Charity Begins Abroad: China and Foreign Aid

The Economist tracks the transition of China and the other BRIC nations from net recipients to net donors of aid, and explores differences between these new donors’ contributions and those of the West.

Even today, America remains the largest single donor, dishing out $31 billion in 2010.

But second on the list, if reports monitored by New York University’s Wagner School are to be believed, would be China, which gave away $25 billion in 2007. (Statistics on aid from new donors are dodgy and the line between aid and trade is blurred; by another count China’s officially reported aid was only $1.9 billion in 2009.)

Over the past decade China has evolved from a net recipient to net donor. A milestone was reached in 2005, when the World Food Programme dispatched its last shipment of grain after donating to China for some 25 years. This year Britain’s DFID wound up its bilateral aid programme in China. At the same time, China has become a far bigger donor. Wen Jiabao, the prime minister, has promised that in 2010-13 China will provide $10 billion in low-interest loans to African countries, bolster the China-Africa Development Fund by $1 billion (bringing it to $5 billion) and cancel debt owed by highly indebted countries with which China has diplomatic relations. In April this year the Chinese government issued its first white paper on its foreign-aid programme. The amount budgeted for aid had “increased rapidly” since 2000, it said, with growth of nearly 30% a year between 2004 and 2009 ….

The new donors stress that their aid is different from that provided by the West. They reject the traditional idea of beneficent donor helping indigent client and claim to be engaged in “South-South co-operation”. China says the “first principle” of its development assistance is “equality and mutual benefit in providing aid”. In practice, though, the real differences with the West lie elsewhere.

However, Deborah Brautigam, author of ‘The Dragon’s Gift’, takes issue with much of the article’s content on Chinese aid. For example:

Yes, Wen Jiabao said that China would provide $10 billion in low-interest loans to African countries between 2010 and 2012 (not 2013). This pledge was made at the November 2009 FOCAC; these pledges go on three year cycles. Some of these loans will be “concessional” (you hui dai kuan) and some will be preferential export credits (you hui mai fan xin dai). Technically, only the former would qualify as official development assistance by the OECD’s guidelines. Even if they all were to be counted as “aid”, this would amount, on average, to $3.3 billion per year, divided among the 49 or so countries with which China has diplomatic ties, or an average of about $67 million per country, per year.

On the other hand, the China Africa Development Fund, which has been capitalized with $1 billion, and which is now scheduled to raise its second billion (it will only reach $5 billion at full maturity, at some distant point), is not aid, but investment: equity finance in support of FDI (foreign direct investment) by Chinese firms.

Finally, the debt to be canceled is not all debt, but, as stated by the Chinese, overdue debt from zero-interest loans, a modest portion of China’s aid. It’s important to get that right, as borrowers reading The Economist may believe that China is going to cancel all their debts, including concessional loans and commercial debts. No way.

Brautigam also suggests that the popular perception of Chinese aid as a means of promoting resource extraction interests is misguided. She tweets approvingly, however, about another recent Economist article, on the China International Fund and its dealings in African natural resources.

Sources:

Charity begins abroad – The Economist
More Mistakes by The Economist: “Charity Begins Abroad” – China in Africa: The Real Story

August 17, 2011 11:57 PM
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