What characterizes China as a development actor. Rethinking Development Assistance: The Paradox of China’s Increasing Global Outreach.

INTRODUCTION

Geopolitical dynamics are shifting; the existing world order is under significant structural changes, and it is the dawn of a new era. America’s unipolar moment stands challenged by the rise of new Global development actors. Indeed, it cannot be disputed that this century is becoming a ‘global south’ century with the rise of Brazil, Russia, India, China, and South Africa (BRICS) which comprises the five largest economies outside the Organization for Economic Co-operation and Development, particularly the rise of China. From receiving bilateral environmental aid from the World Bank in the 1980s to the so-called One Belt One Road Initiative of the 21st century which involves infrastructural development and investments in Europe, Asia, and Africa. The rise of China to the global scene is evidenced by the growth of its bilateral relations and its aid flows in the global south primarily in Africa, Latin America, and the developing countries in Asia which has become substantial and at the same time controversial.

There are diverging views and emotions about the rise of the ‘Dragon Head’ (China), the nature of its foreign policy, and its model and tools for engagement. There is controversy about China’s model of development assistance; its motivations and impacts of its foreign economic investments and its development assistance cooperation. These diverging views are exacerbated by the lack of clarity and information on China as a development actor, much of the literature is based on secondary sources. Therefore, I seek to deliberate on the nature of China’s foreign policy and its characteristics as a new emerging bilateral aid donor. Furthermore, I will assess the implications of its rise on the development assistance sector, and whether it seeks to transform the existing model of the aid system. I will achieve this through a juxtaposition of China’s development assistance and development assistance of the Organization for Economic Co-operation and Development and its Development Assistance Committee norms and values.

BACKGROUND: THE NEW GLOBAL SOUTH CENTURY

As a point of departure to build a case for this article, I begin my discussion by giving a brief background about the rise of the five largest economies outside the OECD, with much emphasis on the Asian powerhouse ‘China’. Following the collapse of the Soviet Union, the United States dominated the world order. International political and economic systems were dominated by Western ideologies, for instance, liberal thinking. The world was framed in the conceptual west way of thinking such as the concept of ‘free trade’, systems were designed to concentrate wealth in the global north. However, with the dawn of the 21st century, the existing world order is being challenged, it is going through fundamental structural changes. With the rise of Asia and the BRICS countries, we begin to see a new balancing of world powers as the world is becoming multipolar and polycentric.

Many reasons can be attributed to this paradigm shift, some attribute Asia’s material and economic advances to the active role played by the United States in opening its huge market to Asian exports. Also, credit is given to former colonial powers of Asia, the European countries as they are said also to be significant to Asia’s success through investments in the region and buying their goods and services. However, to set the article in motion I will align with those who believe that Asia’s economic growth particularly China, was because of a strong entrepreneurial spirit where the government played a central and key role in a non-liberal model of governance which enabled the country to develop exponentially. This type of governance model coupled with non-interference with the domestic politics of sovereign states led to the building of strong regional blocks and institutions such as the BRICS and the South-South cooperation. Anchored on a vision to challenge the existing world order of colonialism, oppression, and poverty, and seek the betterment of human dignity of the global south, South-South cooperations were formed.

Countries in the global south began to negotiate and boost regional cooperation and trade as they seek to reform the world economic system and international institutions especially financial institutions such as the World Bank (WB) and the International Monetary Fund (IMF) which are dominated by the global north. Asian, African, and Latin American countries began to cooperate in the spirit of mutual benefit and solidarity. Hence it is this south-south cooperation that gave countries in the global south, particularly the BRICS Countries growing influence on global trade, foreign aid, and issues around climate change. 

According to Baylis, et al. (2017), the BRICS nations now hold around 50% of the total global foreign exchange reserves. These countries have reduced their dependency on foreign aid and the trio of China, India, and Brazil have themselves become major aid donors with China holding the larger portion. To narrow down, the South-South Cooperation, this discussion will now shift focus to China as an emerging bilateral aid donor and its characteristics paying special attention to China-Africa relations. My choice to focus on China-Africa is not to say China hasn’t been present and vivid in its region, one can talk of the One Belt One Road Initiative which is beginning to take shape in the region. For instance, in Indonesia Albeit some delays in implementation as reported by media, preparations for projects are at an advanced stage for example land is being cleared. Also, one cannot underscore the fact that by June 2018, China Railway announced that it was undergoing licensing, financing, and land acquisition, and had employed more than 2000 locals to work on the project.

