The Changing Rules of Multilateral Development Assistance:

Aarhus University The Changing Rules of Multilateral Development Assistance: Does China undermine the current aid paradigm or succumb to it? Balazs Ujvari 2012 Spring

Introduction The established foreign aid paradigm is being challenged by the power shift occurring across the global economy. Emerging economies are silently beginning to change the rules of the game (Woods, 2008). In the face of the increasing aid from among others China, South Korea, Brazil, Venezuela, India or the Arab states to developing countries, the international aid regime is undergoing vital reforms, aiming at increasing aid effectiveness and achieving implementation. The way how these (re)emerging donors provide their development assistance significantly differs from, and remains outside the framework of established international structures (Hackenesch, 2009). It follows that, none of these countries belong to the donors club established within the Organisation for Economic Co-operation and Development, called the OECD Development Assistance Committee (DAC). Among its twenty-four members there exists a coherent view on how aid should be delivered. This consensus is generally referred to as the international development aid regime or, in short, the prevailing aid paradigm or put it even more simply, the Western/Orthodox approach 1 (Renard, 2006; Lengauer, 2011). At the head of this group of emerging donors is the People s Republic of China, combining loans, credits and debt write-offs with special trade arrangements and commercial investments (Woods, 2008). In recent years, there has been an increasing amount of literature on the impact of China s foreign aid strategy. On the one hand, many have argued that no existing development assistance programme is/will be immune from the effects of this Chinese aid strategy and it poses serious challenges to the current aid paradigm in a number of ways. On the other, there are those who claim that China s engagement per se is not causing/ will not cause long-term and permanent realignment of power relations in the aid system. The main purpose of this paper is to illuminate and disapprovingly review the arguments that characterise the above debate and form an own stance on the implications of the interplay between the Chinese and the established model. This paper first gives a brief overview of the evolution of China s foreign aid policy with a particular emphasis on the spectrum of motivations, principles and objectives that have driven the country s engagement in development assistance since the formation of the PRC in 1949. It shall then go on to critically review the most commonly argued differences between China s approach and that of the DAC donor countries; and discuss the perception of the former in the 1 The author will use these denotations interchangeably when referring to the members of the OECD-DAC. 1

West and Africa. Finally, the last section analyses the relationship of the PRC s foreign aid strategy with the orthodox model of delivering development assistance. Although China has pursued foreign aid-related activities in several regions (e.g. Latin America, Central Asia), the scope of this paper is confined to Africa being the main target region for traditional donors as well as for China. Therefore, all the structural aspects set out above shall be discussed solely in the context of Africa. 1. Evolution of Chinese foreign aid Foreign aid is not new concept for China. Its history spans over 60 years, dating from the establishment of the PRC in 1949 to present days. Chinese aid to African countries was founded, in part, on a logic and motivation articulated in the 1950s by Mao Zedong: although China is a poor nation, it should take the responsibility of helping those in need, those smaller and powerless nations. Apart from helping poor Africa countries, Chinese aid also had other motivations, including neutralising assistance from rival countries, which were being supported by Taiwan (Opoku-Mensah, 2009). Although delivered continuously, the intensity of aid giving as well as its practices and the incentives behind it, have significantly changed over the past six decades (Lengauer, 2011). As Kjøllesdal puts it, the Chinese relationship with Africa has evolved from ideological promotion, through phases of introvert focus and the use of foreign policy as a tool for economic policy (Kjøllesdal, 2010). Before embarking on a concise periodization of China s aid policy, one important aspect demands attention: PRC foreign assistance is difficult to quantify. It has been argued that China manages foreign aid in an ad hoc fashion, without centralised system, foreign aid agency and mission, or regularised funding schedule. Accordingly, the overwhelming majority of China s foreign aid activities do not fit the OECD definition of official development assistance. Moreover, Beijing has been traditionally unwilling to provide sufficient foreign aid-related data, which still holds, notwithstanding the publication of a White Paper on China s foreign aid in 2011 (Lum et al., 2009; Dreher and Fuchs, 2011). In most scholarly work, the historiography of Chinese aid to Africa is disaggregated into three distinct phases. The first phase, stretching from the late 1940s to the end of the 1970s, was characterised by the use of aid as a moral, ideological, and foreign policy tool, thus development assistance was being used by China to support other socialist countries and anti- 2

