Is China challenging traditional donors’ development policy?

In the lead up to the Fourth High Level Forum (HLF4) in Busan, South Korea, in late November, development thinkers and practitioners are debating what the outcome document could and should reflect, and the role of South-South Cooperation (SSC) providers (often referred to as ‘emerging’ or ‘non-DAC’ donors) in influencing this process. It is within this context that the discussion about Chinese aid in the Western discourse has now shifted from concerns about motives and objectives to broader questions regarding the impact of China on the dominant development agenda.

This post will briefly cover four components that are significant to examine: China’s conception of development & the underlying norms and principles; the relationship to the aid effectiveness agenda; forms of development financing; and China’s role in agenda-setting.

Aid and Development Norms

The Chinese Government’s White Paper on Foreign Aid frames China’s provision of aid as operating within the context of China’s position as a developing country but also as part of fulfilling its international responsibilities. The objective of providing foreign aid is to “help recipient countries to strengthen their self-development capacity, enrich and improve their peoples’ livelihood, and promote their economic growth and social progress” (White Paper 2011). Three things stand out in the Chinese discourse: the promotion of self-development and self-reliance; non-interference and non-conditionality; and equality and mutual benefit. These are used by China, Western governments, and recipients – albeit in different ways – to distinguish China vis-a-vis traditional donors.

Chinese foreign aid stresses the importance of stimulating economic growth and implementing a development model based on each country’s specific requirements and circumstances. Although China supports the MDGs and has used international forums such as UN Summits to call upon all countires to help promote and achieve them, they are not in themselves a core focus of its aid programs. There is no rights-based or gender-mainstreaming programing and very little inclusion of monitoring and evaluation mechanisms – especially regrading the quality or impact of projects.

Although like other donors China utilises foreign aid towards a range of objectives, there is an interesting distinction in the rhetoric used to promote and justify its policy. ‘Mutual benefit’ and ‘win-win’ outcomes mark the cornerstone of Chinese aid – and SSC in general. China’s aid policy is conceptualised with the belief that recipients’ development contributes to China’s development and vice-versa. There is no strong domestic moral imperative for aid giving, nor is it steeped in a colonial, imperial, civilising mission. China also does not deny that it gets some benefit too; rather than approaching foreign aid as a form of giver-receiver relationship, the ‘gift’ of aid is generally explained as benefiting both governments. China dismisses the notion of ‘charity'; instead stressing the idea of ‘friendship’. In being grounded in notions of friendship rather than charity, China presents its aid as being normatively different from that of traditional donors; based upon equality and mutual benefit. This discourse serves both domestic and international imperatives for the Chinese government, but arguably also represents a significant discursive distinction –- and one that is symbolically important to many other developing countries.

A significant difference between China and ‘traditional donors’ appears in terms of the norm of non-interference and no political conditions. Chinese aid policies do not adopt the language of ‘good governance’ or ‘failing vs. effective states’, and in fact utilise the backlash against these (excessive) policy prescriptions by continually highlighting China’s own policy of ‘non-interference’ in other countries’ internal affairs. This is the element that Western donors are most critical of and that China (and many recipient governments) highlight to create a distinction between China and other donors. Of course, as China’s engagement intensifies there is an increasing disjuncture between its rhetoric and practice – particularly when commercial and foreign policy objectives diverge. The Chinese insist that the difference is that they don’t impose or require policy changes: “we’re not trying to change the structures of recipient countries”. This has the advantage of allowing more policy space for developing countries and is thus highly valued. Despite the hype, there is no real evidence thus far that this component of Chinese aid is fundamentally affecting traditional donors’ aid conditionality practices – though prompting a reassessment of the relevance of some of these conditions would be a good outcome.

There is much talk and consternation that China is presenting competition for ideas of development – the so-called ‘Beijing Consensus’. China clearly gives developing countries more options and more experience to draw upon, and can offer some potentially useful ‘lessons’ based on its own (ongoing) development experience. The reality seems to be, however, that most countries view China as a complementary source of development assistance, rather than a complete alternative. China itself doesn’t have a clearly articulated ‘model’ and it is not seeking to turn other countries into ‘Chinese-like’ structures. Of course, its authoritarian system will be appealing to some dictatorships – but arguably these countries haven’t listened to the advice of Western donors & Bretton Woods institutions anyway.