CHINESE’S FOREIGN POLICY: CHINA’S ENGAGEMENT

China has increased its global outreach and influence, this has been particularly evident in China and Africa relations hence I will give emphasis to this relationship. For one to understand what kind of a development actor China is, one ought to make a follow up on Chinese foreign policy and motivations for its high-profile activities in Africa. These activities mirror Chinese characteristics and motivations of its aid. Because of the low degree of clarity on Chinese foreign policy, there are many diverging views on China’s increasing global assistance and these diverging views are polarized depending on whether you are a recipient of Chinese aid or a competitor to Chinese aid.

China prefers bilateral cooperation, which is state crafted, and the state plays a central key role. This state-centered approach is anchored on eight principles articulated by Zhou Enlai in 1964 and emphasizes non-interference and no-conditionality. Chinese foreign policy is strictly on respecting the sovereignty of recipient countries. Its foreign assistance is delivered on the principle of equity and mutual benefit. These principles make Chinese development assistance more economic cooperation and business oriented rather than development aid in its essence. More so, its non-interference and non-conditionality stance is questionable; this will be further discussed later. These Chinese principles seek to transform the development aid system as the Development Assistance Committee (DAC) rules and norms interfere with recipient countries’ domestic policies and sovereignty through a conditionality of good governance. DAC countries impose economic and political conditions on recipients by using aid as part of the framework to discipline recipient countries. Hence this fact of non-conditionality, and respect for sovereignty makes Chinese development assistance more inclined to trade and cooperation than official development aid which intends to improve the welfare of the people in recipient countries.

The above-mentioned point conversely makes another view of Chinese aid as a diplomatic tool for their foreign policy. Driven by the need for energy and raw materials China’s expansion in the South-South cooperation particularly in Africa, development assistance is being used as an instrument to gain access to resources and markets. In the same vein  China’s aid is a fundamental tool for a mix of political, commercial, and moral objectives. China like any other developing/developed state designed its development model of economic growth to be supported by external markets and resources. State banks (China Development Bank and China Export-Import Bank) are used as tools of engagement with Africa and Asia.

The use of aid as a diplomatic tool can be evident in tied aid given by China to Africa for example resource secured loans given by China’s Eximbank to Angola Bui Dam project which was guaranteed through export sales of cocoa beans. China’s foreign investments and quest for resources have been on the rise, to support their fast pace modernization. They are using aid as a diplomatic tool to access markets and resources. Thus, foreign assistance has allowed China to become a major beneficiary of African resources through subtle means covered in its development model of trade and cooperation. This mixture of motivations the need for resources and access to markets makes it more difficult to differentiate Chinese foreign investment and their development assistance.

CHINESE AID: A TOOL IN THE DIPLOMATIC TOOLBOX?

China’s aid is obscure and unclear and uses different modalities, understanding China’s characteristics as a development actor requires one to track its aid flows. How China defines and disburses its aid mirrors its characteristics. The above-mentioned discussion that China provides aid primarily to access resources or use aid as a diplomatic tool makes China a ‘rogue donor’. However, for one to take a stance to support or not against the claim that China is a rogue donor, one must look at how China itself define or see its aid and in what way its aid flow, who are the recipient countries and how is the aid given juxtaposed against the DAC standards.

According to the DAC definition, official development assistance (ODA) are financial flows to countries and territories on the DAC list of recipients and to multilateral institutions. These finances are provided by official agencies, including state and local governments, or by their executive agencies, they are administered with the promotion of the economic development and welfare of developing countries as its main objective. According to DAC, ODA should be concessional in nature and conveys a grant element of at least 25 percent. In general, his definition covers all resources such as physical goods, skills and technical know-how, and financial grants or loans. However, the DAC definition of ODA does not include loans for the purpose of export promotion, funds to subsidize donor country private investment in recipient countries neither also military aid. The way China defines and conditions its aid challenges DAC standards. Therefore, it is because of these exclusions and the nature of conditionality by DAC’s ODA definition that obscures China’s aid.

