"China is a Rogue Donor". Think Again
by George Ingles
Illustrative photo by Christopher Steffen
A bright red sign greets you, Nairobi Terminal. As you approach the train station, evocative of an airport, hundreds of people are lined up outside, waiting to get their tickets. But luckily, you have bought your ticket online for a small amount of 700 Kenyan shillings, or seven dollars, and enter the terminal without the long, grueling wait. Chinese employees, dressed in civilian clothing, help you scan your ticket and greet you; at least this was the case on the opening day. You mount the escalator, and descend onto a newly refurbished white platform, where a train with the slogan Connecting Nations, Prospering People sits patiently. Welcome to the new home of the Standard Gauge Railway (SGR).
The "Lunatic Express", as labeled by historians and locals alike, has paved its way to the more luxurious SGR, branded with Kenyan and Chinese flags on each carriage. The journey time from Nairobi to Mombasa has been cut from twelve hours to only four, with daily departures at eight AM. You are able to sit back and enjoy the scenery of the Tsavo national park and compared to the 4,405 shillings you used to pay, or 43 dollars, this seems like a bargain.
And yet, despite the benefits, people around you are skeptical. A total of four billion dollars was spent on the project, with 80% of the financing coming from a Chinese concessionary loan. The "Lunatic Express", a railway line established during the British colonial period, has made way to what some describe as another colonial power, only in a different form.
A Breakdown of Chinese Development Aid
The growing influence of China is clear, and opportunities in Africa are abundant. Whilst the relationship is not new, western politicians, academics, and newspaper outlets alike are continuously wary of Chinese development aid and financing in Africa. This spending was finally given some limelight after the release of an AidData report in 2017 by a research lab at William and Mary, highlighting projects in over 140 countries. For the first time, the international community was given a clear indication of where China spends its money and with what consequences. And yet, the "rogue donor" narrative persists.
Specifically, the AidData report showed the average economic growth effects of Chinese aid. These findings were compared with "traditional donors", namely the World Bank, the United States and the Organization for Economic Development (OECD)/Development Assistance Committee (DAC) members. It concluded that Chinese development aid promoted economic growth, and contrary to popular discourse did not hinder "traditional donors" efforts.
However, before proceeding, Chinese aid must be distinguished between Official Development Assistance (ODA), as defined by members of the OECD and Other Official Flows (OOF). According to the AidData report, only 23% of Chinese financing is ODA, in its strictest form, compared to over 90% for the United States. Chinese focus is therefore on OOF, as exemplified by the building of the SGR in Kenya. These flows are much more commercially orientated as opposed to development orientated. The authors suggest that future Chinese efforts should focus on ODA, due to its correlation with economic growth, but we must not forget that China as a donor is still evolving.
Recent budget cuts of foreign aid by President Trump places China in a favorable position to address the lack of commitment of "traditional donors". Understanding why China has focused on a different form of development aid is important if "traditional donors" are to allow China to contribute to the realization of the Sustainable Development Goals (SDG) and to dispute the "rogue donor" narrative.
Operating Within the International Order
In March 2018, State Councillor, Wang Yong, announced as part of the institutional reforms of the State Council, that a State International Development Cooperation Agency (SIDCA) would be created. This move gives us a certain indication that China is willing to give further transparency to its development projects, increase its commitment to foreign aid, and allow for better internal coordination.
With the creation of this agency, China has somewhat aligned itself with the norms that are required when operating within the international order, especially considering the scrutiny under which they operate.
However, the announcement made on the State Council's website still stands. "China adheres to the principles of not imposing any political conditions, not interfering in the internal affairs of the recipient countries and fully respecting their right to independently choosing their own paths and models of development." Such practices are opposite to the way in which "traditional donors" give aid, who stress conditionality and selectivity, as argued by Xiaobing Wang, economics professor and researcher at the University of Manchester.
As such, much of the focus has been on China as a "rogue donor". Austin Strange, PHD candidate and co-author of the AidData report on China, says the narrative persists because "different actors have different incentives for perpetuating it. Certain governments may wish to perpetuate the myth because they are poorly informed or because they are trying to counter China's creeping influence in many countries abroad."