Aid Effectiveness Agenda

Western donors are also concerned that China may be undermining the aid effectiveness agenda and accepted ‘best practice’. Because many DAC donors themselves don’t necessarily follow the recommendations, one could argue that they are already weak and that China is no different in that regard – although it might slow down the process of adoption if other donors are disinclined to reform their practices if this means giving China a comparative advantage. Not being a DAC member, China is not required to be ‘measured’ against regime rules and expectations, nor has it agreed to be subjected to DAC reviews or comparisons (compared with other non-DAC donors such as the UAE). China has signed the Paris Declaration, but as a recipient not donor country.

Paris Declaration Components:

Ownership Yes
Alignment Yes
Harmonisation No
Results Yes (quantity not quality)
Accountability Yes, but not transparency
Conditionality Not political or policy (but tied aid)

Unlike traditional donors, China doesn’t develop specific country strategies or country programs with multiyear plans detailing individual projects and objectives. It does, however, advocate country ‘alignment’, frequently relying on recipients to select projects and prides itself on its aid being ‘recipient-focused’ and ‘responsive’ to a country’s needs. Its norm of non-interference arguably coincides with the idea of ‘ownership’, and the Chinese Government stresses the importance of each country developing and articulating its own development path. There are cases of nascent involvement in coordination and harmonisation efforts, though only when led by the host country and only at a participatory level rather than through support for sector wide approaches and pooled funds. Its aid is substantially tied to Chinese contractors – in line with its mutual benefit norm – and this is unlikely to change dramatically.

Other rules and expectations:

Like other donors, China has issued quite extensive debt relief throughout the world, and in this regard is abiding by one of the expectations of the development community. Because China doesn’t attached explicit conditions to its debt cancellation, however, there are concerns about debt sustainability, and potential problems posed by China’s resource-backed loans for the IFI’s preferred creditor status. Chinese lending is usually based upon an assessment of the individual project’s risk, not risk at a broader country level – which enables countries greater access to development finance as well as commercial loans. This has benefits and drawbacks and depends much upon the country’s ability and willingness to manage its levels of debt.

Transparency is a strong norm and is likely to be a key element in Busan. 18 donors that are not members of the DAC report through the DAC, and the IATI movement is gaining prominence. China’s transparency is still minimal – and is a concern of Western donors and within recipient countries. It has, however, improved markedly in recent years and in countries that have strong requirements there are cases where China is involved in recipient-led coordination and reporting efforts – the most significant being Cambodia where China reports its aid projects to a common database alongside other donors. The transparency norm currently only extends to ‘ODA’ – in terms of OOF (such as export credits) traditional donors are often as untransparent as China and there has been recent debate about this short-coming of the aid effectiveness agenda.

A common concern about Chinese aid relates to issues of corruption and governance. Since the majority of Chinese aid is ‘in kind’ or tied, the Chinese system doesn’t actually transfer funds to other developing countries. The Chinese (rightly) argue this reduces likelihood of aid money being siphoned off. However, details of contracts and procurement are often scarce and recipient communities have a legitimate issues with ensuring whether they are getting best value for money. There is also scope for corruption between Chinese actors, and Chinese Embassies have significant leeway to select projects and disburse grant funding (not the larger concessional loans though) – meaning that (good) project decisions depend on specific individuals.

A little surprisingly, China has actively advocated for countries to support LDCs and direct 0.15% of GNI to them, which is one of the DAC’s recommendations. A MOFCOM spokeswoman at the UN LDCs Conference in Istanbul in May this year stated: “We also call on the developed countries to fulfill their commitment as early as possible to allocate 0.15 percent to 0.2 percent of their Gross National Income as development aid to the LDCs“. The Chinese Government states that two-thirds of its aid goes to ‘least developed’ and ‘other low-income’ countries – though no definition of these categories is offered. It is an interesting example of China speaking of and embracing an important global development norm.

Development Financing

In most countries China is now a mid-level ‘donor’ but in some cases it is one of the main sources of development finance. The White Paper reveals an aid program that has been increasing at approximately 30% per year for the past few years, and its annual budget stands at about $4 billion (caution: not directly comparable with DAC ODA definitions) or less than 0.05% GNI (2009 PPP figures).

