By Danielle Cave, Editorial team, Interpreting the aid review
The Lowy Institute paper 'China in the Pacific: the new banker in town' has generated much discussion and debate since its release a few weeks ago. As Fergus discussed in this blog; China has pledged more than $US600 million in concessional loans to the Pacific. In the case of Tonga, for example, loans from China are worth the equivalent of one third of its GDP.
Such research shines a spotlight on the capacity of Pacific Island countries to absorb lots of aid from lots of different donors - with each donor having varying expectations on their 'return on investment' and/or 'value for money'.
In the case of China's aid to the Pacific, the emerging issues include (and are not limited to) the capacity of the Pacific Island region to continue to service these concessional loans, in addition to, their ability to be able to maintain infrastructure (built by primarily Chinese labour), years and decades into the future. It should be recognised that China now allows some Pacific workers to participate in building a few Chinese sponsored infrastructure projects. This is a welcome move, however, where the local labour is available this should be the rule - not the exception, especially in a region with few employment opportunities.
It's not unexpected that a similar but much larger debate exists on China's booming aid program in Africa (and in Latin America), pulled into sharper focus due to recent remarks by a number of African Ministers who insist their countries need Chinese aid because it is increasingly difficult to get assistance from traditional donors and that criticism of China's Africa aid program is unfounded.
There is some research floating around on Chinese aid to Africa. However, due to the Chinese Government's lack of transparency and a lack of access to individual African country aid programs, much of it comes down to guesswork, personal relationships and vigorous research into what you do know (which usually amounts to aid outputs in-country).
The Center for Global Development in Washington houses a 2007 paper on 'the Chinese aid system'; the US Congressional Research Service cautiously put forward worldwide estimates of $25 billion of Chinese aid delivered to Africa, Latin America and Southeast Asia from 2001 to 2008 (with Africa being the primary recipient); the Council on Foreign Relations has looked at China's huge oil investments in Africa and the aid packages on offer for signatories of such oil deals.
In 2010, a book authored by Deborah Brautigam, argued that traditional aid donors too often focus on the negative aspects of Chinese aid and that in fact China offers real opportunities for development in Africa. Brautigam (who runs a blog here - h/t Fergus) outlines a number of the "myths" of Chinese aid, neatly outlined in this blog and touched on in the following interview:
Duncan Green's recent blog titled 'What can we learn from Chinese aid?', is worth reading in full. As all good blogs do, it hyperlinks you to additional relevant information, in this instance, a recent paper by the OECD which contains an interesting discussion on Chinese aid and points to the positives of Chinese aid (as opposed to the overwhelming negative coverage). Duncan Green pulls out the 4 potential advantages of Chinese aid (listed in the paper), including that Chinese aid:
is more targeted;
is less bureauctratic with lower transaction costs;
is more efficient with lower costs, and faster;
and allows more policy space (i.e. lower conditionality) and increases the bargaining power of African countries vis-à-vis other donors.
China's aid programs across these developing regions are only a small part of their 'total economic engagement' package and there is certainly a "blurring of the lines" when it comes to distinguishing aid from foreign direct investment. This article reports that China’s investments in Africa’s infrastructure have increased at an average rate of 46 percent a year over the past decade. At the same time, Africa’s exports to China have doubled, with crude oil making up about 70 percent of African exports to China (most of it from two countries, Angola and Sudan).
An Economist article published this week captures the crux of the issue for recipients of Chinese aid:
Most loans and payments are “tied”—ie, the recipient must spend the money with Chinese companies. (Japan, Spain and others followed a similar model until fairly recently.) But tied aid leads to shoddy work. With no competition, favoured firms get away with delivering bad roads and overpriced hospitals. Creditors and donors often set the wrong priorities. Worse, the Chinese government is anything but transparent about its money...China Exim Bank and China Development Bank, the main lenders, publish no figures about their vast loans to poor countries.
Over the next few years it will be interesting to see how the impact of China's current approach will shape its relations with other donors, such as Australia, and whether the continued international push to increase aid donor transparency will result in more details of China's aid program finally being revealed. Currently, because Chinese "aid figures are treated as state secrets", this is unlikely to happen anytime soon.
Image by flickr user ..Yardley..