The bulk of China’s foreign aid is disbursed bilaterally in three ways namely grants, zero-interest loans, and concessional loans. This is a major contradiction with the DAC since most of its aid is given through multilateral institutions which provide standards, rules, and norms for aid flows. Firstly, grants and interest-free loans are managed by the Ministry of Commerce, grants are given with the intended purpose mostly of poverty reduction and social welfare among other things like livelihoods and humanitarian aid and these are non-reimbursable. Interest-free loans are given to recipient countries for infrastructure, industrial, and agricultural production.

Grants and zero-interest loans are primary instruments for Chinese foreign assistance and grants alone constitute approximately 40%. China states in its white papers why it offers foreign assistance in grants and zero-interest loans that they are for poverty reduction and welfare improvement which coincides with the DAC definition of ODA. However, to some extent, these are used as a mixture of diplomacy and commerce or business intentions. China uses the whole Ministry of Commerce to manage foreign assistance instead of using maybe the Ministry of foreign affairs. Hence in my own view, China uses aid as a diplomatic tool to expand its market, commercial, investment, and business outreach.

Secondly, aid or business? Concessional loans are disbursed and managed by the China Eximbank and China development bank under the authority of the Chinese government to the government of the receiver’s country with the nature of ODA. These are mainly issued to recipient countries for supporting production projects with economic benefits and large-scale infrastructural projects. Chinese aid programs correspond more or less with the DAC definition of official development assistance though their interest rate differs from the 25% interest rate of DAC and also what these concessional loans focus on. Hence China packages together its loans some of them are concessional rates and some at market rates. These packages are unusual for ODA and that is why Chinese aid is unclear and not fit for ODA. 

Additionally, conditionality can be noted in Chinese aid through these large projects. In principle, at least 50% of the project’s goods and services should be acquired from China so that the project receives funding. China ties aid to the condition of the procurement of Chinese goods and services so as to receive funding. This makes it unclear if Chinese aid is for developmental purposes or for business investments and encouragement. More so, unlike DAC aid projects that are soft projects like capacity building and research, Chinese concessional loans focus on hard-core projects such as infrastructure construction. All in all, China’s concessional distribution according to the white papers by 2009 was 61% channeled to economic infrastructure, 16% to industry, and 9% to energy and resource development. China believes that infrastructure is the bedrock of a country's economic growth and reflects the country’s economic potential. Hence, I agree with the school of thought that believes that China is reshaping the aid industry as it focuses on wealth creation and economic cooperation rather than capacity building and poverty reduction.

Overall while the above three may qualify as ODA, the bulk of Chinese foreign assistance falls under other official flows, which could be loans with a grant element of less than 25%, and this marks as the major difference compared to the DAC members. China's foreign assistance includes military assistance, export credits, commercial loans, market rate export buyer’s credits, and other tools such as the construction of facilities for example parliaments, and these do not qualify to be ODA. For instance, export and buyers credits are offered on short-term and long term respectively. Have a structure like concessional loans but are not ODA because of two reasons. Firstly, their intended purpose is to help or assist foreign sales and exports of Chinese goods and services. Secondly, their issued rates are according to London Interbank rates while for them to qualify to be concessional loans according to DAC standards they have to be issued at a 25% rate. Hence, even if we are to undermine the fact that they are not given at the 25% rate which can make them concessional loans, their intended purpose alone undermines official development; as they seem to seek to promote China’s goods and services; it all about trade and the market share.

Additionally, through strategic lines of credit, China provides funds to assist Chinese companies investing abroad through its China Development Bank for example the Africa-China development fund. These loans are accessible to Chinese foreign companies for example in the telecommunication sector, mining, and construction. Illustrating the above-mentioned, in March 2009 the China Development Bank extended $15 billion to support ZTE which is a telecommunication company overseas, in the same year another package of $30 was extended to its rivalry Huawei which is also extended its presence; now present in Europe and surpassing the major dominant in the telecommunications industry Apple. These loans are financial platforms given to Chinese companies, to allow them to compete and secure business abroad. Hence, they are a going-out tool instead of development assistance, intended to increase China’s global economic influence and dominance.

