china’s african aid transatlantic challenges

China’s African AidTransatlantic Challenges

Deborah Brautigam

International Development ProgramSchool of International Service

American UniversityWashington, DC

© 2008 The German Marshall Fund of the United States. All rights reserved.

No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the German Marshall Fund of the United States (GMF). Please direct inquiries to:

The German Marshall Fund of the United States1744 R Street, NWWashington, DC 20009T 1 202 683 2650F 1 202 265 1662E [email protected]

This publication can be downloaded for free at http://www.gmfus.org/publications/index.cfm. Limited print copies are also available. To request a copy, send an e-mail to [email protected].

GMF Paper SeriesThe GMF Paper Series presents research on a variety of transatlantic topics by staff, fellows, and partners of the German Marshall Fund of the United States. The views expressed here are those of the author and do not neces-sarily represent the view of GMF. Comments from readers are welcome; reply to the mailing address above or by e-mail to [email protected].

About GMFThe German Marshall Fund of the United States (GMF) is a non-partisan American public policy and grant-making institution dedicated to promoting greater cooperation and understanding between the United States and Europe.

GMF does this by supporting individuals and institutions working on transatlantic issues, by convening leaders to discuss the most pressing transatlantic themes, and by examining ways in which transatlantic cooperation can address a variety of global policy challenges. In addition, GMF supports a number of initiatives to strengthen democracies.

Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has seven offices in Europe: Berlin, Bratislava, Paris, Brussels, Belgrade, Ankara, and Bucharest.

China’s African Aid: Transatlantic Challenges

A Report To the German Marshall Fund Of The United States

April 2008

Deborah Brautigam International Development Program

School of International Service American University, Washington, DC

This paper was prepared for the German Marshall Fund of the United States’ Program on Aid Effectiveness. I acknowledge with thanks the support of the GMF in funding my research in Africa, December 2007–January 2008. I also thank those who made comments on drafts of the paper, including, David Hirschmann, Frans Lammersen, Meghan Olivier, Paul Colombini, Janet West, Jonathan White and Zha Daojiong.

The Rise of China in Africa ............................................................................................ 3Competing Views About Chinese Aid ......................................................................... 5China’s Aid: Continuity and Change ............................................................................ 7The Chinese Aid System ............................................................................................... 14Chinese Aid in Operation ............................................................................................ 20Chinese Aid: Issues for Transatlantic Policymakers ................................................. 25Engaging China ............................................................................................................. 30Toward New Partnerships ............................................................................................ 32

China’s African Aid: Transatlantic Challenges 3

The Rise of China in Africa1The rise of China as a very visible actor in Africa is one of the most striking features of the first decade of the new millennium. Trade between the two regions is projected to reach $100 billion before 2010, ten times the 2000 figure. Accumulated investment by Chinese firms doubled from $6.27 to almost $12 billion between 2005 and 2006, and Chinese banks have offered attractive (and sometimes very large) packages of loans to finance trade, investment, and development. Many African governments welcomed China’s announcements of further aid, trade, and investment at a major China–Africa summit in November 2006 in Beijing. At the same time, the rise of China has been greeted with fear and apprehension by many in the United States, Europe, and Africa who see this strong interest more as a threat than an opportunity.

Although trade and investment are two central means by which China and Africa engage this paper focuses primarily on development finance and official development assistance: the broad spectrum of activities called “foreign aid.” For the most part, the donor community focused on Chinese aid only recently, and in many cases only with the publicity surrounding the November 2006 Forum on China–Africa Cooperation in Beijing, where Chinese president Hu Jintao pledged to double China’s aid to Africa by 2009 (Box 1). He also promised to offer $3 billion in preferential loans and $2 billion in preferential export buyers credits, establish three to five special trade and economic zones, allow more than 400 kinds of goods into China duty-free, and set up a $5 billion fund to support investment by Chinese firms in African economies. Later that year the president of the China Export Import Bank (Eximbank), Li Ruogu, announced that he hoped to disburse up to $20 billion in finance for African projects over the next three years.

Box 1: Address by Chinese President Hu Jintao, Beijing Summit of The Forum on China–Africa Cooperation, 4 November 2006

To forge a new type of China-Africa strategic partnership and strengthen our cooperation in more areas and at a higher level, the Chinese Government will take the follow-ing eight steps:

1. Double its 2006 assistance to Africa by 2009.

2. Provide US$3 billion of preferential loans and US$2 billion of preferential buyer’s credits to Africa in the next three years.

3. Set up a China-Africa development fund which will reach US$5 billion to encourage Chinese companies to invest in Africa and provide support to them.

4. Build a conference centre for the African Union to support African countries in their efforts to strengthen themselves through unity and support the process of African integration.

5. Cancel debt in the form of all the interest-free govern-ment loans that matured at the end of 2005 owed by the heavily indebted poor countries and the least developed countries in Africa that have diplomatic relations with China.

6. Further open up China’s market to Africa by increas-ing from 190 to over 440 the number of export items to China receiving zero-tariff treatment from the least developed countries in Africa having diplomatic ties with China.

7. Establish three to five trade and economic coopera-tion zones in Africa in the next three years.

8. Over the next three years, train 15,000 African profes-sionals; send 100 senior agricultural experts to Africa; set up 10 special agricultural technology demonstra-tion centres in Africa; build 30 hospitals in Africa and provide RMB 300 million of grant for providing artemisinin and building 30 malaria prevention and treatment centres to fight malaria in Africa; dispatch 300 youth volunteers to Africa; build 100 rural schools in Africa; and increase the number of Chinese govern-ment scholarships to African students from the current 2000 per year to 4000 per year by 2009.

The German Marshall Fund of the United States4

Bretton Woods institutions and the G8 and OECD members. Yet all of these organizations admit to operating largely in the dark in their assessment of the risks and opportunities presented by China’s aid and development finance.

This paper aims to fill an important gap by explaining and analyzing the Chinese system of aid and development finance, focusing on Africa. Its purpose is not to take sides in the many debates over these issues, but to inform transatlantic discussions about China’s role as a development actor. This should assist policymakers and others concerned about development and poverty in Africa to better understand the nature of China’s impact as a donor. This should contribute to transatlantic efforts to develop constructive approaches to engaging China as a newly prominent feature of the evolving aid architecture. The paper draws on fieldwork in Beijing (July–August 2007) and in seven African countries over the past 25 years (most recently in Sierra Leone, Tanzania, and Zambia in December 2007 and January 2008), as well as published and unpublished studies and reports.

The paper opens by presenting some of the contrasting narratives on Chinese aid. It goes on to explain what aid is in the Chinese context, how it relates to Chinese domestic and foreign policy, how it operates, and how it is evolving. It then addresses a series of issues often linked to Chinese aid. Some of these (Sudan, Zimbabwe) are, in fact, not really about “aid” but about China’s extensive economic engagement with rogue regimes. Others are put in comparative and dynamic context, with an effort to show how each issue has recently evolved. The paper concludes with a series of thoughts about fruitful transatlantic approaches to engaging China.

China’s new role as a major source of finance in Africa has sparked considerable concern in Europe and the United States. Some see China primarily as a competitor unburdened by the kind of social, environmental, and governance standards increasingly applied to finance from the West. In an unprecedented move, the president of the European Investment Bank, a public funding agency, angrily accused the Chinese of “unscrupulous” behavior after losing contracts to Chinese banks. The International Monetary Fund (IMF) and the World Bank have likewise watched Chinese banks stepping in to compete directly with their own offers of finance. Members of the Organization for Economic Cooperation and Development (OECD) see Chinese companies gaining business under tied-aid arrangements that have been negotiated away for OECD members. The lack of transparency about Chinese loans has deepened concerns that Chinese banks are “free-riding” by extending loans to low income countries newly freed of crippling debt.

The rise of China as a development actor in Africa has become an issue on both sides of the Atlantic. China’s three summit meetings with African leaders (2000 in Beijing, 2003 in Ethiopia, and 2006 in Beijing) sparked the European Union to organize an EU–Africa summit in December 2007, its first in more than seven years. Universities and institutes in Europe and the United States have convened dozens of transatlantic conferences on China and Africa.

Aid is one of the issues on the table at these meetings. In 2005, under the Paris Declaration, the major donor organizations committed to reform their own approaches to aid, in an effort to increase its effectiveness. As a newly significant source of finance for Africa, China’s role is particularly important for the development agenda of the


Competing Views About Chinese Aid2Several competing narratives are prominent in discussions of Chinese aid. In the Western media, China appears as a new donor in Africa, rocketing to a position of prominence, without morals and mainly engaged with rogue regimes and resource-rich countries. The Chinese aid program is portrayed as enormous. For example, in June 2006, an article carried by the Associated Press newswire mistakenly quoted the Chinese premier as saying that China had given Africa “more than $44 billion in aid,” since beginning its aid program (what he actually said was RMB 44 billion, or around $5.7 billion). A journalist at the Christian Science Monitor claimed that China’s aid to Africa in 2006 was “three times the total development aid given by rich countries,” (rich countries gave about US$30 billion in 2006; China gave, at most, only a fraction of that). Reports on Chinese aid often state that China gives aid as a “quid pro quo” in exchange for access to natural resources like oil. Resource-rich “rogue regimes”—Sudan, Zimbabwe, and Angola—feature as notorious examples of countries enjoying large amounts of “no strings attached” aid from China. Critics point to risks that the ratcheting up of loans will pile new and unsustainable debt onto low-income countries whose debts were recently cancelled by the rich countries. Many assume that the Chinese do not demand proper accounting of funds and worry that the lack of conditions on governance will worsen corruption in a region already plagued by official malfeasance.