colonial movements. The major result of this policy was not seen in the form of a substantial economic impact for the African countries, rather it was a symbolic alignment of identities with the continent, in which developing countries assisted one another South-South Cooperation (Mensah, 2009; Davies, 2008; Kjøllesdal, 2010). The second phase, dating from 1978 to 1989, was signified by the end of ideology, the onset of economic pragmatism, and declining aid to Africa (Mensah, 2009). The beginning of this period coincided with Den Xiaoping taking the leadership of the Communist Party. At the heart of his programme, labelled Reform and Opening Up, were the introduction of market principles and the opening of the Chinese economy to foreign investment and trade (Dreher and Fuchs, 2011). It follows that the focus was shifted inwards so as to secure domestic economic growth along major restructuring of the economy. In the light of the modernisation project, Africa came to be seen as commercially irrelevant to China. Yet, whereas foreign aid programme appeared subject to domestic economic considerations, it was not abandoned and mutually advantageous programmes continued to be promoted (Kjøllesdal, 2010; Lengauer, 2011). The third and current phase, what Mensah calls the post-tiananmen Square era (from 1989 onwards), can be characterised over-all by the revitalised political and economic engagement between China and Africa that has led to the twin process of increasing the volume of aid as well as institutionalising the aid relations between the two parties (Mensah, 2009; Lengauer, 2011). Latter was achieved through the establishment of the Forum on China-Africa Cooperation (FOCAC) in 2000, which has become the institutional mechanism for China-Africa multilateral engagement since then. Of its four meetings, the Beijing Summit of 2006 has been the most remarkable so far, where President Hun Jintao announced eight steps China would take in strengthening the Sino-African relationship. Of these pledges the doubling of China s assistance within three years and the several billion dollars worth of debt cancellation for highly indebted countries are of particular importance (Kjøllesdal, 2010). For many, these commitments mark another watershed in the historiography of Chinese aid and per se represent a new and the latest phase of China s aid relations with Africa. The following section proceeds to compare this third wave of Chinese aid policy to the orthodox model. 3

2. The latest phase: From 1990 onwards Chinese Aid to Africa and elsewhere Mensah suggests is not important only in terms of volume and historical development. Conversely, its importance is gauged when its aid praxis is compared to that of the Western aid system (Mensah, 2009). In so doing, the Chinese model is typically differentiated from the traditional one in four major respects. The first fundamental difference is argued to lie in the conception of aid. Conceptually, the PRC s aid is presented as developing country helping another developing country, as opposed to the conceptual order of the established aid system as a system of relations between the developed North and the undeveloped South (Mensah, 2009). In Kjøllesdal s words, China contextualizes its relationship with African countries as a returning friend rather than as a returning coloniser, as may arguably be the case with the traditional donors with the exception of the United States and Japan (Kjøllesdal, 2010). Further ground for drawing distinction resides in the symmetry of donor-recipient relations. The Chinese aid is outspokenly conceived as a two way process, which is beneficial not only for the recipient countries but also for China. Although China is more powerful than its individual African counterparts, their relationship can be regarded as partnership of equals in many instances, in which both parties have the opportunity to withdraw if their expectations are not met (Kjøllesdal, 2010). This is an apparent departure from the traditional aid which is defined in terms of the giver helping the recipient on former s choosing, even if the rhetoric is not always borne out in practice (Mensah, 2009). That being sad, two further distinctive features of the PRC s strategy must be mentioned, still under the domain of the relational aspect: its aid is infrastructure focused and tied. While traditional donors have avoided both the construction sector, due to corruption issues, as well as the tying of aid, both are decisive components of China s approach to Africa. China s heavy engagement in the construction sector can be traced back to two reasons. On the one hand, having benefited from the technological diffusion of foreign direct investment in the construction sector, China may not unreasonably expect a similar effect of technological diffusion in Africa. While traditional donors appear to emphasise the importance of focusing on political reform (democracy), human rights, transparency and free trade, China s approach rather answers the immediate, economic needs (Dreher and Fuchs, 2011). On the other hand, China has often been criticised for its own human rights record, which effectively precludes the PRC from stimulating political change. Thus, the Chinese government tend to argue that political 4