Interestingly, China now articulates a distinction between what it considers ‘foreign aid’ (see White Paper) and other forms of development finance (though definitions and boundaries within these categories are not coherently defined). This is arguably the combined result of pressure from the international community and a desire to be seen to be responding to the discussion about its expanding aid program.

However, it is crucial to realise that Chinese ‘aid’ is not conceived as a separate policy; aid flows are but one (small) element within China’s economic statecraft. The government draws upon a range of financial mechanisms when formulating economic and development agreements with other developing countries. Most of these –- such as official loans at commercial rates, export credits, suppliers’ credits – would be classified as ‘other official flows’ (OOF) under DAC definitions. The Chinese Government also utilises aid and investment ‘packages’ and (occasionally) resource-backed loans known as the ‘Angola Model’. As these other development financing mechanisms fall outside the DAC (and Chinese) definition of ‘aid’ they are also not encompassed in the aid effectiveness agenda. In the lead up to Busan some scholars are now starting to advocate for an extension of the effectiveness and transparency agendas to incorporate broader forms of development finance and thus include the dominant financing from providers of SSC.

China’s aid and development policy places emphasis on diverse economic initiatives such as (free) trade, reduction in tariffs, use of public and private sector within aid projects, establishment of special economic zones, and so forth. China (somewhat ironically) advocates utilising aid as a catalyst for generating profitable projects. Its grant-aid funded agricultural centres, for example, are explicitly designed to be run as profitable joint-ventures within the medium term. Aid is just a small part of its development relationship. Western donors have been working for years to ensure a distinction in their commercial and aid endeavours in a country and thus criticise the commercial aspect of Chinese aid as being self-interested. However concepts such as ‘aid for trade’ and the EU’s policy coherence for development agenda highlight the importance of thinking about the links between different aspects of global and bilateral relationships. China’s substantial new investment in the infrastructure sector, particularly in Africa, has also been a catalyst for renewed private sector interest and the reengagement of Western government apparatus’ such as US EXIM.

A new development agenda?

Whilst in the 2008 High Level Forum in Accra traditional donors were encouraging donors like China to follow the Paris Declaration, the Busan process has shifted towards finding ways to ensure the Paris Declaration remains valid in the context of other forms of development funding. It is possible we will see a stronger focus on outcomes rather than inputs, and a shift towards development effectiveness instead of the more specific aid effectiveness, and a change in language from ‘aid’ to ‘development cooperation’. Commentators such as Jonathan Glennie have suggested a ‘twin-track’ approach as a likely outcome, to take into consideration the differences between ‘traditional’ and ‘south-south’ development assistance.

Providers of SSC ardently stress its distinctiveness but appear reluctant to be subsumed within any more definitive framework or grouping. This is particularly the case for countries like Brazil, India and China, who’s provision of SSC and aid is part of their articulation and demonstration of rising global power. Despite the buzz around SSC – and the real potential benefits it can bring – definitions and guidelines for this modality are yet to be agreed upon.

Chinese aid – alongside other providers of SSC – is undoubtedly prompting reexamination of traditional donor aid policies and practices and provides the impetus and opportunity to reconsider the dominant development and aid structures and processes, but it is difficult to determine a clear normative challenge at this stage – nor is it certain that China wants to play its part in formulating it.

By the very nature of it’s involvement China is changing the development dynamics. The involvement of China and others should provide fresh opportunities for developing countries to further their own development agendas and for traditional donors to engage with them on new terms; not just as poor aid recipients.

At this stage, China is not attempting to overtly challenge the traditional donor development agenda, but appears to be embarking on a dual process of increasing acceptance of some norms and practices whilst continuing to stress its distinctiveness in other areas and it is likely to pick and choose which elements it accepts based on an assessment of its own best-interests at any given time.

 

Links:

State Council, White Paper on China’s Foreign Aid, April 2011

Busan conference offers chance to tackle aid effectiveness Jonathan Glennie

Who should lead the aid effectiveness debate in the future? Overseas Development Institute, Public Event, 6 July 2011

2011 Survey on Monitoring the Paris Declaration, OECD

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Philippa Brant

Philippa Brant is completing a PhD on Chinese aid and the implications for the international aid regime. She is a Prime Minister's Australia Asia Endeavour Award Holder (2010) and has recently returned to The University of Melbourne after living in Beijing. She can be contacted via plbrant[AT]gmail.com.

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