A second narrative on aid appears in China’s state-controlled media. There, officials point to the long history of China’s engagement with Africa, and claim that their relations in the 21st century will reflect “a new type of strategic partnership… featuring political equality and mutual trust, economic win-win cooperation.”1 Discussions of

1 “Declaration of the Beijing Summit of the Forum on China–Africa Cooperation,” November 16, 2006 (draft) http://www.focac.org/eng/wjjh/t404126.htm.

aid frequently refer to China’s commitment to build the massive Tanzania–Zambia railway during the 1970s, a project turned down by the West. Chinese leaders emphasize that they have rescheduled and cancelled a large portion of debt owed by Africa’s low income countries without imposing the kinds of preconditions required by the rich countries. For decades, stories in the Chinese press have profiled the “selfless” teams of Chinese doctors delivering healthcare in remote African towns, agricultural experts teaching Chinese rice techniques to African farmers, and frequent donations of food, anti-malaria drugs, and humanitarian relief bilaterally and through the United Nations.

A third narrative is heard in the corridors of power in Africa, where almost without exception, African governments have welcomed China’s new visibility as a source of finance. They admire China’s own record of development success, and appreciate the Chinese emphasis on non-interference and explicit lack of political conditions. China’s focus on economic development (including the development of natural resources) mirrors the agenda voiced by many African leaders, and the particular attention to infrastructure—electric power, ports, irrigation, roads—is welcomed in a region where finance for infrastructure had been low for many decades. Leaders appreciate the Chinese insistence on their engagement as a partnership, not a form of charity.

Fourth, African societies reflect a more mixed response. Some appreciate the leverage offered by the Chinese option, and appreciate the absence of economic conditionality, a prominent feature in assistance from much of the West. Others focus more on a litany of problems associated with China’s economic embrace of Africa: the competition presented by Chinese goods, the large number of Chinese workers who typically accompany Chinese projects, and a sharp increase in small-scale Chinese traders competing with Africans in many urban markets. Unions have


protested the low wages and third world safety and environmental standards used by China’s state-sponsored and private companies. African critics do not see aid as an adequate compensation for these problems.


Iriuscidunt verci tinciduisi. Lis ad elessi. Um alis dolor si. Ing eum dolorem nullaor tionseq uipsum ipsusto dolore feum quiscil iscilis er si et vent amcor ad dio eum vel

Throughout 2007 and 2008, Chinese teams fanned out across Africa to put Hu Jintao’s Beijing Declaration into action. Although much of the Western world began to notice Chinese aid only at this point, these Chinese teams were following in the footsteps of hundreds of Chinese aid teams over the past five decades. The overall principles governing Chinese aid reflect continuity in the principles of foreign policy more generally, while the content and specific elements of China’s aid and engagement with Africa are best understood in the context of changes in China’s own domestic politics.

A. Domestic and Foreign Policy Context

Like other countries, China gives aid for a variety of reasons: as a political tool of foreign policy and in support of its own economic interests; as a response to domestic stakeholders, and as a reflection of higher values and principles. As a tool of foreign policy, aid is critical in support of the “one-China” policy. Aid also acts to smooth the way for other economic transactions (exports, investment, construction contracts) and it reflects China’s vision of itself as a responsible, significant power, quick to deliver humanitarian assistance.

The bedrock of Chinese foreign policy is reflected in the “Five Principles of Peaceful Coexistence” introduced by Chinese Premier Zhou Enlai in 1954:

1. Mutual respect for sovereignty and territorial integrity

2. Mutual non-aggression 3. Non-interference in each other’s internal

affairs 4. Equality and mutual benefit 5. Peaceful coexistence

More than 50 years later, Chinese leaders still point to these principles as fundamental influences on their strategy of aid and economic engagement. An overriding concern with the “one-China” policy

is reflected in the principle of “non-interference in each other’s internal affairs” (recognition of the rebellious province of Taiwan as “China” is seen as interference in an internal dispute). These long-standing principles also help explain the Chinese resistance to calls by the West that they impose political conditions on their aid. “Equality and mutual benefit” are reflected today in Chinese leaders’ frequent emphasis on aid as a partnership, not a one-way transfer of charity. The five principles have always been a feature of China’s engagement with Africa, shaping the way Chinese officials position themselves vis-à-vis the West.

Domestic political and policy shifts have also shaped China’s aid. During the first three decades of the People’s Republic (1949–79), China’s domestic policy shifted between an ideological emphasis on class struggle and a more pragmatic emphasis on constructing an economically strong, modern nation. By 1979, the pragmatic forces in the person of Deng Xiaoping had won the leadership, and China embarked on a policy of shifting the economy gradually toward the market, while trying to contain the pressures inherent in openness to foreign investment and trade and global markets, and maintaining the Chinese Communist Party at the helm of government.

Much of the 1980s were focused on building up China’s domestic economy and attracting foreign investment. In the early and mid-1990s, however, a further set of reforms were put in motion that aimed to deepen restructuring of state-owned enterprises, promote the competitiveness of China’s most important firms (private and state-owned), and ready the economy to join the World Trade Organization in December 2001. State-owned enterprises were separated from the control of their parent ministries and allowed to manage themselves and be responsible for their own profits and losses. In the tenth Five Year Plan (2001–2005), these reforms were deepened through

China’s Aid: Continuity and Change3


the strategy of “Going Global.” One feature of the strategy was an increase in regional cooperation. The Forum on China–Africa Cooperation is one product of this strategy, but it is not alone. China also established the China–Caribbean Economic and Trade Cooperation Forum (2003), the Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries (2003), the Forum on Cooperation between China and Arab States (2004), and the China–Pacific Islands Economic Development Forum (2006).

Each of these has similar features, usually including promises of aid, tariff-free entry to China for many categories of goods, cancellation of debts, training in China for officials from the region, and so on. Seen from this perspective, China’s strategy in Africa is clearly part of a broader strategy of engagement with regional groups and the developing world more generally. For example, the promises made at the Beijing Summit of the Forum on China–Africa Cooperation were an echo of a pledge made in September 2005 by Chinese President Hu Jintao at a September 2005 United Nations plenary session on financing the Millennium Development Goals (Box 2).

B. China’s Changing Aid Strategy in Africa

1. The Maoist Period 1960–76

Although China supported some of the independence movements, Chinese official aid to sub-Saharan Africa began with a zero-interest loan extended to Guinea in 1960. Chinese Premier Zhou Enlai traveled to Africa in 1964 and announced eight principles that still govern the way China’s aid is designed and delivered (Box 3). By 1965, China had aid programs in Central African Republic, Congo-Brazzaville, Ghana, Kenya, Somalia, Tanzania, and Uganda. Although China’s earliest aid recipients were governed by leaders who declared themselves socialists, such as Sekou Toure in Guinea and Julius Nyerere in Tanzania, ideological affinity

Box 2: Chinese President Hu Jintao’s Five Measures For Assisting Other Developing Countries*

1. Zero tariff treatment to some products from all the 39 LDCs having diplomatic relations with China, which covers most of the China-bound exports from these countries.

2. Further expand aid program to the Heavily Indebted Poor Countries (HIPCs) and LDCs and, working through bilateral channels, write off or forgive in other ways, within the next two years, all the overdue parts as of the end of 2004 of the interest-free and low-interest governmental loans owed by all the HIPCs having diplomatic relations with China.

3. Within the next three years, China will provide US$10 billion in concessional loans and preferential export buyer’s credit to developing countries to improve their infrastructure and promote cooperation between enterprises on both sides.

4. China will, in the next three years, increase its as-sistance to developing countries, African countries in particular, providing them with anti-malaria drugs and other medicines, helping them set up and improve medical facilities and training medical staff.

5. China will train 30,000 personnel of various profes-sions from the developing countries within the next three years so as to help them speed up their human resources development.

United Nations, New York, September 14, 2005

* Hu Jintao, “Promote Universal Development to Achieve Com-mon Prosperity,” written statement by Chinese President Hu Jintao at the High-Level Meeting on Financing for Development at the 60th Session of the United Nations, New York, Septem-ber 14, 2005.

was less important than a country’s decision to recognize Beijing as “China” instead of Taipei. The establishment of diplomatic ties was normally accompanied by an offer of assistance: usually, a zero-interest credit, made available for a specific number of years, and which could be drawn on to finance projects agreed on by both governments.


By 1971, Beijing had won diplomatic recognition from 16 African countries, enough to ensure it could regain its seat at the United Nations. As countries switched recognition away from Taipei, they were rewarded with aid programs. Many heard about the famous Tazara railway linking Zambia’s copper mines through Tanzania to the coast, enabling Zambia to avoid shipping its minerals through apartheid South Africa and the white-run regime in what was then Rhodesia. Built toward the end of the Cultural Revolution, a particularly harsh period of political mobilization in China, the Tazara Railway represents the signal achievement of China’s African aid. But countries receiving Chinese aid in the 1970s also received Chinese medical teams, dozens of rice and agriculture projects, and state-owned factories for processing raw materials. By 1975, China had aid programs in more African countries than did the United States.

Parallel to the expansion of Chinese aid in Africa, Japanese economic ties with China were also growing. In 1973, Japan began to import oil from China, and by 1977, petroleum products and crude oil made up more than 42 percent of Japanese imports from China.2 As China opened up further to the outside world, Chinese officials drew on their experience in this first important bilateral relationship. It shaped Chinese perceptions of how relations between two countries at different levels of development might be beneficial to both. As a Japanese analyst described it: “China finds it extremely convenient to have Japan near its border because of the availability of a wide variety of imports from an industrialized country. For Japan, the physical proximity and vast natural resources

2 Tomozo Morino, “China–Japan Trade and Investment Relations,” Proceedings of the Academy of Political Science, 1991, 38, 2, p. 92.

Box 3: Eight Principles for China’s Aid to Foreign Countries (1964)

1. The Chinese Government always bases itself on the principle of equality and mutual benefit in providing aid to other countries. It never regards such aid as a kind of unilateral alms but as something mutual.