development is determined by the level of economic development, presenting strong economy as a prerequisite to democracy (Wang and Ozanne, 2011). This mode of delivering development assistance to Africa is closely linked to the commercial motives of the PRC, which is assisted by the tying of aid. In essence, giving foreign aid to an African country inherently implies that Chinese companies are granted contracts for infrastructure developments, providing them with a good position from which they can later acquire contracts (Kjøllesdal, 2010). Having said that, aid is provided on condition that the projected work is undertaken by Chinese companies and thus to prevent corruption the greater part of fund transfers bypasses local governments and goes from the Chinese government and banks to those Chinese companies. This means that Chinese aid frequently comes with a set of measures, combining technical solutions with financing backed by stateowned banks, together with Chinese labour to implement them (Wang and Ozanne, 2011). This leads to the third and the fourth aspect of the comparison, in relation to which the two models of aid policy are argued to show significant differences: the conditions under which aid is given and the channel of aid delivery. It has been suggested that, in contrast to traditional donors that in most cases require reforms to be undertaken or elections to be held before aid is disbursed, the Chinese aid comes with no strings attached. This is sharply disputed by Wang, Ozanne and Mensah who claim that conditionality does not mean a no strings attached policy, as the PRC outspokenly disburses aid in ways that benefits China economically. Nonetheless, they also acknowledge that the conditions set by China considerably differ from those that typically accompany Western aid programmes. In particular, the PRC does not explicitly require a good human rights performance, strong economic management, environmentally responsible policies or political openness on the part of recipient governments. In short, China s conditionality does not relate to the touchy issue of sovereignty (Lancaster, 2007; Wang and Ozanne, 2011; Mensah, 2009). The reasoning behind this unconditionality is twofold. First, it can be traced back to China s domestic politics. As argued above, China is a communist state with an undemocratic government and it has thus limited interest and ability to promote Western, democratic governance in the countries receiving its aid (Kjøllesdal, 2010). Second, it also originates in China s foreign policy, of which the principle of none-interference has been a major pillar since the formulation of the Five Principles of Peaceful Coexistence in the 1950s (Wang and Ozanne, 2010). Adherence to 5

this principle may also be driven by China s sought to ensure its own sovereignty, for which international support from the African countries is important (Kjøllesdal, 2011). Shifting the focus to the channel of aid delivery, further distinctions can be made. Traditional Western aid relies on various channels including multilateral channels (e.g. World Bank, International Monetary Fund); bilateral channels and private organisations (e.g. Nongovernmental organisations). By contrast, when Chinese aid is transferred, exclusively bilateral state channels are used. To the extent that non-state actors are involved, they are normally private companies used in the implementation of infrastructural projects. Hence, Chinese aid is delivered through private sector or state owned enterprises. It follows that neither the NGO channel, that has become an important pillar of Western aid, nor costly supporting actors such as consultancy firms, development institutes and development diplomats play role in the implementation of Chinese aid (Mensah, 2009). Yet, certain indications have been found that cooperation between China and OECD-DAC as well as the World Bank has become more constructive and the PRC increasingly organises its system in line with the norms established by the OECD (Kjøllesdal, 2010; Brautigam, 2011; Lengauer, 2011; Jerve, 2006; Davies, 2008). 3. China s approach from Western and African point of view The Chinese engagement in Africa not surprisingly has been exposed to a great deal of criticism and accusation on the part of the established donors. Western concerns can be presented as centring upon five main problems. The most obvious critique focuses on the PRC s support for rogue states 2 and its determination not to involve itself in the politics of countries with which it deals (Woods, 2008). Put differently, China is said to support unsavoury regimes, thereby fuelling corruption and delaying necessary economic and political reform in African countries such as Zimbabwe or Sudan (Wang and Ozanne, 2010). The evidence, however, Woods argues does not fully bear out the blind support for rogue states critique in neither of these countries. She suggests that China s relationship with Zimbabwe has not been immune to the views of other states. Indeed, China has responded quietly to concerns voiced by other African countries, resulting in a tougher line taken with President Robert Mugabe. 3 In Sudan s case, China played a key role in convincing the Sudanese Government to allow the African Union / United Nations hybrid peacekeeping 2 A state that conducts its policy in a dangerously unpredictable way, disregarding international law or diplomacy. 3 President of Zimbabwe (1987 present) 6

