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China is increasingly outspending the US on foreign aid

China spends more on projects that do not generate economic growth for recipient countries, says report

Hong Kong CNN  — 

US President Donald Trump has called for major cuts in foreign aid under his America First policy, raising alarm among philanthropists and sparking warnings it could be a “death sentence” for some countries.

As the US pulls back, a new report suggests China is poised to replace it as the primary donor for much of the developing world, but big concerns remain about the lack of transparency in how Chinese money is spent and what effect its assistance has on recipient countries.

“If the US follows through on its rhetoric and scales back its global footprint, China may be well-positioned to step into the breach and cement its role as a preferred donor and lender to the developing world,” said Samantha Custer, director of policy analysis at AidData, which Wednesday published the most detailed breakdown yet of China’s foreign aid programs.

A large amount of Chinese aid, it revealed, goes to African nations, which make up seven of the top 10 recipients of aid from China by project volume. China has 704 projects in total. Angola and Ethiopia combined received almost $32 billion of Chinese commitments in the period 2000-2014, almost 10% of the total.

However, much of this assistance occurs within an “informational black hole” which the study is trying to illuminate.

“The Chinese government actually considers the details of its overseas development programs to be a state secret,” AidData executive director Brad Parks told CNN.

Beijing’s secrecy, AidData found, masks a far larger foreign aid footprint than previously estimated.

And while the report finds “Chinese aid substantially improves economic growth,” it also deems the majority of current spending less than effective and warns it may undermine efforts to use aid to promote democracy and political reform.

Outspending the US

Over the period 2000-2014, China funded over 4,300 projects in 140 countries to the tune of $354 billion.

Total US overseas aid during that period was only slightly higher – $394 billion – and China actually outspent the US in five of the 15 years studied, according to AidData.

However, Parks said simple dollar totals mask important differences in the nature of the assistance provided.

“Chinese government spending nearly rivals US spending during that 15 year period, but the color of the money – even though they’re providing roughly comparable amounts – is very different,” he said.

While China provides roughly $5 billion a year in official development assistance (ODA), the type of projects most people typically associate with overseas aid, the bulk of its spending is on other official flows (OOF), which do not meet ODA criteria and can include commercial projects.

OOF projects include, among other things, grants for commercial purposes, aid intended to promote exports, subsidies to the private sector, and funds in support of private development.

Both categories are set by the Organisation for Economic Co-operation and Development (OECD), of which China is not a member. Therefore, it is not bound by OECD policies.

“We show why these distinctions are crucially important,” Parks said. “It’s really just the Chinese ODA that yields major economic growth benefits for recipient countries.”

AidData found on average, a doubling of Chinese ODA produced a 0.4% increase in economic growth. By comparison, the more commercially-oriented form of Chinese government funding, OOF, had “no detectable effect on economic growth.”

These findings are the same for Western donors, but the proportion of Chinese spending devoted to OOF rather than ODA is much greater.

Undermining reform

Since China has emerged as a major donor to developing countries, critics have warned Chinese money could undermine the effectiveness of Western aid in pushing for political reforms in less-than-democractic nations.

Two studies which drew on AidData’s preliminary figures, released over the course of the five-year study, appeared to support these claims.

Xiaojun Li, an assistant professor of politics at the University of British Columbia, looked at Chinese assistance to African countries and found conditions put on aid by Western donors were less effective when alternative no-strings-attached finance was available.

“China’s assistance is often considered more attractive by recipient countries because it has few or no political strings attached and is often disbursed much more quickly and efficiently than assistance from Western nations,” Li wrote.

“African countries have come to realize that they need options, not conditions, when it comes to aid. China’s aid and development financing provides such options and is thus welcomed with open arms by many African countries.”

Similarly, Diego Hernandez, of the University of Heidelberg in Germany, found the World Bank has reduced the conditionality of its aid “in response to the increasing competition from China.”

The emergence of “new donors with divergent interests,” Hernandez wrote, “might be leading to an aid architecture in which reform is ignored and effectiveness is unnecessary.”

“China has gone from aid recipient to one of the most important foreign policy players in the world, rivaling the traditional, Western donors and lenders in terms of spending and impact,” AidData found.

While Beijing defends its aid practices on the grounds they are neutral and respect recipient nations’ sovereignty – unlike Western donors who seek to impose their political systems and beliefs on other countries – Chinese money is not wholly unpolitical.

African nations have long been a battle ground for China and Taiwan, officially the Republic of China, and Beijing has provided aid and economic deals to nations which ditch Taipei and recognize the People’s Republic of China instead.