2. In providing aid to other countries, the Chinese Government strictly respects the sovereignty of the recipient countries, and never attaches any conditions or asks for any privileges.

3. China provides economic aid in the form of interest-free or low-interest loans and extends the time limit for repayment when necessary so as to lighten the burden of the recipient countries as far as possible.

4. In providing aid to other countries, the purpose of the Chinese Government is not to make the recipient countries dependent on China but to help them embark step by step on the road of self-reliance and independent economic development.

5. The Chinese Government tries its best to help the recipient countries build projects which require less investment while yielding quicker results, so that the recipient governments may increase their income and accumulate capital.

6. The Chinese Government provides the best-quality equipment and material of its own manufacture at international market prices. If the equipment and ma-terial provided by the Chinese Government are not up to the agreed specifications and quality, the Chinese Government undertakes to replace them.

7. In providing any technical assistance, the Chinese Government will see to it that the personnel of the recipient country fully master such technique.

8. The experts dispatched by China to help in construc-tion in the recipient countries will have the same standard of living as the experts of the recipient country. The Chinese experts are not allowed to make any special demands or enjoy any special amenities.

Source: Speech by Chinese premier Zhou Enlai, Accra, Ghana, January 15, 1964.


make China an ideal trading partner.”3 The early pattern of this relationship would later be repeated in China’s engagement in Africa.

2. The Reform Era 1977 –89

As China began to open up economically under the post-Mao reform leaders, the country began the long but gradual process of establishing a market economy. Aid fit into these plans.4 Under the planned economy, most ministries, provinces, and large municipalities had aid offices responsible for carrying out aid activities assigned by the central government. In the economic reforms of the early 1980s, these aid offices were transformed into state-owned corporations. As Beijing decentralized many decisions to the province and municipal level, governments at these levels were encouraged to conduct their own business forays abroad, using their new corporations to seek revenues through consulting, design, contracting, and joint ventures. In Africa today, the proliferation of Chinese companies is partly due to the earlier roles many of them played in carrying out aid projects for the Chinese government.

From 1979–81, few new foreign aid loans were announced, although Chinese construction companies already present in Africa were allowed, for the first time, to bid on small infrastructure projects. Yet after the Chinese reformers worked out how foreign aid would fit into their new domestic and foreign goals, they moved again to engage with Africa. Chinese premier Zhao Ziyang traveled to Africa in December 1982 to promote “south-south cooperation,” and to announce that China was adding a new principle to its foreign aid: “diversity in form.” The new principle marked a significant reform and its impact is still being felt

3 Ibid, p. 89.4 This section draws on Deborah Brautigam, Chinese Aid and African Development: Exporting Green Revolution (New York: St. Martin’s Press, and Basingstoke, U.K.: Macmillan, 1998), pp. 49–53.

today. A high-ranking Chinese official commented that over time, the reforms would switch aid from one-way loans to cooperation “which can benefit both partners.” This, he continued, would be a better way to sustain and expand economic engagement, and it would enable China’s scarce aid resources to be better used.

Japan again provided a model for China. As China opened up, Japan was the first partner to move to engage China. Between 1979–84, Japan provided 330 billion yen ($1.4 billion) in official development assistance to China.5 But aid was dwarfed by other economic ties. For example, in 1978, the two countries signed a general “countertrade” agreement whereby China agreed to buy $10 billion in capital goods from Japan between 1978–85 and pay for them by exporting the equivalent value of oil.6 Japan also agreed to invest in China’s massive Liuzhuang Mining area. Deng Xiaoping, the architect of China’s reforms, proposed the same countertrade to Western firms: “importing plant and equipment from the West for the development of China’s oil and coal industries, and then paying for these imports with the resulting output from the plants.”7 As China opened to the world, allowing foreign investment after 1982, companies from Europe and the United States flocked to the Middle Kingdom to participate in the development of China’s petroleum, coal mines, and nuclear energy. In 1983, for example, oil companies from Britain, Australia, Brazil, Canada, Australia, and Spain won contracts for bids to develop China’s offshore oil; Thyssen Company of Germany, and U.S. companies Bechtel and Fluor, signed on to open up coal mines;

5 Jong H. Park, “Impact of China’s Open-Door Policy on Pacific Rim Trade and Investment,” Business Economics, October 1993, 28, 4, p. 54. Yen converted to dollars at January 1984 exchange rate of 234 yen to US$1.0. 6 Morino, p. 90. By 1988, the Exim Bank of Japan had ap-proved more than $9 billion in loans to support Japan’s exports to China.7 Park, p. 53.


and France and the U.K. moved to cooperate with China in the area of nuclear power. This early investment set the stage for ample energy capacity, lifting a significant constraint for China’s economic development.

After working out new policies to reconcile aid with the country’s new commitment to its own economic development, leaders recommitted to the aid program. In 1984, China’s announced aid commitments to Africa surpassed those from Japan, Norway, Sweden, and the United Kingdom. Although it is assumed by many that China has only recently “returned” to Africa, Table 1 (which marks the years in which Chinese and African media announced economic cooperation and aid agreements in particular countries) shows that in fact China was quite active throughout the 1980s. This activity increased further in the 1990s with another shift in policy.

3. Economic Cooperation for Mutual Benefit 1990–present

By 1990, a number of factors affected foreign aid policy and internal debates about the role of aid and refocused Chinese attention on its relationship with Africa. First, flush with foreign reserves and encouraged by the worldwide opprobrium following China’s violent suppression of demonstrations in Tiananmen Square in 1989, a newly democratic Taiwan began to reinvigorate its “checkbook” diplomacy efforts to win recognition (Box 4).8 By the end of 1990, seven countries had re-established relations with Taiwan (Belize, Guinea-Bissau, Nicaragua, Bahamas, Grenada, Liberia, and Lesotho) and China responded by suspending diplomatic ties. Over the next decade and a half, a number of African countries made the switch back to Taipei (Liberia and the Central African Republic switched between Beijing and Taipei twice). The rivalry with Taiwan sparked something of a bidding war, with escalating offers of aid on both sides.

8 Ian Taylor, “China’s Foreign Policy Towards Africa in the 1990s,” Journal of Modern African Studies, 36, 3 (1998): 443–60.

Chinese leaders were also concerned about a problem they shared with many donors: the deterioration of their aid projects once they were handed over to the host government. Not only was the collapse of productive projects a waste of China’s scarce resources, Chinese officials worried that it could have political ramifications, since the projects were intended to promote “friendly ties.” A third issue arose to affect thinking about government subsidies for exports and tied aid: China’s bid to join the World Trade Organization. Finally, by the early 1990s, planners were well aware that resource scarcities, particularly in domestic energy, would soon become an issue for domestic production, and they moved to position the country to overcome that challenge.

In 1994, to address some of these issues, the Chinese government separated the state-owned banks into those that would operate on commercial principles, and those that would carry out the government’s policies. The three “policy banks” (China Development Bank, China Export Import Bank, and China Agriculture Bank) remained tools of the government, enabling the state to intervene in areas where the market is less interested, and to allow targeted development of agriculture, industry, and infrastructure in China and overseas. The banks were set up to conform to WTO rules on trade institutions.

As the Chinese government moved to boost its ability to support Chinese companies’ efforts to win contracts and establish ventures abroad, and to recognize the growing debt crisis in the least developed countries, three new instruments were added to the existing basket of assistance tools, in 1995:

concessional loans with interest subsidized by •the Chinese government

government-supported joint ventures and equity •stakes in productive projects

grants, primarily for countries with economic •difficulties or crises

Cumsan hendio con vullaorem zzrilit laorting

el do exer si tin ulputem iure

velendrer sequat. Ummy nissis eum dolummy nullaor

amconsecte exercilisl ut

vullandio odo


In 1996, as Premiers Zhou Enlai and Zhao Ziyang had done in earlier decades, President Jiang Zemin visited six African countries and reinforced the new aid policy as part of a five-point proposal aimed at a “21st century” relationship. Premier Li Peng followed with a 1997 trip to an additional six African countries. Both emphasized that, as Li Peng told Xinhua news agency, “China’s basic policy of providing aid to Africa has not changed [but] …China’s policy has moved from aid donation to economic cooperation for mutual benefit.”

The framework for China’s aid in 2008 still closely reflects these policy shifts. Aid is one component of economic engagement, but it is often confused with other subsidized forms of economic engagement common to many dirigiste regimes: these subsidies are not considered aid by the Chinese, and indeed would not qualify as “official development assistance” under OECD guidelines.

Box 4: “Dollar Diplomacy:” The Beijing-Taipei Rivalry in Africa, 1989 to present

Countries that Broke with Beijing to Establish Ties with Taipei

Countries that Broke with Taipei to Establish ties with Beijing

1989–Liberia (second)* 1993–Liberia (second)

1990–Guinea-Bissau 1994–Lesotho (second)

1990–Lesotho (second)* 1996–Niger (second)

1991–Central African Republic (third)* 1998–Central African Republic (third)

1992–Niger (second) 1998–Guinea-Bissau

1994–Burkina Faso 1998–South Africa

1996–The Gambia 2003–Liberia (third)

1996–Senegal (second) 2005–Senegal (second)

1997–Chad (second) 2006–Chad (second)

1997–Liberia (third) 2008–Malawi

1997–Sao Tome and Principe Swaziland is the only African country that has never established diplomatic relations with Beijing.

* These countries had previously had relations with Taipei, and broken them to establish relations with Beijing.

Source: Author’s research and Chung-lian Jiang, “Beijing and Taipei, the African Challenges,” http://www.african-geopolitics.org/show.aspx?articleid=3584 [n.d.]



