The “No Strings Attached” pitch comes with major caveats.
by Andy Wu
It is not often that a developing country is this magnanimous with development spending outside of its borders. But China, a country that only started contributing to the World Bank in 2007, has been spending lavishly on foreign assistance in recent years with splashy announcements coming out on a regular basis: The Belt and Road Initiative, the Asia Infrastructure Investment Bank, the China International Development Cooperation Agency (CIDCA), frequent joint project announcements with billions of dollars more pledged, et cetera. (Rajah, 2019)
The scale of Chinese foreign aid is not really a cause for concern in itself to me. I don’t seek to explain how the fact that China is most likely already caught up with the United States in foreign aid offering is emblematic of China’s rise in influence and a reshuffling world order. But the scale does matter here, especially given the circumstances under which the foreign aid was designed.
Data on China’s foreign aid is prohibitively secretive, as specific numbers on how much the Chinese government spend on foreign development are not made available to the general public due its perceived level of political sensitivity. Our best guess comes from a 2017 study, which estimated around $354.3 billion between 2000 and 2014. (AidData, 2014) And in light of recent developments, we can safely assume that it could have only increased as Belt and Road expedited the expansion of the recipient base to more than 166 countries and international organizations.
China now outspends the United States on foreign aid on an annual basis. It competes with both the United States and the European Union in key regions like sub-Saharan Africa and it is winning. Whatever conditions attached to the substantial amount of Chinese aid money may very well become the new norms in global development. Therefore, I am alarmed by the suspicious conditions surrounding Chinese foreign aid and what the adverse ramification may be for the receiving countries, as should everyone.
Chinese aid is fundamentally different from our traditional perception of foreign aid in two ways.
First, its main purpose is not quite as charitable as one may think when picturing foreign aid. AidData’s report pointed out that only about 22 percent of the total amount was spent on official development assistance or ODA, the category of aid explicitly given on humanitarian grounds. This is in stark contrast with the United States’ ODA which accounts for 93 percent of US overseas development spending. Most of China’s foreign aid went to low concessional loans intended for commercial projects, blurring the lines between assistance and business opportunities.
Second, it brands itself unconditional with no political strings attached. Earlier this year in October, Liu Hua, special representative for human rights affairs of China’s Foreign Ministry, said “China’s assistance fully respects the wishes of the governments and peoples of the recipient countries. China never interferes in other countries’ internal affairs, and its aid is not attached to any political conditions.” While it may be taken at face value as a respectful proposition for a collaborative relationship, the underlying implications of this “no strings attached” approach are clear as day. “Never interferes” means no stipulations on fiscal discipline, efficient governance, stronger legal institutions, or even corruption reduction. Instead, the Chinese government frames their offering around “equality”, posing as if creditors who demand better common sense practices from their debtors are all bullies.
These two distinctions means that Chinese aids’ monolithic presence in global development today poses an urgent questions for the rest of the world to answer. Is China’s version of foreign aid the right alternative for existing western foreign aid, most of which is predicated on the Washington Consensus? Or are the unconventional circumstances around Chinese aid money cause for concern? I am inclined to side with the latter. Chinese aid is a dangerously irresponsible and precarious, and it rightfully arouses suspicion.
To understand why the Chinese aid model is so disruptive, I would like to first introduce you to the debate on its main competitor. There have been a plethora of complaints about western foreign aid, and the most common ones can be sorted into four areas.
First, Washington Consensus is too stringent on fiscal discipline, even when the developing nations on the receiving end need more deficit spending to kickstart its economy through expensive infrastructure investments.
Second, the never-ending cycle of not self-sufficient nations receiving aid from more advanced economies perpetuate bad practices, foster dependence and stifles industrial development.
Third, giving aid to countries bogged down by rampant corruption and totalitarian regimes is bolstering bad governments and bad policies.
Fourth, it is simply not used effectively to tackle the biggest challenges due, in part, to exogenous political considerations and foreign interference. (Radelet, 2006)
Pham, Bello and Barry, an executive at the Atlantic Council and two economists at the World Bank, expressed cautious optimism a year ago before the Forum on China-Africa Cooperation, where the Chinese government often announce new spending. They recognized the risks, but argued generally in favour of the prospect of Chinese aid in Africa as a viable alternative to the much bemoaned aid provided by the United States and other western nations. They concluded that the aid had the potential of closing the infrastructure gap, and putting the power back in the hands of local authorities as long as the infrastructure projects are “high quality, commercially sound, socially responsible and well-managed.” (Pham et al., 2018)
That did not happen. An aid scheme as elaborate as this, with exceptionally low standards for participation, is just as problematic as you would expect. The Chinese aid is not improving on those problems bedeviling traditional aid. On the contrary, the Chinese aid exacerbated the problems in most areas and produced mixed results in others.
