century is not the first era where China becomes a global leader in aid allocation. But what about the qualification that Chinese aid comes with a great deal of political and economic motives and very little in terms of ethical considerations? According to researchers Axel Dreher and Andreas Fuchs, Chinese aid is quicker and has less conditions than western aid. Criteria such as good government policies, democratic principles, or human rights conditions are not linked to qualifying for aid from the Chinese government. This leads many to conclude that Chinese aid helps support corrupt governments and stifle democratization. Over the past two decades, Chinese support through aid projects in Zimbabwe and Sudan, both often seen as rogue nations, are two examples of such a-moral activity. But when comparing activities by other donor nations like the Netherlands or the United States, it turns out those nations are just as likely as China to give aid to dictatorships or corrupt leadership. (Dreher & Fuchs 2011)

Transparancy
So it turns out that aid from China is neither new, or so ethically different from most other aid giving nations. One area where researchers have found they are different is when it comes to transparency. According to the Chinese government, between 1949-2006, the nation spent $5.6 billion on aid projects in Africa. China scholars argue that this number is too low, using additional data they calculate that number is between $8 and $9 billion. (Davies 2007) (According to the Financial Times, China outperformed the World Bank as the world’s largest provider of overseas loans to developing countries through its China Development Bank and China Export-Import Bank amounting to at least US$110 billion in 2009 and 2010. )

The limited amount of information available and unwillingness to fully disclose the details of how aid is allocated is a major factor that makes studying Chinese aid difficult for researchers. It also serves to perpetuate the image that something very underhanded or secretive is going on in Beijing.

figure 6 foreign aid over time

Global power
The significantly quicker speed with which aid from China goes into effect and the low amount of requirements for receiving have led to a unique reputation among recipient nations. Chinese aid is seen as an alternative to former colonial powers and all the proselytizing and conditions they typically demand. At time where debt relief is a major objective for struggling nations, China has actually taken the lead in forgiving debt among African nations, writing off $1.2 billion in 2000 and $750 million in 2003. (Woods 2008) Actions that could actually make some vested interests in the western world, quite nervous. This alternative to the west represents another widely held image, at least in the developing world, of what China represents as a global power. (Mohan, Giles and Power, Marcus 2009)

The clash between fact and image indicates that there are actually two China’s when it comes to development aid: there’s the China the world thinks is out there being more evil and crafty than anyone else, and there’s the actual China that does pretty much what most aid giving nations do, only with the added bonus of a growing reputation as a viable alternative. Is there a lack of transparency – yes. Have there been and are their currently cases of China giving aid to so-called Rogue nations – yes. But is China so far beyond the aid practices of the UK, US, or any other wealthy nation in this world? – the answer is no. Yet despite the telling conclusions research has provided, in the end myths are carried on in our minds and in the media, and even in this modern age of information, its hard to dispel a myth.

References:

WOODS, N. (2008). Whose aid? Whose influence? China, emerging donors and the silent revolution in development assistance International Affairs, 84 (6), 1205-1221 DOI: 10.1111/j.1468-2346.2008.00765.x

Mohan, Giles and Power, Marcus (2009). Africa, China and the ‘new’ economic geography of development. Singapore Journal of Tropical Geography, 30(1), pp. 24–28.

Axel Dreher & Andreas Fuchs, 2011.”Rogue Aid? The Determinants of China’s Aid Allocation,”
Courant Research Centre: Poverty, Equity and Growth – Discussion Papers 93, Courant Research Centre PEG.

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1 Comment

  • Carly
    March 13, 2012, 11:18

    So China giving lots of aid is not a new phenomenon, they’re just as likely to support corrupt governments as Western nations, they’re not transparent about how much and to whom aid is allocated, and they’re a rising alternative to the West for developing nations seeking aid. Fine. But I have a few observations / questions:

    The title of this article is no doubt provocative, but also misleading.

    What kind of corrupt leadership and dictatorships are China vs. Western nations supporting? Fair enough to point out hypocrisy on the part of the West, but by lumping them all together I think you oversimplify the argument.

    I think you downplay the lack of transparency regarding aid allocation. How can you really even begin to compare for example the extent to which they support corrupt governments if you don’t know how much money they’re giving out and to whom? And indeed, why are they loathe to share this information?

    You act like there is NO reason to regard China’s aid giving with caution or concern, but I don’t see how that conclusion is ultimately supported by your arguments. My point is not to question the facts – perhaps if I read all of the articles you cited I would arrive at similar conclusions – but rather to question how you present and interpret them here.

    REPLY