Asian Development in an Asian Century

May 30, 2012

By David D. Arnold

It is no wonder that political and economic analysts have dubbed our era “The Asian Century,” and quite timely that we will soon be seeing the White Paper on Australia in the Asian Century commissioned by Prime Minister Gillard last September.

The region accounts for 27 percent of global GDP, and with the right mix of national, regional and global policies, the Asian Development Bank predicts that Asia’s GDP will increase nine-fold to account for half of global GDP in 2050. China is now the world’s second biggest economy, and it is expected to overtake the U.S. as the world’s top trading nation by 2016. Australia and Asia of course retain a special relationship in this regard. The proportion of Australia’s total exports going to Asia exceeds 50 percent, with exports to China having doubled since 2008.

As noted by Prime Minister Gillard’s remarks on the White Paper, China and India  – with two of the largest emerging donor assistance packages and reach throughout the region – are frontline voices in Asian development cooperation. As both of these rising donors and Australia increase their commitments to programs in Asia, it has become pressing to develop a fuller understanding of each for fruitful engagement.

China’s aid, 45 percent of which is directed to Africa and about a third of which flows to Asia, has been the subject of much recent discussion. The country’s first White Paper on Foreign Aid, released last April, reveals an aid program that has been increasing at approximately 30 percent per year for the past few years.

In fact, estimations of the total size of China’s aid flows vary considerably, ranging from US$2 billion to over US$110 billion annually.

The huge variations stem from different delineations of which flows are considered development aid. In its White Paper, China itself categorises its aid primarily as grants, interest-free loans, and concessional loans administered through China Eximbank. This represents only a small element of China Eximbank’s loan program. Its other official flows, such as export credits, constitute the majority of Chinese development financing. These other flows are often incorrectly classified as aid (which they are not, according to the definition of Official Development Assistance), thereby leading to considerable misconceptions about Chinese aid. In addition, Chinese aid is often part of a broader investment package in a given country.

Due to such misconceptions and the fact that several Chinese agencies, rather than one, coordinate aid, it is difficult to analyse Chinese aid alongside traditional aid or within frameworks like the Paris Declaration. Nevertheless, we can be sure that China’s development cooperation activities will continue to increase. As such, it will be critical for Australia, given its special reach in the region, to engage with China.

India presents another interesting case. Although often overshadowed by China’s rising presence, India’s engagement in development cooperation dates back to the 1950s. Today, India is the 5th largest donor to Afghanistan. Like China, guiding principles include mutual benefit, non-interference, and technical and economic South-South cooperation. India disbursed over $1.5 billion in traditional foreign aid in 2011, even while it remained the world’s largest recipient of multilateral assistance.

Quantifying and categorising Indian aid is a bit of blur, as it is with China, largely because Indian aid has been managed and disbursed through an array of government departments and technical agencies. The Government recently announced its intention to establish a dedicated Development Partnership Administration within its Ministry of External Affairs, a move which has long been under discussion.

For both China and India, foreign assistance is a “soft power” tool for developing strategic economic and political relationships with other countries. As the Asian Century unfolds, we can look forward to reflecting on how this soft power impacts China’s and India’s engagement with recipient countries in the region and with each other.

To leverage this momentum, it is important for OECD-DAC donors like Australia and organisations like The Asia Foundation to engage with emerging powers like China and India. Given their rapid growth, in terms of both magnitude and soft power reach, these nations will play an increasingly important role in shaping regional and global development in the years ahead.

This article was originally published by the Lowy Institute’s blog, The Interpreter.

David D. Arnold is president of The Asia Foundation. He can be reached at [email protected]. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.

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