The release of the AidData report has, in part, made the "rogue donor" narrative more nuanced. "Apples and dragon fruits", a comparison used by Dreher et al., co-author of the AidData report, highlights the contrast in the different types of Chinese development aid. We must not forget to distinguish between the different types of Chinese aid to understand underlying motives. This same report showed that ODA was driven by foreign policy, whilst OOF maximized economic considerations. Each development project, whether ODA or OOF, must be analyzed within its proper political and social context.
A Historical Context
Did you know that China went from aid receiver to donor in just over two decades? The recent economic growth, sensationalized as a miracle, enables China to be a pro-active donor. The World Bank averages China's yearly growth at 10%, ever since they introduced market reforms in 1978, lifting more than 800 million Chinese out of poverty. This feature has seen them gain credibility among receiving nations, as shown by the 63% of Africans who see Chinese influence as "somewhat" or "very positive", according to a 2016 Afrobarometer poll carried out in 36 African countries.
With this growth, China's aid policies have changed considerably and continue to do so. Axel Dreher and Andreas Fuchs, two economic professors at Heidelberg University, divide the Chinese aid program into five phases. During the first phase, African independence movements were given interest free loans and grants to fight the ideological underpinnings of Western colonialism. The second phase, from 1970 to 1978, reflected Mao Zedong's claim to political leadership of the Third World by increasing foreign aid spending dramatically.
After the death of Mao Zedong, a third phase. The country opened up its market economy and simultaneously took into consideration economic opportunities to maximize win-win situations when giving development aid. The fourth phase directly linked aid and diplomatic support. After the Tiananmen Square protests of 1989, development aid was selectively given depending on whether countries gave their diplomatic support. The fifth phase, lasting from 1996 to 2006 linked aid, trade and investment, as argued by Deborah Brautigam, a leading scholar and director of the China Africa Research Initiative.
Most recently, China has entered a new phase of foreign aid under Xi Jinping, with "The Belt and Road initiative". Originally titled "One Belt, One Road", the name was changed because too much focus was placed on the "One", giving a clear indication that the country wants to expand its influence beyond a single network. Within this short period Chinese development aid has been pragmatic to reflect as good as possible its ever-evolving position as a member of the international community.
Shortcomings of "Traditional Donors" — an Explanation for Chinese Development Aid?
Critics of Chinese development aid quickly forget to look at the imbalanced relationship between the West and the rest. A report by Global Financial integrity claimed that since 1980 developing countries have lost US $16.3 trillion dollars. This is the result of leakages in the balance of payments, trade misinvoicing and recorded financial transfers. Developing countries are net creditors to the rest of the world, meaning they are exporting more capital than they are receiving.
These findings highlight obvious shortcomings of "traditional donors" support for many developing countries. Several European countries that champion themselves in their contribution of foreign aid, such as the United Kingdom, are contributing to trade misinvoicing through tax havens or offshore accounts, for example. This process is undermining the very aid they are giving.
Issues of accountability also matter at the national level of those providing development aid. As a taxpayer, you expect your government to contribute the expected 0.7% of your countries Gross National Income (GNI) wisely. However, Transparency International claims that more than two-thirds of countries worldwide score below 50 out of 100 on the corruption perception index, with an average score of 43. Corruption is still endemic within a majority of developing nations leaving "traditional donors" in a difficult position of where and how to provide development aid.
Unfortunately, the selectivity process of "traditional donors" means that countries with weak governance are not getting the aid they desperately need. According to Kaufmann, CEO of the Natural Resource Governance Institute and Kraay, economist part of the World Bank, empirical evidence shows there is a direct correlation between the quality of governance and per capita income levels. As such, high quality governance will only occur with economic growth, and vice versa. Even more so, as Wang argues, there is a strong correlation between underdevelopment and corruption. Good governance should not be a precondition of development aid.
Chinese Development Aid as Complementary
Chinese development aid and financing must be considered complementary to the aid of "traditional donors". China's focus on investment in infrastructure can be considered one solution to "traditional donors" focus on social projects. According to a World Bank report, 61% of Chinese concession loans to Africa were used for the construction of infrastructure, and only 8.9% were used for the extraction of natural resources. Again, there is little evidence to support the claim that Chinese development aid pays closer attention to politics compared to Western donors. And even more importantly, little evidence to suggest that Chinese development aid is given to countries with natural resources.
