Rogue aid? On the importance of political institutions and natural resources for China’s allocation of foreign aid

Axel Dreher, Andreas Fuchs 27 January 2012

a

A

In an obvious reference to China, US Secretary of State Hillary Clinton recently warned during her visit to Burma to “[b]e wary of donors who are more interested in extracting your resources than in building your capacity” (quoted in FT 2011).  China’s allocation of foreign aid not only receives widespread attention, but is also a major source of concern for Western policymakers. Recent examples include China’s massive support for Belarus – ‘Europe’s last dictatorship’ – and the recurrent provision of aid to North Korea, China’s Communist neighbour.

Reports on Chinese aid to these and other autocratic regimes combined with the opaqueness of China’s aid flows explain why China’s foreign aid is frequently characterised as ‘rogue aid’ by media outlets, politicians, and academics. More precisely, China is accused of strategically allocating its aid in order to get easy access to natural resources and bribe countries to gain their support in international politics. Its critics argue that its aid undermines Western donors’ efforts to promote the worldwide spread of democracy and rule of law. Naím (2007: 95) claims that rogue donors such as China “couldn’t care less about the long-term well-being of the population of the countries they ‘aid.’”

Contrary to what these verdicts suggest, there is little hard evidence on what determines the allocation of China’s aid – even though its aid programme dates from the 1950s and is quite extensive. According to a white paper on China’s foreign aid (State Council 2011), China has provided aid to 161 countries between 1950 and 2009, of which 123 developing countries received aid on a regular basis. This corresponds to 256 billion yuan ($38 billion), of which 41% was provided as grants, 30% as interest-free loans, and 29% in the form of concessional loans. 

What determines China’s aid allocation

In Dreher and Fuchs (2011), we confront the claims about what determines the allocation of China’s aid with data. We have collected information on the number of Chinese aid projects completed over the 1956–2005 period, the amount of aid money (1956–87), the size of medical teams dispatched (1983–94), and food aid delivered (1988–2006). Based on these four indicators of aid, Figure 1 provides an overview of the evolution of China’s aid programme over time. As can be seen, the number of aid projects follows a positive trend, but volatility is high. Total aid amounts (in US dollars) peaked in the early 1970s (no data are available after 1987). The number of medical staff dispatched was substantially lower in the 1990s compared to the 1980s, while food aid has only reached significant amounts since 1996. The map in Figure 2 plots the number of aid projects that each developing country received as a share of the total number of China’s aid projects between 1996 and 2005. It is apparent that China’s aid programme now operates on a global scale. The number of countries receiving Chinese aid underlines that natural resource endowment cannot be the only driver of the country’s aid allocation decisions.

Figure 1. China’s foreign aid over time

Source: Dreher and Fuchs (2011)

Figure 2. Number of aid projects completed (percent of China’s total aid, 1996–2005)

Source: Dreher and Fuchs (2011)

Using these data on the number of aid projects between 1956 and 2005, we tested whether, and to what extent, Chinese aid was motivated by developmental, governance-related, political, or commercial motives over five phases of China’s aid programme. According to our empirical results, commercial motives, as measured by China’s bilateral exports, seem to be relevant for China’s allocation in the period after Deng Xioping’s ‘Reform and Opening Up’ (1979–87) and in the most recent period where data are available (1996–2005), which starts with the aid reform of 1995 emphasising the linkages between aid, trade, and investment. China’s aid does not appear to be significantly larger in oil-rich countries. We further find that political motives are important in all five phases of China’s aid programme. Countries that vote in line with China in the United Nations General Assembly and do not recognise Taiwan as independent country receive larger aid shares. In contrast to claims by China’s critics, the empirical results show some evidence that China indeed follows recipient needs when deciding on its aid allocation, favouring countries with low per capita income. Finally, China’s aid is, for the most part, independent of the recipients’ institutional characteristics, which seems to confirm the non-interference principle of China’s foreign policy.

Is China’s aid special?

The fact that Chinese aid is driven by political and commercial motives is not outstanding in international development cooperation. Many studies have shown that Western donor countries provide aid based on strategic considerations (eg Alesina and Dollar 2000). Therefore, we compared China’s aid allocation decisions in 1996–2005 with those of the so-called traditional donors, organised in the OECD’s Development Assistance Committee (DAC), and other emerging donors. There is no evidence that China’s allocation of aid is inferior from a humanitarian point of view when compared to other donor countries. When it comes to democracy and indicators of governance, there is also little evidence that China’s allocation of aid is inferior. Although China does not take institutional quality into account when deciding on its allocation of aid, the same holds for most other donors in our sample. In particular, we did not find that China’s aid is biased towards autocratic or corrupt regimes as claimed by its critics. Based on our analysis of China’s aid allocation decisions, it seems that fears that Chinese aid undermines the efforts of other donors to promote democracy and good governance are exaggerated. The same holds for commercial motives. While commercial interests matter, our empirical evidence does not support the idea that China puts greater weight on giving aid to either countries with strong commercial ties, or to countries that are more abundant in natural resources, in comparison to other donors.

Our empirical findings confirm that China’s aid allocation decisions are shaped by politics. However, compared to the DAC and other emerging donors, the fact that political self-interest is part of China’s aid motives is not exceptional. While both China and DAC donors use aid for strategic reasons, China communicates more openly that its aid serves mutual benefits.

Some recipients seem to perceive China as a welcome alternative to Western donors with their bureaucratic procedures and detailed policy conditionality. Moreover, China’s focus on infrastructure projects might foster developmental needs largely neglected by DAC donors (see Brautigam 2008). In the early 1980s, even the CIA (1980:6) confirmed that the Chinese aid programme “fits the needs of the poorest LDCs [least developed countries].” Overall, the verdict that China’s foreign aid is ‘rogue’ seems wide of the mark. According to the results in our paper, Chinese aid is nothing to fear.

References

Alesina, Alberto and David Dollar (2000), “Who Gives Foreign Aid to Whom and Why?”, Journal of Economic Growth,5(1):33-63.

Brautigam, Deborah (2008), “China’s African Aid – Transatlantic Challenges”, International Development Program, School of International Service, American University, Washington, DC.

CIA (1980), Communist Aid to Non-Communist Less Developed Countries, Intelligence Handbook, available here.

Dreher, Axel and Andreas Fuchs (2011), “Rogue Aid? The Determinants of China’s Aid Allocation”, Courant Research Centre ‘Poverty, Equity and Growth’ Discussion Paper 93, University of Goettingen, September.

Financial Times (2011), “Clinton warning over aid from China”, 30 November.

State Council (2011), White Paper on China’s Foreign Aid, Xinhua/China’s Information Office of the State Council, available here

a

A

Topics:  Development Politics and economics

Tags:  China, natural resources, development aid, rogue aid