Table 1: Years of New Chinese Aid Commitments in Africa (1961-2007)

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Sudan* M M v M v v v v v M v v M v v v v v v v v

Guinea M v M v v M v v M M v v v v v v v v v v v v v M v v v v

Ghana M v v v M v v v v v v v v v v v v v v v

Mali M v M v v M M v v v v v v v v v v v v v M v v v v v v v

Somalia M v M v v M M M v v M v v

Tanzania M v M M v v v v v M M v v M M v v M v M M v v v v v v

Uganda M v M v M M v M v v v v v v

Kenya M M M v v M v v M v v v v v v

Benin M v v v v v v v M M v v v M v

Burundi v M v v v v v M v v v

C.Afr. Rep. v M v v v M v v v M v v v

Congo-B M M M v M M v M v v M v v v v v v

Zambia M v M v v v v v v M v M v v M v v v v v v

Mauritania M v M v M M M v v v v v v M M v v v v

E. Guinea M M v M v v v v M v v v

Ethiopia M M v v v M M v M v M v v v v v v v v v

Cameroon M v v v v M v v v v M v v v v M v v M M

Nigeria M M v M v v

Rwanda M M M v v v M v v v

Senegal M v v v M M v v v v v v v v

Sierra Leone M v v M M v v v M v v v v v v

Chad M M v v v M M

D. R Congo M v v v v v M M v v

Madagascar v v M M v v v M v v v M v v v v v v v v

Mauritius M v M v M v v v v v v v v v v M

Togo M M v v v v v v v v v v v v v v v v

Burkina Faso M v M M v M v M v M

Gabon M M M v v v v v M v v v v v v

Gambia M v v v v v

G.Bissau M v v v v v v v v v

Niger v M v M v v M v v v v v

Botswana M v v v v M M v M v v v v v v M v

Comoros M v M M M v v v v

Mozambique M M v M v v M M M v v v v v v

S.Tome/Pricp. M v v v v

Cape Verde M v v v v v v v v v v

Seychelles v M M v M M v v v v v v

Liberia M M v v v v v v v v

Djibouti M v M M M v v M M v M M v

Zimbabwe M M M M M v M v v v v v v v v

Lesotho M v M v v v v v v v

Angola M v v v v v v v v v v

Cote d’Ivoire v v v v M v v v v

Namibia M M v M v v v v v

Eritrea v v v v v v

South Africa v v v v

M Economic and Technical Cooperation Agreements v Loan agreements Notes: Data is from open sources and may be incomplete. Shaded area represents years country had diplomatic ties with Beijing. *recognized in 1959.





vullandio odo


The Chinese aid system operates at three levels: in Beijing, in the provinces and municipalities, and in the field. The cabinet of the Chinese government—the State Council, headed by the Chinese premier and vice-premiers—acts as the main decision-maker on aid, but the details are handled by a number of different agencies. Economic assistance decisions are part of China’s foreign policy, and the Ministry of Foreign Affairs appears to be the primary initiating agency for traditional aid agreements. In keeping with the Asian tradition of gifts, the Chinese prefer to announce a decision about particular aid projects or an overall aid agreement during visits of Chinese officials to Africa (or African officials to China).

A. Major Institutions of Aid and Economic Cooperation

Anywhere between 15 and 23 central ministries and agencies have some kind of role in China’s foreign aid. This is similar to the United States, where foreign aid is provided by 26 different government departments, agencies, and offices; and France which has a complex array of aid related offices.9 However, the four main actors orchestrating China’s aid and economic engagement in Africa are the Ministry of Commerce (MOFCOM), Ministry of Foreign Affairs (MOFA), and two of the three policy banks: China Export Import Bank (China Eximbank) and the China Development Bank.

1. Ministry of Commerce

The Ministry of Commerce (MOFCOM) is China’s central ministry concerned with aid. MOFCOM is responsible for disbursing grants and zero-interest loans, and coordinates with China’s Eximbank on concessional loans. Within MOFCOM, aid is the responsibility of two units:

9 On the large number of agencies involved in French aid, see Carol Lancaster, Foreign Aid: Diplomacy, Development, Domestic Politics Chicago: University of Chicago Press, 2007, pp. 148-150.

the Department of Aid to Foreign Countries, and the Bureau of International Economic Cooperation. The Department of Aid makes the annual plans and budgets for aid disbursements, and drafts the regulations that (as in other ministries) increasingly substitute for the earlier system of state planning. The Bureau oversees the practical steps (bidding, procurement, monitoring, evaluation, and training) in the implementation of aid and economic cooperation (non-aid) projects.

2. Ministry of Foreign Affairs

Much like the U.S. State Department, China’s Ministry of Foreign Affairs oversees aid decisions as they relate to overall foreign policy objectives. Traditionally, the Ministry’s desk officers in the Department of African Affairs and diplomats on the ground have been the “front line” for advising Beijing on the quantity of foreign aid for a particular African country. In Beijing, they work closely with the Ministry of Commerce and the China Eximbank in making these decisions, following guidelines issued by the Ministry of Foreign Affairs Department of Policy Planning, which has the responsibility of monitoring the general policy trends on economic cooperation and foreign aid.

3. China Eximbank

China Eximbank was set up in 1994, primarily to finance and implement the trade and overseas investment policies of the Chinese government. Its main business is to offer export sellers’ credits to Chinese companies (Table 2). Since 1995, the Eximbank has also operated China’s concessional loan program, a major arm of China’s foreign aid. The concessional loan program generally raises funds for its loans on domestic and foreign capital markets, much as the World Bank does for its IBRD loans. The interest rate on the foreign aid concessional loans is officially subsidized by the government through the foreign assistance budget.

The Chinese Aid System4



Concessional loans are used to finance official aid projects, and are now probably the largest window for China’s aid. According to its 2005 Annual Report, China Eximbank’s concessional loan program grew at about 35 percent a year after 2001, and there is no reason to suppose this pace has slackened. Loans from China Eximbank pay for Chinese equipment and Chinese construction services, although they have also been used to jump start joint ventures between Chinese and African state-owned firms. Concessional loans are a very small part of China Eximbank’s portfolio, representing only 3 percent of its assets as of December 2005 (about $1.16 billion).10 However, the Eximbank also has a number of other financing vehicles that can issue credit at “preferential rates” creating considerable confusion over just what is “aid” and what is not. This is discussed further below.

4. China Development Bank

China Development Bank (CDB) was set up, like the Eximbank, to implement policies of the

10 Standard and Poor’s, Bank Credit Report: Export–Import Bank of China, August 2006, p. 5 (calculations by author).

Chinese government, but it is far larger. The total assets of the CDB reached nearly $300 billion at the end of 2006. Very few of its loans go overseas—two percent in 2005, and three percent in 2006.11 It primarily provides loans to other levels of the Chinese government (provincial departments of transportation, for example, or parastatals such as China Three Gorges Development Corporation) to finance investments in domestic infrastructure, power stations, and public facilities. As of the end of March 2007, CDB had financed only 30 projects in Africa, worth about $3 billion (CDB’s share of the finance was some $1 billion).12 China Development Bank does not offer concessional financing, although it has sometimes joined with China Eximbank to finance projects. Like Eximbank, it has also given Chinese companies lines of credit to assist their efforts to “go global,” reports directly to the State Council, and raises a large share of its funding through the issue of bonds overseas and in China.

B. Instruments of Chinese Aid

Chinese aid is generally given through projects, but can also be given as cash for direct budget support (this is uncommon and the sums are usually relatively small). Aid can also finance vehicles (such as patrol boats provided to Sierra Leone and to Mauritius), equipment, and material goods. Humanitarian aid is generally given in kind, and China also has programs for training, scholarships, teams of doctors, debt relief, and a new volunteer program.

1. Complete Plant and Technical Assistance Projects

The two main instruments of aid are complete plant projects (turn-key projects that involve construction or repair of buildings, infrastructure or facilities of

11 China Development Bank, Annual Reports 2005 and 2006. 12 “The trade between China and Africa contributes 20% to African economic growth.” [Zhong Fei Maoyi Dui Fei Jingji Zengzhang Gongxianli da 20%]. Jinshi wang, Jinrong Shibao, May 14, 2007.

Table 2. China Eximbank Financing Approved, 2006

(US$ billion)

Export seller’s credit $17.5

Export buyer’s credit $ 4.2

Import credit $ 2.4

Letters of guarantee $ 4.4

Concessional aid loans n/a

Total (w/o aid loans) $28.5

Source: China Eximbank Annual Report, 2006. RMB converted to US$ at an exchange rate of RMB 7.8 to $1 (by author). Not all approved loans will actually be disbursed.





vullandio odo


some kind) and technical cooperation projects that involve training and assistance. In agriculture, for example, the construction of an irrigated rice station would be a complete plant project, while the sending of eight Chinese experts to demonstrate rice-growing would be a technical assistance project. In 2005, China assisted 26 complete plant projects and 36 technological cooperation projects in Africa (usually financed by grants or zero-interest loans), and nine projects financed by concessional loans.

2. Medical Teams

More than 65 developing countries and territories have hosted Chinese medical teams since 1963, and some 20,000 medical personnel have served abroad under the rotating medical team program. In 2007, 48 Chinese medical teams each with an average of 25 doctors and nurses (sometimes spread among more than one hospital or medical center) were working in 47 countries worldwide.13

3. Training and Scholarships

Since 2000, the Chinese government has accelerated the training component of its foreign aid, focusing in part on transferring information about China’s own experience with urbanization, economic growth, and poverty alleviation. By 2007, China had held 2,500 short and medium term training courses in 20 different fields (management, economics, agriculture, health, justice, education, etc.) with more than 80,000 people participating.14 As noted above, this was expected to increase rapidly with the twin pledges made by Chinese president Hu Jintao at the 2005 UN Summit in New York (30,000 developing country personnel trained over three years) and the 2006 FOCAC Summit in

13 “Debts of 49 developing countries waived,” China Daily, February 12, 2008.14 Ministry of Commerce, “National Foreign Aid Training Conference held in Beijing,” http://boxilai2.mofcom.gov.cn [ac-cessed July 30, 2007.]

