China’s Second White Paper on Foreign Aid Signals Key Shift in Aid Delivery Strategy

July 23, 2014

By Zhou Taidong

On July 10, 2014, China released its much-awaited second white paper on foreign aid. In recent years, Chinese foreign aid has been a subject of scrutiny and even controversy. As the world’s fastest rising power, China has sharply expanded its foreign aid spending in both scale and scope over the last decade. Partly due to this, but also because of China’s official aid approach that emphasizes mutual benefit and imposes few conditions, China’s role as a provider of foreign aid has stimulated considerable interest and debate both inside and outside the country.

As the world’s fastest rising power, China has sharply expanded its foreign aid spending in both scale and scope over the last decade. Photo/Flickr user Trey Ratcliff http://bit.ly/1x23D6d

In this context, this second white paper, issued three years after the first one, will surely draw much attention. The paper not only describes the scale of China’s aid budget and the types and composition of financial support and its regional distribution, but also highlights the country’s aid objectives. Perhaps more importantly, the paper indicates a gradual shift in China’s aid delivery strategy from hardware-focused infrastructure construction to the softer side of “capacity building,” a growing trend that has gotten little notice. The paper also says that China has strengthened international cooperation in development assistance.

Aid scale: Among the most important pieces of information in this report is a concrete sense of the scale of China’s aid and its general trends for the period from 2010 to 2012. (The previous white paper had only given a very broad picture of China’s foreign aid in the decades up until 2009.) According to the paper, China provided 89.34 billion yuan (about $14.4 billion) in foreign assistance through grants, interest-free loans, and concessional loans in the three-year period. This is an annual average of about 30 billion yuan, or $5 billion, which makes China the world’s 10th largest donor (or “South-South cooperation provider” in official Chinese terms). However, in terms of the ratio of aid budget to gross national income (GNI), China stood at about 0.07 percent – far lower than the average 0.3 percent of the Development Assistance Committee members or the longstanding UN target of 0.7 percent for developed countries. Nevertheless, it is clear that China has rapidly increased its aid budget during this period, with its budget for the 2010-2012 period equal to about one-third of China’s total aid in the decades before 2009. China provided a total of 256.3 billion yuan before the end of 2009, according to the first white paper.

Types of financial support: The report also discusses the three main types of financial support that make up Chinese aid: grants totaling 32.3 billion yuan, interest-free loans of 7.26 billion yuan, and concessional loans which amounted to 49.76 billion yuan, accounting for the lion’s share of China’s assistance. Compared with the period before 2009, the share of interest-free loans dropped from about 30 percent to 8.1 percent, while the share of concessional loans rapidly increased from 29 percent to 55.7 percent. The share of grants remained about the same, with 41 percent for the period before the end of 2009 and 36.2 percent for the period of 2010-2012. Meanwhile, China also provided about 1.5 billion yuan ($245 million) in emergency humanitarian aid and canceled 18 mature debts totaling 1.42 billion yuan ($233 million) for the same period.

Regional distribution: Africa and Asia remain the two largest recipient regions of China’s foreign assistance. Just over half of the aid, 51.8 percent, went to Africa, a 6-percent increase from 2009, while 30.5 percent of aid went to Asia, a 2-percent drop from 2009. It is also interesting to note that the share of China’s aid to Europe has increased from 0.3 percent in 2009 to 1.7 percent for the three-year period. Given the limited number of developing countries in Europe, this is a rather large increase. The paper also reports that China’s aid to the least developed countries (LDCs), which was below 40 percent before 2009, has now increased to 52.1 percent for the three-year period.

Aid objectives: The report specifically states two overarching goals for China’s aid: 1) helping improve people’s livelihood, and 2) promoting economic and social development. In the past, China’s aid motives have often been scrutinized or criticized. Lack of clear vision from the Chinese government has made it worse. Detailing the aid sectors and methods that China has taken to fulfill them will help relieve some concerns from the outside that China’s aid is only about infrastructure and “prestige” buildings, without benefiting local people. For example, from 2010 to 2012, China assisted 49 agricultural projects and dispatched over 1,000 agricultural experts to recipient countries. Other areas included education, medical and health services, public welfare facilities, capacity building, and environmental protection.

Shift of aid delivery strategy: Perhaps most interestingly, the white paper indicates a shift in China’s aid delivery strategy. Although complete projects and goods and materials remain the main forms of Chinese foreign assistance, the white paper revealed that technical cooperation and human resources development cooperation saw remarkable increases. For example, investment in economic infrastructure projects decreased to 44.8 percent for the three-year period from 61 percent before the end of 2009. During that same time, China held 1,951 training sessions for officials and technical personnel and on-the-job academic education programs in China, training a total number of 49,148 people from other developing countries. It is worth noting that within the three years, the number of people trained in China jumped from 10,240 in 2010 to 20,949 in 2012, with an average annual increase of 52 percent.

China has long focused on so-called “hardware infrastructure” or public projects like roads and buildings that bring direct and visible benefits to recipient countries. In general, China’s assistance complements the aid given by traditional donors that often focuses on governance and social issues and helps fill in the gap in infrastructure development in many developing countries. However, this approach has also drawn criticisms that China’s aid does not benefit the local communities in terms of employment generation and education and health improvement, and might damage the local environment. It seems that the Chinese government has come to realize the limitations of overemphasizing infrastructure to achieve developmental impact and is increasing efforts on the “soft” side.

Observers of China’s aid programs will also find the report a bit disappointing. After all, the white paper does not respond to frequent requests for full transparency in China’s aid programs and is still light on many details. For example, the white paper only provides an aggregate budget for the three-year period, without specifying the annual budget, not to mention country, sector, or project-level information. It also fails to mention specific country recipients in each region. In addition, it does not touch upon aid management or any reforms in this regard, such as project planning, implementation, monitoring and evaluation, or involving the civil society. That said, the white paper is still a move in the right direction, with more information and specific examples than ever before. Most importantly, the release of this report shows willingness by the Chinese government to be more transparent regarding its aid programs now and in the future.

Zhou Taidong is a program officer for The Asia Foundation in China. 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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