"The Belt and Road initiative" is a good example highlighting the ambitious step China is taking to address the lack of infrastructure in many countries. The SGR, for example, can improve investment and trade within East Africa, by providing quicker trade routes and linking the East and the West of the country. Whilst ambitious, China is willing to pump in billions of dollars to see this project through.
China is also willing and able to provide training. A Thought Leadership Brief carried out in 2015, showed that out of 400 Chinese enterprises and projects operating in Africa, 85% of the workforce was local. Whilst the working conditions and pay are dubious, this is a step in the right direction. And even more so, Chinese universities are providing scholarships to all those willing to study abroad.
Haley Swedlund, a professor at the Center for International Conflict and Management, in The Development Dance: How Donors and Recipients Negotiate The Delivery of Foreign Aid gives a breakdown of the relationship between donor and recipient. Swedlund gives a clear indication that China is better at making credible commitments when it comes to the building of infrastructure. However, in order for a project to be successful and to maximise win-win situations, both parties need to be committed. Swedlund stressed, when attending a panel discussion as part of the China Africa Research Initiative conference, that Chinese companies are better at making this commitment because of a faster procurement process.
Chinese spending in infrastructure should therefore be considered a symptom of the highly social focus of Western development aid.
Moving Forward
There is considerable room for improvement moving forward. The first lies in the Chinese government providing more transparency to its development projects. Data was released for the last time in 2014, with the AidData report providing certain but not complete transparency. Whilst it is clear that Chinese development aid is complex, such projects must be analyzed within the correct political, social and economic context.
The second improvement lies within those receiving development aid. Chinese development projects needs to reflect the immediate needs of the country. Going forward, Hannah Ryder, founder of Development Reimagined, argues for an in-depth China plan for African countries willing to take on China as a donor. This means determining China's current footprint in the country and outlining a wish list of development projects that the country needs.
The End of a Journey
As you approach your destination along the Kenyan coast, you realize that your stop is not Mombasa, but Miritin, 22 kilometers away. Were all the technicalities fully taken into account before building this line? You have no option but to get off. You finally manage to get a car and wait another five hours, in traffic, to get to the city center. For now, the SGR is a somewhat positive step in the right direction for Kenya. Providing it holds true to the 1.5% GDP growth it is expected to bring. And, providing Kenya can repay its debt. And, providing a line is built between Miritin and Mombasa. This is only the start of China's journey in Africa.
And yet, despite the benefits, people around you are skeptical. A total of four billion dollars was spent on the project, with 80% of the financing coming from a Chinese concessionary loan. The "Lunatic Express", a railway line established during the British colonial period, has made way to what some describe as another colonial power, only in a different form.
A Breakdown of Chinese Development Aid
The growing influence of China is clear, and opportunities in Africa are abundant. Whilst the relationship is not new, western politicians, academics, and newspaper outlets alike are continuously wary of Chinese development aid and financing in Africa. This spending was finally given some limelight after the release of an AidData report in 2017 by a research lab at William and Mary, highlighting projects in over 140 countries. For the first time, the international community was given a clear indication of where China spends its money and with what consequences. And yet, the "rogue donor" narrative persists.
Specifically, the AidData report showed the average economic growth effects of Chinese aid. These findings were compared with "traditional donors", namely the World Bank, the United States and the Organization for Economic Development (OECD)/Development Assistance Committee (DAC) members. It concluded that Chinese development aid promoted economic growth, and contrary to popular discourse did not hinder "traditional donors" efforts.
However, before proceeding, Chinese aid must be distinguished between Official Development Assistance (ODA), as defined by members of the OECD and Other Official Flows (OOF). According to the AidData report, only 23% of Chinese financing is ODA, in its strictest form, compared to over 90% for the United States. Chinese focus is therefore on OOF, as exemplified by the building of the SGR in Kenya. These flows are much more commercially orientated as opposed to development orientated. The authors suggest that future Chinese efforts should focus on ODA, due to its correlation with economic growth, but we must not forget that China as a donor is still evolving.