Beijing (15,000 African professionals trained by the end of 2009). Scholarships for university study in China have also been an important component of China’s assistance. At the Beijing Summit, China pledged to double scholarships for African students from 2,000 to 4,000 per year.

4. Overseas Youth Volunteer Program

In 2002, the Central Committee of the Chinese Communist Youth League China initiated a youth volunteer program overseas. In 2005, the Ministry of Commerce took over coordination of the program, and that year Ethiopia became the first continental African country to receive a group of Chinese volunteers.15 The Chinese pledged to send 300 youth volunteers to Africa over the period 2006–09. By October 2007, ten African countries were hosting youth volunteers.

5. Debt Cancellation

China’s debt relief resembles debt relief from the OECD countries in that it is targeted to low income and least developed countries. Mauritius, for example, with an excellent record of repaying its debts received no debt relief, while highly indebted Zambia reportedly received $211 million. However, Chinese debt relief differs in the ease of implementation and the absence of conditionality. Between 2000–03, China cancelled approximately $1.4 billion in overdue debt from 31 African countries. Between 2006–09, another round of debt cancellations was scheduled to write off an additional $1.3 billion from. These cancelled debts amount to 60 percent of the total owed to China.16

15 Li Baoping, “On the Issues Concerned with China–Africa Educational Cooperation,” paper delivered at conference on China and Africa, Hong Kong University of Science and Tech-nology, 2007, p. 8. 16 Qi Guoqiang, “China’s Foreign Aid: Policies, Structure, Practice and Trend,” paper delivered to Conference on New Di-rections in Foreign Aid, Center for Global Governance, Oxford University, June 2007.



C. Other Instruments of Economic Engagement

Although they do not qualify as “aid” either for the Chinese or for traditional donors, three new instruments of economic engagement hold some potential for meeting African concerns with building manufacturing and infrastructure. They help explain the strategy voiced by an official of the Zambian Development Agency: “We are trying as much as possible to focus on China because they are ready. Where there are opportunities they will take them. We need to move the country up the value chain.”

1. China Africa Development Fund

Announced at the November 2006 Beijing Summit, this $5 billion equity fund will be open to Chinese companies and their joint venture partners for investment in agriculture, manufacturing, industrial parks, mining, and infrastructure (power, telecommunications, water, transportation). Managed by the China Development Bank, the fund will have a lifespan of 50 years and make equity investments between $5 and $50 million in each project. The focus on joint ventures provides an opportunity for African governments and entrepreneurs to collaborate with Chinese entrepreneurs on manufacturing and other productive ventures.

A number of OECD countries have established similar funds that seek to promote investment in Africa (and elsewhere). The Norwegian Development Fund, for example, has assets of $543 million available for Africa. The CDC (British Development Fund) has $1.96 billion, but it does not invest directly in companies. Over its 35 year history, the U.S. Overseas Private Investment Corporation had extended only about $2.53 billion in loans and guarantees for African projects.17 Recently French President Nicolas Sarkozy announced that his development agency,

17 Personal communication, Alison Germak, OPIC, March 14 and 17, 2008.

Groupe Agence Française de Developpement (AFD), would establish a fund of €250 million as investment capital for Africa (the fund will purchase shares in other Africa investment funds, but will not offer equity directly to companies).18 China’s fund is obviously far larger than all of these other initiatives. On the other hand, the fund has been criticized because the capital is restricted to Chinese companies (and their African joint venture partners). African entrepreneurs without access to Chinese partners may see the fund as another unfair advantage enjoyed by China’s foreign investors.

2. Special Trade and Economic Cooperation Zones

China’s current prosperity can be traced in part to Shenzhen and the other three special economic zones opened along the coastal regions in the 1980s. Drawing on this model, the Chinese government decided in the eleventh Five-Year Plan (2006–11) to establish at least ten industrial zones abroad as part of the “Going Global” strategy. These zones are unlike the ill-fated export processing zones established by many African governments in the past. Instead, major Chinese companies will bid for the opportunity to win state support as they take the risks in proposing, establishing, and promoting the zones to their compatriots, while hoping to profit from selling services to investors located in the zones. The plan is to create a supportive environment for small and medium Chinese companies to venture overseas, particularly those that are no longer competitive in China but might be competitive by moving closer to their markets. Local firms and other foreign companies will also be able to invest in the zones. The first

18 Sarkozy also promised to provide €250 million in loan guaran-tees for small and medium-sized African companies, and AFD pledged to double its support for private sector development, spending €2 billion over five years. “France: Sarkozy: Speech to Parliament of South Africa (28/02/2008),” February 8, 2008, http://www.polity.org.za/article.php?a_id=128322





vullandio odo


three African zones were approved in Zambia, Mauritius, and Nigeria.19

There are risks in this strategy. Chinese companies facing increasingly strict environmental and labor regulations in China will likely expect to find a more relaxed regulatory environment overseas. Mauritians have expressed concern at their government’s agreement to allow large numbers of temporary Chinese workers to be employed in the zone, as they are, in fact, currently outside the zone. Companies in the zones will largely be producing for export into the region, and this will continue to provide stiff competition for Africa’s own manufacturers.

The Chinese have been sensitive to some of these concerns. In Zambia, for example, Chinese promoters promised to do an environmental appraisal, meet the ISO 14000 environmental standards, and hire local labor. Yet, as the World Bank has pointed out, manufacturing has been the chief sector of interest for Chinese investors in Africa, and this is a sector that has been of relatively little interest for the West.20 Given the lower levels of technology used by Chinese firms, there

19 This initiative is very different from other partner country strategies to assist African countries to expand manufac-tured exports. For example, the U.S. Agency for International Development will spend $200 million on technical assistance and assorted projects over five years to build African trade competitiveness. Four countries were chosen as “competitive-ness hubs” (Ghana, Senegal, Botswana and Kenya), but these hubs are intended only to “provide information and technical assistance to African organizations, U.S. Government agencies, donor and civil society organizations, and the private sector on trade, investment, and business activities in the region, including training opportunities.” United States Agency for International Development, “Africa Global Competitiveness Initiative,” http://www.usaid.gov/locations/sub-saharan_africa/initiatives/agci.html. The USAID “competitiveness hubs” are somewhat similar to ten centers China established in the mid-1990s to promote two-way trade and business in ten African countries: Egypt, Guinea, Mali, Côte d’Ivoire, Cameroon, Gabon, Mozambique, Nigeria, Tanzania and Zambia.20 Broadman, p. 99. The World Bank conducted a mid-2005 sur-vey of Chinese investors in eight Chinese cities, and found that 45 percent had invested or were planning to invest in manufac-turing, 35 percent in construction and services, and 20 percent in resources (agriculture, mining, oil and gas).

are likely to be relatively more opportunities for technology transfer to African investors. To benefit from these zones, African governments will need to boost their own companies’ abilities to partner with the Chinese, deliberately building business linkages, building skills, promoting transfers of technology, and ensuring that most jobs are filled locally.21 And they will need to ensure that the promoters fulfill their promises.

3. Tariff and Quota-Free Entry for Goods from Least Developed Countries

At the Addis Ababa meeting of FOCAC in 2003, Chinese leader Hu Jintao promised to give zero tariff treatment to an unspecified number of exports from Africa’s least developed countries. The list of commodities and rules of origin were negotiated during 2004, and the full list of 190 products was announced in each country in early 2005. At the Beijing Summit in November 2006, the Chinese pledged to increase the list to 440 commodities; this went into effect in July of 2007. The West has two similar programs: (1) Europe’s “Everything But Arms” (EBA) program allows duty-free and quota-free entry into the European Union for all goods from the least developed countries except armaments; entry for bananas, rice, and sugar was phased in more gradually; (2) the United States’ Africa Growth and Opportunity Act is an incentive-based program, allowing duty free entry of most commodities, as long as countries have met a number of economic, political, and rule of origin conditions. China’s program is said to cover almost all the exports from the least developed countries, however a list of goods is not easy to obtain and this makes it difficult to evaluate the potential development impact. Independent

21 For more on this, see Deborah Bräutigam, “Chinese Business and African Development: ‘Flying Geese’ or ‘Hidden Dragons’?” in Daniel Large, J. Christopher Alden, and Ricardo M. S. Soares de Oliveira, eds. China Returns to Africa: A Rising Power and a Continent Embrace London: Christopher Hurst.



analyses of the EBA and AGOA programs have reported generally positive effects for participating countries, and it is likely that the Chinese program will also, at the least, be a stimulus to trade.22

22 Lucian Cernat, Sam Laird, Luca Monge-Roffarello, and Ales-sandro Turrini, “The EU’s Everything But Arms Initiative and the Least-Developed Countries,” WIDER Discussion Paper No. 203/47, June 2003; Garth Frazier, Johannes van Biesebroeck, “Trade Growth Under the U.S. Growth and Opportunity Act,” NBER Working Paper No. 13222, July 2007. Growth under the African Growth and Opportunity Act,” NBER Working paper No. 13222, July 2007.





vullandio odo


A. How much aid does China give to Africa?

In 2006, the Chinese government revealed that over the years they had disbursed RMB 44.4 billion (US$ 5.7 billion) in aid to Africa. However, most information about official aid is considered a state secret. Chinese officials do know how much aid they give: aid is still part of a government system that allocates state resources through planning. They simply do not collect it together and report it as do governments who belong to the OECD/DAC.

Using Chinese methods of calculating aid, the annual amount to Africa in 2006 was in the range of $462 million, and this will reach close to $1 billion in 2009. These figures are calculated from China’s annual budget for external assistance (Table 3). The budget figure includes grants, the face value of zero-interest loans administered by MOFCOM, and the interest rate subsidy given to the concessional loans administered by China Eximbank (but not the face value), expenses for health teams and training programs, but not scholarships.