However, China as a development actor is not only confined to the financial and economic aid sector but also to the humanitarian and health sector. China has also provided a small considerable amount of aid generally through bilateral engagement but also through multilateral organizations. UNDP, (2015) reports that China is an active member of the UN Disaster Assessment and Coordination and the international search and rescue group. It also alludes that since 2000 China has been one of the top five largest humanitarian aid providers among non-DAC members. A larger proportion of this aid is disbursed through government channels though domestic Chinese NGOs have also begun to rise deepening their international engagement.

Moreover, in the health sector, China has been involved in health assistance for decades but now starting to increase also, statistics the AidData from 2000 to 2012 China committed $3 billion to about 255 projects to health, population, water, and sanitation. This approach of China to health is a distinctive characteristic as it focuses on financial assistance and the provision of a Chinese medical team, this contrast with the DAC tradition which is focused on health systems inputs and on pandemic diseases like malaria and HIV, and AIDS. To conclude this point, China is indeed presenting a different model of development the conventional model which is based on the OECD/DAC standards. China focuses on hands-on projects rather than a machinery model of development where recipient countries are built from the bottom and recipient countries have autonomy over the financed projects.

IMPACT AND EFFECTIVENESS: ROGUE OR VOGUE?

To assess China’s aid, one needs to interrogate the question, of who gets Chinese aid and how and over what conditions. Responding to these questions has led to diverging views if China’s foreign assistance has positive or negative impacts on recipient countries or if China’s way of providing aid will reform the whole aid sector? First and foremost, China’s aid particularly to Africa has brought a positive impact through economic engagement and cooperation. Its financial assistance to Africa through infrastructural development projects has led to the rebound of African economies. By 2006 China had provided $5.69 billion to Africa on over 800 projects of which most of which were for infrastructural projects and turn key on projects for instance in hydropower, mining, and farming. This has benefited local communities in recipient countries as they create employment while on the other hand, it has also increased production.

Furthermore, through bilateral cooperation with the countries in the global south, China has increased bilateral trade. The bilateral trade with Africa rose from $12.11 in the 1950s to over $70 billion in 2007. Hence through the south-south cooperation, China has increased imports of its primary raw materials from Africa and this has resulted in a dramatic volume increase of trade therefore helping in poverty reduction. However, this infrastructural development, projects, and increased trade don’t come without consequences. The Economist, in 2017 reported that China is a rogue donor and is involved in shoddy projects, low environmental standards, and mistreatment of workers. The entire aid sector is threatened by China’s conduct in the sector, this probably is because of its overemphasis on economic growth and no strings attached, non-conditionality, and non-interference principles. China’s aid is not tied to ‘good governance’ unlike the Western model, hence this has led China to engage bilaterally with governments and state leaders that are violators of human rights like Robert Mugabe the former president of Zimbabwe, and undermining the well-being of Zimbabweans as a people. Because China’s aid has no environmental and human rights conditions this may lead African leaders to opt to look to the East (China) rather than the West; therefore, its over-emphasis on economic growth has led to the promotion of corruption and environmental degradation.

CONCLUSION

To conclude China’s development assistance may be developmental but with consequences. There are similarities and differences, but to a larger extent, it doesn’t perfectly fit in the DAC model of development assistance. The growing role of China as a development actor guided by its foreign policy instruments is unclear and obscure, one cannot separate its aid from economic investments. This haziness emanates from the differences between its foreign assistance and economic cooperation with that of the DAC members and is also exacerbated by the lack of information on Chinese aid. These differences lie in the context of how China provides its aid, to whom, how it provides it, and for what purpose it offers its aid. To a larger extent, China offers its aid primarily for economic cooperation reasons, it is still anchored and motivated by traditional economic growth with an emphasis on productive projects and infrastructure. While DAC members have moved aid to social and well-being improvement, their focus also includes human well-being development rather than over-emphasizing economic growth.