Recent budget cuts of foreign aid by President Trump places China in a favorable position to address the lack of commitment of "traditional donors". Understanding why China has focused on a different form of development aid is important if "traditional donors" are to allow China to contribute to the realization of the Sustainable Development Goals (SDG) and to dispute the "rogue donor" narrative.
Operating Within the International Order
In March 2018, State Councillor, Wang Yong, announced as part of the institutional reforms of the State Council, that a State International Development Cooperation Agency (SIDCA) would be created. This move gives us a certain indication that China is willing to give further transparency to its development projects, increase its commitment to foreign aid, and allow for better internal coordination.
With the creation of this agency, China has somewhat aligned itself with the norms that are required when operating within the international order, especially considering the scrutiny under which they operate.
However, the announcement made on the State Council's website still stands. "China adheres to the principles of not imposing any political conditions, not interfering in the internal affairs of the recipient countries and fully respecting their right to independently choosing their own paths and models of development." Such practices are opposite to the way in which "traditional donors" give aid, who stress conditionality and selectivity, as argued by Xiaobing Wang, economics professor and researcher at the University of Manchester.
As such, much of the focus has been on China as a "rogue donor". Austin Strange, PHD candidate and co-author of the AidData report on China, says the narrative persists because "different actors have different incentives for perpetuating it. Certain governments may wish to perpetuate the myth because they are poorly informed or because they are trying to counter China's creeping influence in many countries abroad."
The release of the AidData report has, in part, made the "rogue donor" narrative more nuanced. "Apples and dragon fruits", a comparison used by Dreher et al., co-author of the AidData report, highlights the contrast in the different types of Chinese development aid. We must not forget to distinguish between the different types of Chinese aid to understand underlying motives. This same report showed that ODA was driven by foreign policy, whilst OOF maximized economic considerations. Each development project, whether ODA or OOF, must be analyzed within its proper political and social context.
A Historical Context
Did you know that China went from aid receiver to donor in just over two decades? The recent economic growth, sensationalized as a miracle, enables China to be a pro-active donor. The World Bank averages China's yearly growth at 10%, ever since they introduced market reforms in 1978, lifting more than 800 million Chinese out of poverty. This feature has seen them gain credibility among receiving nations, as shown by the 63% of Africans who see Chinese influence as "somewhat" or "very positive", according to a 2016 Afrobarometer poll carried out in 36 African countries.
With this growth, China's aid policies have changed considerably and continue to do so. Axel Dreher and Andreas Fuchs, two economic professors at Heidelberg University, divide the Chinese aid program into five phases. During the first phase, African independence movements were given interest free loans and grants to fight the ideological underpinnings of Western colonialism. The second phase, from 1970 to 1978, reflected Mao Zedong's claim to political leadership of the Third World by increasing foreign aid spending dramatically.
After the death of Mao Zedong, a third phase. The country opened up its market economy and simultaneously took into consideration economic opportunities to maximize win-win situations when giving development aid. The fourth phase directly linked aid and diplomatic support. After the Tiananmen Square protests of 1989, development aid was selectively given depending on whether countries gave their diplomatic support. The fifth phase, lasting from 1996 to 2006 linked aid, trade and investment, as argued by Deborah Brautigam, a leading scholar and director of the China Africa Research Initiative.
Most recently, China has entered a new phase of foreign aid under Xi Jinping, with "The Belt and Road initiative". Originally titled "One Belt, One Road", the name was changed because too much focus was placed on the "One", giving a clear indication that the country wants to expand its influence beyond a single network. Within this short period Chinese development aid has been pragmatic to reflect as good as possible its ever-evolving position as a member of the international community.
Shortcomings of "Traditional Donors" — an Explanation for Chinese Development Aid?
Critics of Chinese development aid quickly forget to look at the imbalanced relationship between the West and the rest. A report by Global Financial integrity claimed that since 1980 developing countries have lost US $16.3 trillion dollars. This is the result of leakages in the balance of payments, trade misinvoicing and recorded financial transfers. Developing countries are net creditors to the rest of the world, meaning they are exporting more capital than they are receiving.
These findings highlight obvious shortcomings of "traditional donors" support for many developing countries. Several European countries that champion themselves in their contribution of foreign aid, such as the United Kingdom, are contributing to trade misinvoicing through tax havens or offshore accounts, for example. This process is undermining the very aid they are giving.