operation into Darfur, at the worst of the crisis in 2007 (Woods, 2008; Lengauer, 2011). Moreover, China is not the only one providing aid to rogue states. The World Bank also lends to dictators without imposing any political conditions. Lengauer observes that, even if the worst governed African countries fail to obtain loans from the Bank that is not attributable to their lack of democracy and abuse of human rights, rather to their inability to repay their debt (Lengauer, 2011). Further concern has been voiced by many Western donors about the risk of renewed indebtedness residing in China s strategy. Their fear rests on the fact that China indeed offers new loans to low-income countries that have recently been granted debt relief by established donors. This argument, however, fails to take into consideration that China has written of loans to indebted countries in Africa even more generously than the G8. Debt relief appears to have been used in a way that may well be acclaimed not only by recipients but also by the public opinion worldwide: the first to provide the loan, the second to relieve the debt. Therefore there is no clear evidence that China is re-indebting. Woods maintains that a precise assessment of the risk would require more precise data about to whom China is extending which categories of aid, and with what likelihood of write-off (Woods, 2008). The term exploitation has also been applied by critics when referring to China s foreign aid, accusing the PRC of being led by the underlying intention to plunder Africa of its resources and practice neo-colonialism (Wang and Ozanne, 2010). Although China is Lengauer contends extracting enormous amounts of resources from the core regions of investment, it is legitimately compensating for resources, mostly by way of donating infrastructure projects that create a basis for a stable economy (Lengauer, 2011). In addition, China has often come under criticism for employing its own firms and national skilled and unskilled labour as staff for running infrastructure projects instead of hiring local work force and creating employment for Africans (Wang and Ozanne, 2010). Nevertheless, it can be bolstered by empirical examples that in so far as adequate local workforce and expertise is available, China does not resort to the importation of its own trained workers (Lengauer, 2011). The last dispute regarding China s foreign aid practices concerns the environmental aspect. For Lengauer, this is the only respect in which Western model presently outperforms its Chinese counterpart (Lengauer, 2011). As several studies have pointed out, concerns that China s aid projects substantially pollute the environment are not unfounded (Lengauer, 2011; Woods 7

2008; Bosshard, 2008). It can hardly be disputed that lasting environmental damage for shortterm economic benefit does not provide a sustainable solution for the problems of developing countries, which is why this strand of Western criticism is not challenged in this paper. As outlined above, the Western perception of the PRC s foreign aid policy is predominantly critical. But how is it seen from African point of view? It can be argued that African governments mostly welcome China s engagement in Africa since it provides greater freedom, policy space and independence from Western donors. Several rulers have highlighted that the most important effect of Chinese aid relates to the opportunity it gives aid recipients to rethink their relations with Western aid actors who have exercised substantive power in African development (Hackenesch, 2009; Mensah, 2009). In brief, the lack of political and economic conditionality affecting sovereignty makes China an attractive source of aid. Perhaps this is best captured by the recent words of the then President of Botswana, Festus Mogae: I find that the Chinese treat us as equals. The West treats us as former subjects. Having discussed the main characteristics and perceptions of the Chinese aid policy, the central questions of this study can be raised: How is the largest (re)emerging donor affecting the existing multilateral development assistance regime? Is China transforming the traditional aid paradigm or fading into it? 4. Changing paradigm of foreign aid? As most things about China s recent rise, definitive conclusions do not exist, as we are still in the midst of the process that is assessed in this section (Mensah, 2009). Many have argued that the Chinese foreign aid challenge is substantial enough for other foreign aid actors to rethink their own strategies (Kjøllesdal, 2010; Woods, 2008). Some go further and claim that China s presence in the aid system has already changed the paradigm (Mensah, 2009). To be sure China s independent foreign aid policy adds to the strain of the established development assistance. Although most traditional donors have accepted that the conditionality model requires radical reform and begun to grapple with what it would mean to put aid-receiving governments in the driver s seat, this has paradoxically further escalated conditionality in many countries. This is because multilateral organisations have struggled with designing policies on which all members can agree, sometimes resulting in a policy of the lowest common denominator. Perversely, the major donors thus do not rely upon the institutions they have 8

created. Instead they increasingly sustain and expand their own separate aid agencies and processes creating a discordance of donors making different demands on overstretched aidneedy governments (Woods, 2008). When multilateral aid is used in this manner it is significantly undermining the multilateral aspect which is being further exacerbated by the PRC s unilateral foreign aid policy (Kjøllesdal, 2010). The multilateral system in its present form is unable to appeal to (re)emerging donors and offer them sufficient incentives to engage in it. In Woods s words, as things stand they do not have enough voice or influence to make it worth their while to attempt to improve the running of the multilateral system (Woods, 2008). Yet, different international institutions be it at multilateral or bilateral level have continuously attempted to involve China in the architecture of the global governance of aid. The attitude of the PRC towards these initiatives is both reserved and intelligently differentiated. Although no official declaration as yet have been made, certain statements are telling. They point to the fact that Chinese aid would remain for a long time independent of the global governance of aid, and of the framework of the usual donors, even if a certain degree of convergence can be observed on some topics. It seems to be in China s interest to remain outside this framework so as to preserve a distinct image from that of the OECD donors, who are thought of as the rich nations club. As Guérin puts it, if the return of China is greeted with enthusiasm in Africa, it is precisely because it offers an alternative to the usual donors (Guérin, 2008). Contrariwise, since DAC members s ODA is increasingly provided bilaterally (more than twothird in 2009 - OECD, 2009), one may argue that traditional donors seem to be more likely to start using foreign aid in the Chinese way leading to marginalised multilateralism in the international development assistance regime, than China is to succumb to the orthodox approach. Are we then witnessing a sinization of the international aid regime? Could the West adopt the Chinese Approach at all? Wang and Ozanne argue that it would be difficult for the West to replicate the Chinese aid policy for two reasons. First, the Chinese approach is largely determined by China s own recent domestic development experience at the core of which stands sustained economic development. However, given that the West went through similar development processes over two centuries ago, it is rather difficult for it to empathise with developing countries. Furthermore, China is promoting a state-led path to development which has been seen by 9