The sums reported in Table 3 are far smaller than the figures frequently reported as “aid” in the press. This is mainly because the budgeted expenditure reflects only the interest subsidy, and not the face value of the foreign aid concessional loans extended by the China Eximbank. The annual subsidy for a concessional loan of US$100 million with an interest rate of 2 percent would be only US$ 4 million, assuming a central bank lending rate of 6 percent. In contrast, among OECD countries, the entire face value of concessional loans is considered official development assistance (ODA).

The official aid figures are also smaller than estimates in the press for several other reasons:

1. Package Financing. China Eximbank has a “package financing mode” that can combine export buyer’s credit, export seller’s credit,

and concessional loans. These mixed credits are sometimes mistakenly reported as “aid.”

2. “Preferential” loans. Subsidies from the Chinese government and the prevailing low interest rates make it easy for most of the export buyers’ credits and loans offered to African governments and their state-owned companies to be offered at “preferential” rates a few percentage points below the market. These loans are often viewed as “aid” by the media, but they would not qualify as official development assistance (ODA) under OECD guidelines.

3. Multi-year versus annual. Chinese aid (and other finance) is normally provided as a

Chinese Aid in Operation5Table 3: China’s Official Government Expenditure for External Assistance 1998–2007

To Africa

RMB mil US$ mil US$ mil

1998 3,720 449 198*

1999 3,920 474 208*

2000 4,588 554 244*

2001 4,711 569 250*

2002 5,003 604 266*

2003 5,223 631 278*

2004 6,069 734 323*

2005 7,470 926 407*

2006 8,200 1,050 462*

2007 10,800* 1,421* 625*

*estimates. Africa’s share is estimated at an average of 44% of the total.

Sources: Qi (2007); Ministry of Commerce officials, Beijing, and author’s calculations.Exchange rates are end of period averages 1998–2006. International Monetary Fund, International Financial Statistics (2007). The exchange rate for 2007 is that current in July.



line of credit that can be drawn on for at least three years, and often longer. Aid from the OECD countries or the World Bank is generally reported on an annual basis.

4. Media mistakes. As noted above, reporters who are unfamiliar with Chinese currency conversions and with definitions of official development assistance sometimes make mistakes. For example, a reporter for the Financial Times described the $5 billion China Africa Development Fund as “aid” for Africa.

Notwithstanding these caveats, China is offering substantial sums of finance to African governments, whether they count as “aid” or not. We can get a sense of this from the trend of China Eximbank’s commitments to Africa.

Information on the concessional loan component of Eximbank’s funding is a state secret and only rarely are any figures released by the bank. We do know that while concessional loans were three percent of Eximbank’s outstanding loans overall, they made up 12 percent of Eximbank loans extended to Africa. As of 2005, Eximbank had funded only US$800 million worth of concessional loan projects in Africa (a cumulative total of 55 projects).23 These were generally relatively small projects. In 2006, an Eximbank official commented that Tunisia had received more concessional loans than any other African country, a total of RMB 300 million ($38 million).

Eximbank’s aid programs are therefore fairly small. On the other hand, in 2007, China Eximbank announced that it had authorized RMB 92.5 billion ($12.3 billion) in export credits and other loans to Africa between 1995 and 2006, for more than 259 projects (not all of this has been disbursed). They plan to increase this sharply, lending an average of just over $6 billion a year over the next three

23 Harry Broadman, Africa’s Silk Road: China and India’s New Economic Frontier Washington, D.C., 2007, 274.

years. These are large figures coming from a single country or agency. The World Bank committed only $4.8 billion to Africa in 2006, for example (mainly, but not all, concessional). However, these sums are not large in comparison with flows of bilateral finance coming from the OECD. In 2005 alone, OECD members committed US$30.7 billion in grants to African countries, while total public and private loan commitments from OECD members amounted to US$11.8 billion.24

B. How Effective Is Chinese Aid?

With the Asian countries it’s fast and it’s direct … Africa doesn’t have a lot of time.

—Senegalese President Abdoulaye Wade, 2006

The 2005 Paris Declaration on Aid Effectiveness emphasized commitments by donors to support developing countries’ ownership over their development strategies, better harmonization of a fragmented aid system (reducing the costs of managing multiple donors), accountability for the results of aid, and results.25 China’s approach to aid and economic engagement is attractive to recipients in part because it already meets many of these goals.

Eschewing conditionality, the Chinese do in fact respect local ownership. Their standard practice is to conclude an Economic and Technical Cooperation Agreement that is essentially a line of credit and then ask the African government to suggest projects that could be funded under the credit. The two sides go back and forth matching costs and feasibility until a list of projects is established (either “complete plant” construction projects or technical assistance). For the former, Chinese teams do feasibility studies and

24 World Bank, Global Development Finance: The Development Potential of Surging Capital Flows (Washington, D.C., 2006). 25 OECD, “Paris Declaration on Aid Effectiveness: Ownership, Harmonization, Alignment, Results and Mutual Accountability,” High Level Forum, Paris, February 28–March 2, 2005.





vullandio odo


architectural drawings, but usually submit them for approval to the relevant ministry in the African country. For the latter, Chinese teams will deliver technical assistance working beside Ministry officials in locations worked out in negotiations with the African government. In Sierra Leone in late 2007, for example, several teams of Chinese rice experts were deployed to assist in agriculture, all in locations chosen by the Sierra Leone Ministry of Agriculture.

This process is entirely outside of the aid framework established by the West. The Chinese are reluctant to participate in donor-led groups because they generally do not see aid from the West as having been very effective in reducing poverty in Africa. They believe that the West has often failed to follow through with its promises, and they know that African governments resent the many conditions imposed on aid. For their part, the Chinese emphasize that they have followed through with promises to cancel debt without demanding any conditions. Their aid is famous for being delivered quickly and inexpensively, with personnel that live modestly, in contrast to the lifestyles of aid personnel from richer countries. They do not “poach” officials from other donor projects or from governments with already weak capacity. Their project cycle does not demand the numerous meetings, workshops, and negotiations that raise transaction costs in the traditional donor system. They will ensure that the benefits of their projects continue, by returning to repair, rehabilitate or manage them. Most of the stadiums built around Africa in the 1980s have had at least one round of aid-financed renovation by now.

Chinese leaders have gone to a great deal of effort to portray their engagement with Africa as an alternative to the aid business as usual, and themselves as a legitimate example of development success. Developing country intellectuals have long pointed out that the advice given by the West and

conditions imposed on aid did not always reflect the West’s own experience as it grew wealthy. China’s emphasis on finance and investment for agriculture and industrial production, natural resource development, and infrastructure does mirror their own development experience. This gives them credibility in their role as a partner.

This simpler recipe for development also challenges the evolution of shared understandings in Europe and the United States of how aid should be used. For example, infrastructure accounted for 58 percent of the World Bank’s portfolio 30 years ago and now only 22 percent, despite the huge unmet needs for roads, ports, electricity, and sanitation. Fifty-two percent of all World Bank lending goes to human development, law, and institutional reform, under the assumption that these areas should be priorities for poor countries.26 With projects emphasizing infrastructure (government buildings, telecommunications, roads, energy), the Chinese are responding to needs articulated by African governments but which have been downplayed by donors for almost three decades.

The Chinese aid system prizes fast delivery of turnkey projects; officials are always ready to negotiate a plan for ongoing Chinese management if the African government is unable to manage a stadium or irrigated farm. On the surface, it is easier to see results in the Chinese system: a bridge is built, a water system installed. This contrasts with many projects from the West (governance or capacity building, for example) where the results are not very visible to people. At the same time, it is not at all clear to outsiders how well Chinese projects work over time, particularly the more controversial projects such as hydroelectric dams. Some critics have accused China Eximbank of

26 http://www1.worldbank.org/devoutreach/october06/article.asp?id=386



“wasting money on unsustainable projects.”27 Since evaluations (to the extent they happen) are not public, and outside experts are almost never brought in to assess impact, it is difficult to know whether or not this is in fact the case.

C. Aid-for-Resources?

Is China’s aid mainly given as a quid-pro-quo for resources? A typical concern was posed in a recent Brookings Institution policy brief: “China’s foreign aid may be driven more by its energy requirements than by the social and economic development needs of recipient countries.”28 Participants at a May 2007 Berlin meeting organized by the Stanley Foundation and the Aspen Atlantic Group complained that Chinese subsidies were part of an effort “to establish firm control over Africa’s natural resources.”29 Although it is widely believed that China mainly gives aid in exchange for natural resources, this is not actually the case. However, the confusion between official development assistance and loans that seem to be (and sometimes are) lower interest but not considered “aid,” means that aggressive Chinese companies may be able to accompany their offers of investment and bids on contracts with low-interest loans from China Eximbank that look like aid.

On the one hand, as Table 1 demonstrates, China’s official aid is much more widely distributed than would be expected if it was mainly used in exchange for resources. This is also the case for Chinese investment, which spans the continent,

27 Linden J. Ellis, Summary of “China Exim Bank in Africa,” China Environment Forum, featuring Peter Bosshard and Ali Askouri, Wilson Center, Washington, DC, March 22, 2007.28 Peter C. Evans and Erica S. Downs, “Untangling China’s Quest for Oil through State-Backed Financial Deals,” The Brookings Institution Policy Brief #154, May 2006, p. 2.29 The Stanley Foundation, “Africa at Risk or Rising? The Role of Europe, North America, and China on the Continent,” summary of a May 4–6 conference co-organized by the Stanley Founda-tion and the Aspen Atlantic Group, Berlin, Germany, Stanley Foundation, Policy Dialogue Brief, p. 8.

across all sectors, not simply in natural resources (China’s largest investment in Africa to date has been China Industrial and Commercial Bank’s purchase of 20 percent of South Africa’s Standard Bank for $5.5 billion). All the African countries enjoying diplomatic relations with China have received grants and zero-interest loans in recent years. Chinese officials point to this as a contrast between their aid approach and that of the international aid system, where some countries are more favored by donors.