Issues of accountability also matter at the national level of those providing development aid. As a taxpayer, you expect your government to contribute the expected 0.7% of your countries Gross National Income (GNI) wisely. However, Transparency International claims that more than two-thirds of countries worldwide score below 50 out of 100 on the corruption perception index, with an average score of 43. Corruption is still endemic within a majority of developing nations leaving "traditional donors" in a difficult position of where and how to provide development aid.
Unfortunately, the selectivity process of "traditional donors" means that countries with weak governance are not getting the aid they desperately need. According to Kaufmann, CEO of the Natural Resource Governance Institute and Kraay, economist part of the World Bank, empirical evidence shows there is a direct correlation between the quality of governance and per capita income levels. As such, high quality governance will only occur with economic growth, and vice versa. Even more so, as Wang argues, there is a strong correlation between underdevelopment and corruption. Good governance should not be a precondition of development aid.
Chinese Development Aid as Complementary
Chinese development aid and financing must be considered complementary to the aid of "traditional donors". China's focus on investment in infrastructure can be considered one solution to "traditional donors" focus on social projects. According to a World Bank report, 61% of Chinese concession loans to Africa were used for the construction of infrastructure, and only 8.9% were used for the extraction of natural resources. Again, there is little evidence to support the claim that Chinese development aid pays closer attention to politics compared to Western donors. And even more importantly, little evidence to suggest that Chinese development aid is given to countries with natural resources.
"The Belt and Road initiative" is a good example highlighting the ambitious step China is taking to address the lack of infrastructure in many countries. The SGR, for example, can improve investment and trade within East Africa, by providing quicker trade routes and linking the East and the West of the country. Whilst ambitious, China is willing to pump in billions of dollars to see this project through.
China is also willing and able to provide training. A Thought Leadership Brief carried out in 2015, showed that out of 400 Chinese enterprises and projects operating in Africa, 85% of the workforce was local. Whilst the working conditions and pay are dubious, this is a step in the right direction. And even more so, Chinese universities are providing scholarships to all those willing to study abroad.
Haley Swedlund, a professor at the Center for International Conflict and Management, in The Development Dance: How Donors and Recipients Negotiate The Delivery of Foreign Aid gives a breakdown of the relationship between donor and recipient. Swedlund gives a clear indication that China is better at making credible commitments when it comes to the building of infrastructure. However, in order for a project to be successful and to maximise win-win situations, both parties need to be committed. Swedlund stressed, when attending a panel discussion as part of the China Africa Research Initiative conference, that Chinese companies are better at making this commitment because of a faster procurement process.
Chinese spending in infrastructure should therefore be considered a symptom of the highly social focus of Western development aid.
Moving Forward
There is considerable room for improvement moving forward. The first lies in the Chinese government providing more transparency to its development projects. Data was released for the last time in 2014, with the AidData report providing certain but not complete transparency. Whilst it is clear that Chinese development aid is complex, such projects must be analyzed within the correct political, social and economic context.
The second improvement lies within those receiving development aid. Chinese development projects needs to reflect the immediate needs of the country. Going forward, Hannah Ryder, founder of Development Reimagined, argues for an in-depth China plan for African countries willing to take on China as a donor. This means determining China's current footprint in the country and outlining a wish list of development projects that the country needs.
The End of a Journey
As you approach your destination along the Kenyan coast, you realize that your stop is not Mombasa, but Miritin, 22 kilometers away. Were all the technicalities fully taken into account before building this line? You have no option but to get off. You finally manage to get a car and wait another five hours, in traffic, to get to the city center. For now, the SGR is a somewhat positive step in the right direction for Kenya. Providing it holds true to the 1.5% GDP growth it is expected to bring. And, providing Kenya can repay its debt. And, providing a line is built between Miritin and Mombasa. This is only the start of China's journey in Africa.
About the author: George is an avid traveller with a keen interest in international politics, international development and non-governmental organisation. His work in Cambodia, Lebanon, among others, has meant that much of his journalistic focus has been on promoting the work of grassroots NGOs. With citizenship from two countries, and growing up in a third, national identity is of particular importance to George. Future dreams include making a documentary in regards to the issues of national identity with a particular focus on Southeast Asia and the Middle East.
