Lowy Institute for International Policy | Chinese Foreign Aid

Overview Chinese foreign aid sparks much debate. Critics argue it undermines good governance and other development objectives. Some Western governments fear China is challenging their influence. Many developing countries value the additional funds and alternative ideas, but are concerned with the local impact. The Chinese Government wants to be seen as a responsible international actor, but some Chinese citizens query why it is giving aid when development challenges remain within China. Size of Chinese aid China’s aid program is growing, but is not as large as many believe. In 2013 the Chinese government provided an annual figure (RMB 40 billion or US$6.4 billion) for its global aid budget. China started to emerge as a more significant donor in the late 1990s, a development that was related to its own domestic development policy of ‘going out’, and to its greater involvement in multilateral and international organisations. The Chinese Government released its first White Paper on Foreign Aid in April 2011, and its second in July 2014. The latter provides an overview of Chinese foreign aid from 2010-2012. China says it is providing foreign aid to 'help recipient countries to strengthen their self-development capacity, enrich and improve their peoples’ livelihood, and promote their economic growth and social progress'. Like all donors, China also provides aid for foreign policy objectives. Transparency and lack of data is an issue, so a deep understanding of how Chinese aid works is important. Chinese aid is provided in three main forms: grants, interest-free loans and concessional (or preferential) loans. The key actors are the Ministry of Commerce (MOFCOM), China Eximbank, and Chinese state-owned enterprises (SOEs). Global development norms China is criticised for not following ‘global’ aid norms and policies. But it sees its aid program as different. It classifies it as South-South Cooperation. It is symbolically important for China to not be seen as part of the Western donor club. For both domestic and international reasons, and unlike ‘traditional donors’, Chinese foreign aid does not include a focus on democracy, good governance or human rights. It instead stresses the importance of stimulating economic growth and implementing a development model based on each country’s specific requirements and circumstances. Chinese aid is not conceived as a separate policy; aid flows are but one (small) element within China’s economic statecraft, which also includes official loans at commercial rates, export credits and suppliers’ credits. The UN Millennium Development Goals (MDGs) are coming to an end, and the global development community is debating the post-2015 development agenda. Will emerging donors like China actively support this process and the goals? The BRICS China, along with the other BRICS countries, has proposed new development organisations such as the BRICS Bank and the Asian Infrastructure Investment Bank (AIIB). These institutions may complement the World Bank and Asian Development Bank (ADB). But they may also present competition to these Western-dominated institutions. Cooperation with other donors China is aware of the criticisms about its foreign aid, and is now willing to cooperate more with other donors and governments. China has undertaken pilot initiatives with UNDP, USAID and DfID in Africa, and signed the Australia-China Development Cooperation Memorandum of Understanding in 2013 for projects in Southeast Asia and the Pacific. The first jointly-funded trilateral project is in the Cook Islands, involving China and New Zealand. China is learning from and evaluating these pilot initiatives. Western donors hope it will lead to changes in Chinese foreign aid practices and closer alignment with OECD Development Assistance Committee (DAC) standards. What the Lowy Institute does The Lowy Institute has provided analysis of Chinese aid since 2008, and continues with research, commentary, data collection and analysis by Research Associate Philippa Brant.