Understanding China’s Foreign Aid

China is poised to become the world’s largest economy and foreign aid donor. As the Trump administration is planning to cut back its foreign aid budget, China is expanding its global development footprint. As a recipient of foreign aid just a few decades ago, China’s growing presence in other countries is astonishing. The latest report on  China’s foreign aid by AidData is so far the most comprehensive study on China’s foreign aid initiatives. The study found that between 2000 and 2014, China has spent around $354.3 billion in global development initiatives, while the United States spent $394.6 billion.

What does AidData mean for our understanding of Chinese foreign aid?

First, it gives us more accurate insights on the structure and the recipients of China’s foreign aid initiatives. Prior to the publication of this study, we did not have  a clear understanding of China’s global footprint as China has kept this information confidential. Second, it debunks some of the misconceptions of China’s foreign aid.Various studies have reported that China’s foreign aid is not helping the recipient countries’ economic growth and it is impairing western aid. However, AidData’s findings indicate that none of these findings are true.  Using the Tracking Underreported Financial Flows (TUFF) methodology, AidData collected the total financial flows from China to recipient countries.

Below is a snapshot of AidData’s study on China’s Foreign Aid

Screen Shot 2017-10-13 at 9.02.17 PM.png

(Source: AidData)

How does Chinese foreign aid work?

The study found that China allocates its foreign aid in three different methods. The first is the Official Development Assistance (ODA). This is a traditional state-to-state assistance where the recipient countries do not have the obligation to pay back their donors. This type of aid, according to AidData, is the most effective type of aid as they correlate with the recipient countries’ economic growth. However, China’s ODA is only less than a quarter of its total foreign assistance. In comparison, the United States’ foreign aid is primarily (93%) in the form of ODA.

The second type of aid is Other Official Flows (OOF) or sets of commercial lending that needs to be paid back by the recipient countries. This type of aid, according to AidData, is purely based on Chinese commercial interests in the recipient countries. The third type of aid is Vague Official Finance (VOF), which is simply financial assistance that does not fall into ODA and OOF classifications due to lack of information. According to the study, the vast majority of China’s money goes to infrastructure projects such as energy generation and transportation.

Screen Shot 2017-10-13 at 9.34.14 PM.png

(source: AidData)

 Where does Chinese money go?

Contrary to popular belief,  the biggest recipient of China’s aid has not been an African or Asian country. Between 2000 and 2014, the main recipient of China’s foreign aid has been Russia at $36.6 billion, followed by Pakistan at $24.3 billion and Angola at $16.6 billion. The study also found that North Korea has only received a mere $210 million in the last 14 years.

Screen Shot 2017-10-13 at 10.07.14 PM.png

(source: AidData)

Points taken from the study

This study tells us several things. First, it shows that China’s ODA actually contributes to the recipient countries’ economic growth. Second, it shows that Chinese aid and western aid can go hand in hand as the former does not impair the latter. Lastly, the study suggests that China has the capacity to be a constructive player in the global development.

 References 

AidData. 2017. Global Chinese Official Finance Dataset, Version 1.0. Retrieved from http://aiddata.org/data/chinese-global-official-finance-dataset

https://www.washingtonpost.com/news/worldviews/wp/2017/10/11/china-treats-its-foreign-aid-like-a-state-secret-new-research-aims-to-reveal-it/?utm_term=.90474e83ee2d

http://foreignpolicy.com/2017/10/11/russia-is-the-biggest-recipient-of-chinese-foreign-aid-north-korea/

http://www.bbc.com/news/world-asia-china-41564841

https://www.wsj.com/articles/when-it-comes-to-foreign-aid-chinas-taking-care-of-business-1507694463

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