many in the West as a threat to its own free market approach to development (Wang and Ozanne, 2010). Second, due to its own current economic conditions and endowments China has simply more in common with African nations than the traditional donors. Whereas China has a comparative advantage in manufacturing and abundant cheap labour, the comparative advantage of the West lies mainly in financial institutions and the services sector, which are more difficult to export. Additionally, its labour would hardly work under extremely hard conditions for low pay. It follows that, even if the West were to recognise the efficiency of the Chinese model, there is little the traditional donors can do to prevent or to replace Chinese Aid in Africa. This is determined by fundamental economic endowments which are difficult to change (Wang and Ozanne, 2010). Although these arguments well demonstrate the inherent obstacles of incorporating China into the current aid paradigm, Western donors (e.g. EU and U.S.) have arguably shown signs of sinization in their bilateral relationships at least on two fronts: conceptualisation and conditionalities. In reaction to the increasing aid competition, the high level EU-Africa summit in 2007 attended by the two of the foremost human rights abusers of Africa, the Sudanese President Omar al-bashir and Zimbabwean President Robert Mugabe adopted a joint EU-Africa strategy, revolutionising the manner in which to conceptualise the EU-Africa relationship. Since then, the EU has seemed less critical of African regimes approach to human rights, transparency and democratic values; and less inclined to use conditionalities on aid provision in support of principles of good governance. At the same time, bilateral development oriented trading relationship at least rhetorically has been given a greater emphasis. These changes may point to a shift from aid to trade, an appreciation of commercial incentives, as well as decreasing importance ascribed to multilateral developmental organisations (Kjøllesdal, 2010). The U.S. has also granted Africa increased attention in the recent past. While maintaining that Western aid is dependent upon good governance, the Obama administration refrained from taking a stance against corruption in Angola in 2009 when both President Barack Obama and Secretary of State Hillary Clinton visited the continent. This can be seen as an attempt at easing the access to Angolan petroleum resources, and may indicate a willingness, in the face of Chinese competition, to relinquish certain aspects of aid conditionalities in exchange for strategic resources. According to Kjøllesdal, this is a sign that the U.S. is backtracking on its 10

liberal standards and increasingly flirting with the so-called Beijing Consensus, which may indicate that national interests, not universal forms, are increasingly becoming the drivers for international cooperation (Kjøllesdal, 2010). Concluding remarks A silent revolution is happening in the development assistance regime. This paper has argued that foreign aid is not a new concept for China and it can be traced back to the formation of the People s Republic of China in 1949. Despite its shifting motivation, the Chinese foreign aid programme in Africa has been continuous since then. The latest phase of this relationship has been primarily led by economic motives aimed at the securing of natural resources for the Chinese population and the establishment of new consumer markets. Political and ideological motives are also important factors in China s aid strategy, though to lesser extent than economic motivations. The comparison of the Chinese and the Western approach to implementing foreign aid policy reveals significant differences. Grants, interest-free loans and concessional loans are provided by China without imposing any sovereignty-related political or economic conditionalities. Non-interference in internal state affairs, equality and mutual benefit are further key characteristics of China s aid policy. The underlying logic of the Chinese approach is the inverse of that of the West. At its heart is the assertively promulgated principle that good governance cannot be imposed from outside and it necessitates strong institutions and certain level of economic growth as a prerequisite. This approach is widely acclaimed among African leaders and makes the Chinese aid more attractive for recipient than the traditional one. Although close cooperation would be desirable, neither China nor the traditional donors are likely to succumb to one another in the foreseeable future. Even if certain steps have pointed to convergence, it is not in China s interest to align with the global governance of aid, while the West simply does not have the comparative advantages and endowments necessary to adopt the Chinese strategy. This said, China is not yet overwriting the aid paradigm. However, it certainly does influence traditional donors in their bilateral aid relations, far more than vice versa, which will certainly pose further serious challenge to the already weakening multilateral development assistance system in the years to come. 11

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