First problem is fiscal discipline. It verges on predatory lending to corrupt countries that overspends and covet foreign aid. With “no strings attached”, it is getting harder and harder not to call the scheme “debt trap” diplomacy. The economic and political concessions these countries may have to make to China in the case of insolvency are major risks to developing nations and likely to challenge the “no strings attached” image. (Li, 2018)
For instance, Sri Lanka signed over its Magampura Mahinda Rajapaksa Port to China with a 99-year lease for its use in 2017 when the country flirted with insolvency. In Djibouti, a country with a tiny population where $1.4 billion have been borrowed from China, answering the demands of a massive creditor that lent more than ¾ of the GDP became a major priority. Coincidentally (or not much), Djibouti became the first country to house a Chinese overseas military base. There have also been local media reports in Kenya warning that a takeover of Mombasa Port by the Chinese government may be in order should Kenya fail to meet its obligations, prompting major local concerns. (Rajah, 2019)
Second problem is the issue of bad government and corruption. While some western foreign aid have been accused of condoning corruption, the Chinese way is apparently even more nefarious: it has been found to encourage existing and ongoing corruption and bad governance practices, and sometimes even targeting these countries in particular. A Fondation Pour Les Études et Recherches Sur Le Développement International study found that Chinese aid tend to go to corrupt countries, with a strong negative correlation between direction of the aid and the World Bank Rule of Law index and the Regulatory Quality index. Furthermore, with no conditions on improving the debtor’s governance practices, the aid does not even attempt to veer the receiving country in a positive direction.
Public reports seem to ascertain this finding as well, with a separate AidData research concluding that Chinese aid projects stand out from those financed by other major donors in that they fuel local corruption by analyzing a data set of close to 100,000 respondents in 29 African countries. They identify two ways that Chinese aid fuel corruption: China’s own lax standards when it comes to clean governance are transferred through collaboration, and the Chinese has allegedly used corrupt practices to implement the development projects. (Issacson & Kotsdam, 2016)
Lastly, the general effectiveness of individual development projects financed by China is questionable under the influence of both un-curtailed corruption and unscrupulous spending. Media reports, both local and international ones, have cast doubt on multiple high-profile projects’ worth after their completion and their improvements on citizens’ lives.
Early examples of highly controversial and deeply wasteful projects include the Mombasa to Nairobi railway, which suffered from astronomical cost overruns, delays and abysmal commercial performance. The line cost $3.3 billion, with a cost per kilometer price tag of $5.6 million, which is three times more expensive than international standard and four times more expensive than originally planned. And yet to use the trains, local importers report a 50% higher cost than their trucks. Kenyan authorities are now forcing Kenyan businesses to use the trains against their own interests, so they can afford loan repayments for a railroad that was financed, built and is currently maintained by the Chinese government and companies. (Rajah, 2019)
Similar stories are popping up everywhere, including Ethiopia, which had to restructure its debt with China due to similarly poor commercial performance of its China-financed trains, and Vanuatu, whose $28.5m national conference centre which eventually proved useless and costly, had to hand maintenance back to Chinese businesses. (Li, 2018)
To be clear, the developing world needs more generous donors and financiers. Which is why it is so disappointing that the story of Chinese aid has been a cautionary tale. The “no strings attached” pitch may be appealing. However, just looking a little bit closer reveals a lot more caveats that aid-seeking countries and their citizens may not be willing to accept. From corruption to fiscal health, to individual project performance, evidence points to one overarching conclusion: however bad you think the current aid models of the West are, Chinese foreign aid is worse.
Works Cited
Radelet, Steven, “A Primer on Foreign Aid”. Working Paper Number 92. July, 2006. Centre for Global Development. Digital.
Isaksson, Ann-Sofie & Kotsadam, Andreas. “Chinese Aid and local Corruption”. Working Paper 33. December 2016. AidData. Digital
“China’s Global Development Footprint: The clearest look yet at Chinese official finance worldwide”. 2014. AidData.
Guillon, Marlène & Mathonnat, Jacky. “What can we learn on Chinese aid allocation motivations from new available data? A sectorial analysis of Chinese aid to African countries” Working Paper 225. April, 2018. Fondation Pour Les Études et Recherches Sur Le Développement International.
Miriri, Duncan. “Kenya forcing importers to use costly new Chinese railway, businessmen say” December 2, 2019. Reuters. https://www.reuters.com/article/us-kenya-railways/kenya-forcing-importers-to-use-costly-new-chinese-railway-businessmen-say-idUSKBN1Y70LT
Li, Xiaojun. “China is offering ‘no strings attached aid’ to Africa. Here’s what that means.” September 27, 2018. The Washington Post. https://www.washingtonpost.com/news/monkey-cage/wp/2018/09/27/china-is-offering-no-strings-attached-aid-to-africa-heres-what-that-means/
“China’s foreign aid equal, mutually beneficial, open, sustainable: diplomat” October 22, 2019. Xinhua.
http://www.xinhuanet.com/english/2019-10/22/c_138493686.htm
Rajah, Roland, et al. “OCEAN OF DEBT? BELT AND ROAD AND DEBT DIPLOMACY IN THE PACIFIC” October 21, 2019. Lowy Institute.
https://www.lowyinstitute.org/publications/ocean-debt-belt-and-road-and-debt-diplomacy-pacific
Pham, J. Peter, et al. « Chinese Aid and Investment Are Good for Africa” Foreign Policy. August 31, 2018.
https://foreignpolicy.com/2018/08/31/chinese-aid-and-investment-are-good-for-africa/