On the other hand, China has made offers of large loans and announced large investments in resource-rich countries: Angola, Sudan, DR Congo, and Nigeria. Some are linked to repayment in resources, others are backed by resources as collateral. South Korea has a similar approach, and India and Malaysia have made similar offers in resource-rich countries. Indeed, as noted above, 25 years ago when China was only attractive as a market for exports and a source of raw materials and lucrative infrastructure contracts, Tokyo made similarly large loan offers to Beijing with repayment in oil. Are these government loans “aid”?

Three points are important here. First, many, perhaps even most, of the large loans mentioned in the press are not below market rates of interest.30 Loans to the large, resource-rich countries appear less likely to be very concessional (interest rates for large Chinese loans to Angola have ranged as high as 6.6 percent). Second, the large resource-backed loans do not come from the foreign aid budget, and Chinese officials do not classify them as “official development assistance,” but

30 For example, although the media repeatedly described a very large loan granted to Angola in 2004 as having been made at an interest rate of 1.5 percent, the loan was in fact made at LIBOR (London Interbank Offered Rate) plus 1.5 percent. Indira Cam-pos and Alex Vines, “Angola and China: A Pragmatic Partner-ship,” working paper presented at a CSIS Conference, “Prospects for Improving U.S.–China–Africa Cooperation,” December 5, 2007 (March 2008), p. 6.





vullandio odo


rather commercial transactions. Finally, whether concessional or not, offering loans with resources as collateral allows development to be accelerated in countries with risky credit histories, but without the electricity, potable water or roads that would attract investment. As Paul Fortin, the French CEO of DR Congo’s state-owned mining company Gécamines commented when a similar Chinese package was arranged for Congo in early 2008, “Congo doesn’t have to wait for its infrastructure until it has the money. Building starts immediately with the natural resources as guarantee.” Unaware that Japan and other countries concluded similar countertrade deals in China two decades earlier, he continued, “Except in oil-rich states, I know of no other deal quite like this.”31

31 John Vandaele, “China Outdoes Europeans in Congo,” Inter Press Service (Johannesburg), February 8, 2008.

Interestingly, NGOs have long criticized structural adjustment programs for similar (if less direct) dynamics.32 In exchange for loans from the World Bank and the IMF, African governments were required to privatize their state-owned natural resource companies and open their economies to foreign direct investment, generally from the West. To repay the loans, they needed to export their natural resources, again generally to the West. The Chinese system forges a direct connection between the loans and the resource exports. However, the end result may not be very different.

32 Michelle Chan-Fishel and Roxanne Lawson, “Quid Pro Quo? China’s Investment-for-Resource Swaps in Africa,” Development (2007) 50, 63–68.



Transatlantic policymakers are concerned about a number of issues that seem to be connected to China’s rise as a provider of aid and development finance in Africa. The norms governing aid and finance have been changing in the West, and practices that are common in Chinese lending are no longer accepted or under attack in Europe and the United States. China’s mix of state and business also creates dilemmas for policy makers in countries where business activities overseas are not so heavily subsidized and where issues of a government’s direct responsibility for the behavior of its national firms are not so easily raised. This section reviews five issues linked to Chinese aid: subsidized export credits and tied aid, governance and corruption, rogue regimes, environment and social standards, and debt sustainability.

A. Tied Aid and Subsidized Export Credits

China’s 2006 announcement that its Eximbank would provide Africa with $5 billion in preferential loans and preferential export buyers credits heightened transatlantic concerns about China’s subsidized export credits and tied aid. Europe, the United States, Canada, and Japan used to regularly fight low intensity trade battles with each other using heavily subsidized export credits (these were generally not counted as aid) or mixing aid with other kinds of credits. To placate taxpayers, donors also usually tied their aid to goods and services provided by their nationals, although studies routinely showed that tied aid distorts trade and can lead to higher costs for developing countries who are unable to choose the most cost-effective suppliers.

OECD members have moved to reduce both areas of concessional finance, leveling the playing field and, in theory, increasing the effectiveness of aid. Under the 1992 Helsinki Arrangement, a set of rules on the provision of tied aid, part of the Arrangement on Officially Supported Export Credits, concessional export credits from OECD

governments were limited to projects that are not commercially viable.33 In 2001, the OECD Development Assistance Committee agreed to recommend that all official development assistance be untied except food aid and technical assistance.

As Chinese companies ratchet up the competition for projects in Africa, European and American companies believe that their low bid prices are influenced by the preferential loans available from China Eximbank. In many instances Chinese companies are simply more competitive: their profit margins are slim, and many have been working in Africa for decades and know their market well. However, although the non-transparency of most commercial and quasi-commercial contracts makes it difficult to find out the financing terms, it is clear that preferential loans are easily available to companies exporting higher end Chinese equipment and services, such as telecoms.

MOFCOM’s aid is generally tied to Chinese goods and services or local costs, although permission can be granted for Chinese project managers to use loan funds to order equipment or machinery from a third country. China Eximbank’s concessional official development assistance loans are tied, although not completely. Their website states that:

Chinese enterprises should be selected as •contractor/exporter

Equipments, materials, technology or services •needed for the project should be procured from China ahead of other countries. In principle, no less than 50 percent of the procurements shall come from China.

OECD members have made much progress in eliminating subsidized export credits and reducing tied aid since their first historic agreement in

33 An exception can be made for financially viable projects in the least developed countries if access to commercial finance is not available.

Chinese Aid: Issues for Transatlantic Policymakers6





vullandio odo


1978. Yet it has been difficult to move the West away from the politically comfortable practice where governments use aid in part to promote their national firms. Although today 54 percent of all OECD aid is tied, this progress is very recent. In 2001, for example, the OECD reported that 92 percent of Italy’s official development aid was tied, and 68 percent of Canada’s. The Chinese believe that companies in wealthier countries got a head start in global business with assistance like subsidized export credits from their governments. Now that Chinese firms are poised to become global players, they are being judged by a new set of rules—rules they had no part in crafting. For its part, the OECD has welcomed China to attend its meetings on export credits as a formal observer, while its members warn that they may adjust their rules to enable the West to compete with China on more equitable terms.

B. Governance and Corruption

China has given aid to South Africa, Mauritius, Cape Verde, and Botswana: Africa’s best-governed countries. But it has also partnered with Chad, Equatorial Guinea, and the Democratic Republic of Congo, countries ranked by Transparency International as some of Africa’s most corrupt. And China imposes no governance conditionalities. A recent Transparency International study found that only Indian companies are believed to be more corrupt than Chinese companies abroad. Many on both sides of the Atlantic fear that China’s aid (and non-aid finance) presents a threat to efforts to improve governance and reduce corruption in Africa.

On the other hand, the long standing Chinese record of non-interference in political matters is welcomed in many parts of Africa as a contrast to decades of aid based on economic and political conditionality. Sierra Leone’s ambassador to China, Sahr Johnny, reflected the view of many when he said, “The Chinese are doing more than the G8 to

make poverty history … They don’t hold meetings about environmental impact assessment, human rights, bad governance, and good governance. I’m not saying that it’s right, just that Chinese investment is succeeding because they don’t set high benchmarks.”34

Chinese views are on corruption are shaped by their experience at home. Corruption is widespread in China and other Asian countries such as South Korea, yet it hasn’t derailed economic development. Imposing economic sanctions or conditionality to combat corruption is seen as harmful to Africans because it hurts their opportunities for growth. Li Rougu, president of China Eximbank, stated his views bluntly at the 2007 meeting of the World Economic Forum in South Africa: “We spend most of the time discussing issues such as transparency and good governance. And that would not help because they are part of a development process. I do not think that Britain was as transparent as it is today some 200 years ago, let alone the United States hundred years ago.”

However, China does work to avoid problems with corruption in their aid, particularly when it might affect repayment of Chinese loans. Seventy-nine percent of China Eximbank loans in Africa are given for government infrastructure investments, a sector notorious for corruption in most countries. To reduce corruption, monitor implementation, and help ensure the repayment of the loan, Chinese loans (whether MOFCOM or Eximbank) are not disbursed to the borrowing government. This contrasts with policies at financial institutions like the World Bank, which does disburse funds directly to governments. In the Chinese system, the funds are held in Beijing until a Chinese company requests payment for goods or services by submitting an invoice and a

34 Lindsey Hilsum, “We Love China,” http://www.granta.com/extracts/2616, June 2005.



progress report to the borrowing government. The borrowing government authorizes the payment, and Eximbank pays the Chinese company directly. Corruption can still enter in, but the opportunities will be fewer. Chinese contractors could pad their expenses. They might provide kickbacks or collude on the submission of invoices. But keeping the money in China minimizes the opportunities for wholesale disappearance of money that are possible when banks disburse loan money directly to the government.

C. Governance and “Rogue Regimes”

We don’t believe in embargoes—that just means that the people suffer. From a practical consideration, embargoes and sanctions can’t solve problems, just like armed invasion cannot solve problems. — Liu Guijin, Chinese Special Envoy to Africa

and Sudan

A second governance concern shared across the Atlantic is the financial lifeline extended by China to “rogue regimes” that otherwise might bend to increased pressure from sanctions and conditionality. Because of its support for janjaweed militias that have massacred entire villages in the Darfur rebellion, Sudan is perhaps the most controversial of these regimes. Since 1996/97, U.S. companies have been barred from financial transactions, loans, and trade with Sudan, when the country was listed as a sponsor of terrorism (U.S. company Marathon Oil retains exploration rights in a concession in southern Sudan). Most other large Western firms have left the Sudan oilfields, although several remain in other large projects, including Lahmeyer International and Siemens of Germany, France’s Alstom, and ABB of Switzerland. A Canadian mining company, La Mancha Resources, is the main foreign player in Sudan’s non-oil minerals and mining.

