Wednesday, March 03, 2010

China`s Official Development Assistance

Q - How much is China spending in terms of `development aid` to Asia, Africa and Latin America?

A - Nobody knows – except the Chinese politburo.
If there is one million (or billion) dollar question that worries the Bretton-Woods Institutions (IMF, WB, UN), this must be it. Worrying, because nobody except the Chinese bureaucracy really knows how much money is really going towards propping up unstable regimes in Africa; how much aid is tied to extraction of oil & minerals for the Chinese market, and how much aid is actually going for building institutions and teaching poor countries `how to fish`.

Over the past half-century, development aid had become a cozy little game for politicians in the `developed` world. Set aside a small portion of the national budget for 'helping poor countries', get them to sanction projects in sectors where your own companies are competent; ‘persuade’ them to sanction projects and contracts to these companies, and everybody does home feeling happy – except, of course, the bewildered poor in the recipient countries.

Now, when the so-called ‘developing countries’ try to play the same game, they are called `neo-colonists`.

Last month (22 Feb.), we had a rare opportunity to interact with Prof. Jiang Shixue from the Chinese Academy of Social Sciences at a workshop titled, Comparative research of Chinese International Assistance to Asia, Africa and Latin America.

Here are some Q& A’s from the session:

Why is China so secretive about its aid programs?

There are two reasons for this - first of all, China continues to be a recipient of foreign aid so, for the time being, it wants to play down the numbers and keep an low profile. Secondly, it wants to avoid competitive comparison between its aid-recipients, and the diplomatic tussles that might follow.

What are the forms of Chinese Aid?

Grant Aid (free lunch), Zero or low-interest loans, technical assistance, training (over 100,000 trainees at present), disaster relief, debt relief (374 packages for 49 countries in 2007), medical aid (20,000 doctors in 65 countries), language-courses in Confucius Institutes (200 teachers in 10 countries)

According to the Chinese Ministry of Commerce (2008), over 2000 projects are being implemented in 160 countries worldwide.

What are the principles underlying China’s aid programmes? 
  • Since 1964, Eight Principles underlie Chinese assitance to other countries - mutual benefit, no political pre-conditions, equal treatment for loal & Chinese experts, supply of quality equipment, etc.,
  • From the 1980 onwards there have been some additions and amendments - there are fewer large-scale projects; Africa focus (Mao - `China was carried to UN on the back of African countries); emphasis on ‘south-south’ cooperation and in `teaching how to fish` (capacity building) rather than ‘gifting fishes’ (grant-aid)
  • Countering Taiwan – Opposing Taiwan`s `dollar diplomacy` - especially in Africa and Latin America (12 or 24 countries which recognize Taiwan are in South America). Eg – In an African country China preempted Taiwan by providing ‘aid-money’ for paying salary for army personnel and a raise for its bureaucrats.
  • Avoiding `Slapping own face to look fat` - avoid harming oneself by giving aid to other countries
  • Not feeding the `white-eyed wolves` (reference to Vietnam which allegedly used Chinese armaments against the Chinese themselves!)
Landmark Projects?

  • Public buildings in Barbados (GDP percap $12,000)
  • National stadium in Bahamas (GDP pc $24000) with a capacity to seat 30,000 people (1/10 total population)
  • Africa – The Tanzania-Zambia railway built using 56,000 Chinese technicians of whom 70 died.

The presentations and discussions that followed were unfortunately clouded by the mix-up between FDI and ODA.

Prof. Seifudein Adem (Binghamton Univ), in his paper, `China`s dual diplomacy in Africa and its consequences: Preliminary Assessment`, alleged that Chinese aid for the ICT sector is used by Zimbabwe to suppress information. He also noted that China is only No.4 in terms of FDI to Africa (After Singapore, India and Malaysia), and that only 3% of Chinese FDI goes to Africa - as opposed to 37% to Latin America. He pointed out that Africa suffers a huge infrastructure deficit (needs $22b) so any Chinese input gets magnified. In 2006, China provided $7b to Africa (France $11b)

Dr. Claude Sumata (University of Sussex), presented a paper titled, ‘The Challenges of Chinese-DRC Economic Cooperation: Is it a win-win partnership?`. He noted that in the Democratic Republic of Congo – one of the biggest recipients of Chinese aid - between 1980-1990 the GDP climbed by an average of 1.2% a year; from 1990-1994, it has been declining at the rate of 9.5% a year. Chinese FDI goes mainly to extractive sectors - oil and mining (Eg. In 2007, a JV Socomin signed a deal for 10mT of copper & cobalt)

At the end of the day it is the numbers that speak for themselves. China has the largest foreign exchange reserves in the world - over $ 2 trillion. A fraction of this - $ 763 billion -  is deposited with the US Treasury, and helps in propping up the budget deficit in the American economy. 

So perhaps it is only logical for the Chinese to spread around the excess cash to butress their own safety and security in a world where the only certainty is that the dominance of WW2 victors' is on the wane.


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