Before the 1980s, Chinese foreign aid primarily served a political purpose, whereas since the 1990s, it also has been driven by commercial interests. Now aid delivery along the Belt and Road Initiative aims to help project an image of China as a ‘responsible big power’ and promote China’s global governance reform agenda, writes Marina Rudyak.
In the last two decades, China has emerged from its position as a net aid recipient to become one of the world’s 10 largest providers of development assistance. In OECD-DAC Official Development Assistance (ODA) comparable flows, China ranked seventh in 2016.
How China delivers aid is subject to speculation and critique, not least because of the perceived opaqueness of China’s aid system. Chinese observers also criticise its lack of transparency. They do not attribute this opaqueness to deliberate secrecy but to the system’s complexity and fragmentation. This has caused headaches at the highest levels of China’s leadership, with President Xi Jinping himself complaining that China’s aid needs to be more effective.
Chinese aid is far less monolithic and dirigiste than it appears. It has many interests to serve. These include assisting recipient countries’ economic and social development, reducing poverty, serving as a door opener for Chinese companies and enabling a soft landing for their ‘going global’. This is particularly true for aid delivery along the ‘Belt’ and ‘Road’ of China’s New Silk Road Initiative, which aims to help project an image of China as a ‘responsible big power’ and promote China’s global governance reform agenda.
Where there are many interests, there are also many stakeholders. The system is highly fragmented. Until recently, the Department of Foreign Aid (DFA) at the Ministry of Commerce (MOFCOM) was responsible for the overall coordination of bilateral aid. But it had to coordinate aid policy planning with the Ministry of Foreign Affairs (MFA), whose task was to ensure that aid was aligned with China’s overall foreign policy priorities.
This stirred intense competition between the two ministries over whether aid should serve primarily commercial or diplomatic interests. The technical responsibility for project implementation lay in the hands of more than 20 central level ministries, ministerial structures and their provincial subsidiaries.
To reduce fragmentation, China established a new International Development Cooperation Agency (CIDCA) in March this year. CIDCA took over most of MOFCOM’s and MFA’s aid related responsibilities to supposedly end the competition. But the reform moved aid closer into the influence sphere of the National Development and Reform Commission (NDRC). CIDCA’s founding director Wang Xiaotao had served with the NDRC since 1986. In 2014, he was promoted to be its deputy chairman in charge of foreign capital, overseas investment and trade.
Among CIDCA’s main objectives is the promotion of the Belt and Road Initiative (BRI) – the office of the BRI leading group is situated under the NDRC. While CIDCA is a standalone vice-ministry level agency under the State Council and has wider ranging strategic aid responsibilities than MOFCOM’s DFA previously had, the rest of the aid system remains as it was. The implementation of aid projects still remains with line ministries. This will hardly help to reduce fragmentation.
On the ground, aid projects are implemented mostly by central or provincial level state-owned companies that are accredited as a ‘foreign aid enterprise’. The companies in turn have to cater to multiple interests that include their own commercial motives, the sector policies of their line ministries and the overall external development policy interests of previously MOFCOM and now CIDCA (and possibly NDRC).
Since aid should also serve as a door opener for Chinese companies, it is often blended with trade and investment. China’s international development cooperation does not differ much from its domestic development policy for its poorer regions. Grants constitute only a small portion of Chinese aid.
What is largely understood as ‘aid’ or ‘helping’ includes development finance flows that come directly from the state, are intended primarily for economic or social development in partner countries and have some level of concessionality. Concessionality means that the loans are cheaper than borrowing on the same scale from the international market.
Most of the loans are channelled through China’s two large policy banks: China Exim Bank and China Development Bank. In addition, China has set up a number of special funds, such as the Silk Road Fund, China-Africa Development Fund and South-South Cooperation Climate Fund. Concessional loans that are issued by the Exim Bank and subsidised by the foreign aid budget of the Ministry of Finance usually meet DAC-ODA concessionality criteria.
In contrast, Preferential Export Buyer’s Credits are also issued by the Exim Bank but are managed under MOFCOM’s Department of Foreign Investment and Economic Cooperation and MOF’s Finance Department. They usually fail to meet DAC-ODA concessionality criteria. This is another reason why Chinese aid is so difficult to grasp.
There were hopes that the recent reform would decrease the fragmentation of and bring more transparency to China’s aid delivery. As of now, this does not seem to be the case.
What is probably most relevant for DAC-donors that are engaged in trilateral cooperation with China is the role of the Department of International Trade and Economic Affairs (DITEA). This agency was the focal point for DAC donors when China was receiving aid and is still the focal point for trilateral cooperation projects. So far, DITEA’s responsibilities have not been transferred to CIDCA. This adds more fragmentation and makes trilateral cooperation with China even more difficult than before.
Marina Rudyak is an assistant lecturer and doctoral researcher at the Institute of Chinese Studies, Heidelberg University. This comment first appeared in East Asia Forum and can be assessed at https://bit.ly/2qty3nY