Aid in the traditional sense is not a significant factor here. China has given relatively little ODA to

Sudan, although there have been several large non-concessional loans, and humanitarian assistance to Darfur. However, it has supported Khartoum in many other ways, including diplomatically, by enabling Khartoum to drag its feet in allowing foreign troops to help police Darfur. For years China blocked sanctions at the United Nations, and, along with other countries such as Malaysia and India, provided considerable investment. It has purchased the bulk of Sudanese oil and sold the country arms.

Years of activism failed to change China’s support for Khartoum and its policy of non-intervention. This began to change in 2007. In March, China’s main planning agency, the National Development and Reform Commission, dropped Sudan from the list of target countries for new investment by Chinese oil and gas companies, a move regarded as significant by Chinese observers.35 China appointed a special envoy for Africa and Sudan, and successfully persuaded Khartoum to allow UN peacekeepers into Darfur in late 2007.36 “China in my view has been very cooperative,’’ Andrew S. Natsios, the former special envoy of President Bush to Sudan, said in February 2008. ‘’The level of coordination and cooperation has been improving each month.’’37 Yet Chinese policy has consistently opposed economic sanctions.

Chinese ODA to troubled Zimbabwe has also been relatively limited, with loans on concessional terms and grants for food aid, some equipment, and the renovation of the stadium built by

35 Richard McGregor, “Iran, Sudan and Nigeria off China Incen-tive List,” Financial Times, March 2, 2007.36 Erica Downs China Security, n. 63 writes that China is “re-thinking a five decade old policy of non-interference.” In support of this, Downs cites an article by Linda Jakobson, “The Burden of ‘non-interference,’” China Economic Quarterly, Quarter 2 (2007), pp. 14–18.37 Lydia Polgreen, “China, in New Role, Uses Ties to Press Sudan on Troubled Darfur,” The New York Times, February 23, 2008; see also Chris Buckley, “China urges Sudan to seek Com-promise in Darfur,” Reuters, March 7, 2008.





vullandio odo


Chinese aid in 1987, probably amounting to less than $30 million between 2000–06. But again, as with Sudan, China’s investments and other forms of economic engagement were of some help in keeping Mugabe in power, despite the collapse of much of the economy. In 2007, the Chinese leadership appeared to be debating its involvement in Zimbabwe: reports that aid would be limited to humanitarian assistance circulated in September. The Chinese embassy in Harare denied these reports, announcing plans to build an agriculture technology demonstration center, two primary schools, and a hospital. But within weeks, China’s special envoy to Africa Liu Guijin repeated that China would indeed limit its aid. In the midst of this, China Development Bank provided what was probably non-concessional finance to develop three projects: the Victoria Falls Airport (a project South Africa was also considering financing), a tobacco enterprise, and a chromium mine.

D. Environment and Social Standards

Funding for dams, tropical hardwood timber projects, and mining all pose risks for the environment in Africa. The lack of transparency on concessional (and non-concessional) loans makes it difficult to trace official connections between the Chinese government and some of the projects with the worst environmental impact: illegal harvesting of old-growth timber or illegal fishing. But Chinese banks have clearly funded a number of controversial projects in other sectors, some on concessional terms that could potentially qualify as aid.38 Chinese companies are involved in dozens of controversial dam projects across Africa, including the notorious Merowe Dam in Sudan. Africans have criticized the Chinese practice of shipping in Chinese labor to

38 For two excellent overviews, see Peter Bosshard, “China Ex-imbank’s Role in Financing Infrastructure in Africa,” May 2007, http://internationalrivers.org/files/ChinaEximBankAfrica.pdf, and Michelle Chan-Fishell, “Time to Go Green: Environmental Responsibility in the Chinese Banking Sector,” Friends of the Earth/Bank Track, May 2007.

work on aid projects, while poor safety standards and labor practices periodically spark protests on both aid and non-aid investment projects.

As the World Bank found in an earlier era, local governments in developing countries often ignored requirements to consult and compensate project-affected people, and failed to resettle them in adequate new homes and villages. The Bretton Woods institutions, OECD export credit agencies, and almost 50 commercial banks active overseas have now negotiated rules and norms for environmental and social appraisals of potential projects. Almost 60 international banks have adopted the voluntary “Equator Principles” for environmental and social assessment, monitoring, and mitigation. Although one Chinese bank (Fujian-based Industrial Bank) has declared it will implement the Equator Principles, the main Chinese banks have largely been outside this process (indeed, only a handful of banks from developing countries have adopted the Equator Principles). European Investment Bank president Philippe Maystadt famously told the Financial Times that Chinese banks had “snatched projects from under the EIB’s nose,” with their lack of conditions on labor standards and environmental protections.

Much as the World Bank used to do, the Chinese have generally failed to intervene to raise the environmental and social standards applied locally, considering this a matter for the borrowing government. At present, it is local standards and rules on environmental protection that are likely to be operative in any given Chinese project. Recently, Chinese ambassadors overseas and the president of China’s Eximbank have pushed Chinese companies to employ more local labor, and to respect local laws. Chinese banks could do more, perhaps, by requiring companies seeking financing to provide plans for localization of labor.



E. Debt Sustainability

Europe has tried to end Africa’s debt in the past and will not do the same with Chinese debt. … We hope China takes that into account. — João Cravinho, secretary of state for foreign

affairs, Portugal, and president of the EU, 2007

Headlines such as “China loans create ‘new wave of Africa debt’,” and “EU will not cover Chinese loans to Africa,” reflect a transatlantic concern that Chinese loans will reignite a debt crisis in African countries only now emerging from extensive debt write-offs. The lack of transparency on Chinese aid and lending fuels reasonable fears that the high figures mentioned in the media are creating a veritable Everest of debt that would be impossible to service. Many in the traditional donor countries also believe that Chinese lending will be “free-riding” on the back of debt relief paid for by wealthier countries. As their parliaments appropriate funds to repay African countries’ debts for them, those same countries might be freed to take out, and actually repay, new loans from China.

The evidence on new debt in Africa’s poorest countries is not robust, and that on new debt from non-traditional donors (Russia, China, India, South Korea) is particularly poor. The available information suggests that Chinese loans closely

fit a country’s ability to repay.39 The larger, less concessional loans are made to countries like Angola, Congo, Nigeria, and Sudan, all with rich deposits of natural resources that can serve as collateral for loans. Smaller, poorer countries, such as Togo, Mali, Guinea, and Burundi, tend to receive grants and zero-interest loans.

In keeping with this, China Eximbank president Li Ruoguo has argued that his bank takes debt sustainability into account when making loans, but he has also emphasized that his bank’s lending is based on development sustainability. Countries whose balance sheets may not look good sometimes have untapped capacity to service future debt, if borrowing goes for productive projects, such as electricity, or an export-oriented investment. Eximbank figures this future capacity into its lending decisions. Currently, the major IFIs do not. An OECD study pointed out that, in Angola and Sudan, Chinese investment and the higher prices stimulated by China’s demand for raw materials has considerably improved debt-distress indicators in both countries.40 Critics have also pointed out that the traditional donors have not honored their pledges to provide more aid, and the large financing gap has enhanced the attractiveness of Chinese loans.

39 Helmut Reisen and Sokhna Ndoye, “Prudent versus Impru-dent Lending to Africa: from Debt Relief to Emerging Lenders,” OECD Development Centre Discussion Paper No. 268, January 2008.40 Reisen and Ndoye (2008), p. 30.





vullandio odo


Instead of finger pointing at China—I think it would be better to bring them in. I’m sure they have their own position, so engage them. — Donald Kaberuka, President, African

Development Bank, May 17, 2007

China’s rise in Africa is cause for some concern, but it need not evoke the level of alarm and fear raised by some who have condemned China’s aid as destabilizing, bad for governance, and unlikely to help Africa end poverty. China’s aid is not enormous, and though growing, will continue to be well below levels offered collectively by OECD members. Understanding how China’s aid system works, how aid relates to China’s foreign policy and business goals, and how aid is evolving can provide transatlantic stakeholders with a better grounding for engaging China and Africa over areas of mutual concern. Three areas stand out as key:

A. Aid Effectiveness

Europe and the United States committed to make their aid more effective through the OECD’s Paris Declaration. The Chinese also care about the effectiveness of their aid, and are proud of a long record of support for useful projects that responded to African leaders’ requests. When infrastructure went out of fashion in the West, China continued to believe that ending poverty required building roads and bridges, providing electricity to rural areas, and boosting agriculture and industry. At the same time, they also built conference halls, ministry buildings, and stadiums, the urban infrastructure requested most often by African governments. They argued that it was wrong to impose economic conditionality in exchange for aid and that countries should be free to find their own pathway out of poverty. Mainstream economists in the West today are also questioning the value of the economic conditions imposed on aid over the past few decades.

Yet not all Chinese projects have worked well. When their technicians left, the school buildings and clinics they built sometimes remained empty. Irrigation schemes were frequently not well-maintained, and industrial projects mismanaged. People were rarely consulted about the changes being brought to their communities, and some objected. Hu Jintao’s pledge to rapidly double aid has increased the risk of problems. The West is no stranger to problem projects. Exchanging views, rather than lectures, on lessons learned and approaches to aid and cooperation could lead to useful engagement.

How might this be done? The Chinese do not see themselves primarily as “donors,” preferring the language of “cooperation” and “partnership.” Although Chinese officials have come to some donor group meetings in some countries, they are reluctant to participate actively in the donor-driven institutions that have been set up in most low income countries to coordinate and harmonize aid activities. They fully realize that their commitment to non-interference is a comparative advantage in dealing with most governments, and they are reluctant to join donor groups that are still comfortable using conditionality. Cooperation is more likely to happen in a multilateral arena, or on a regional or sectoral level. The Africa Development Bank’s Infrastructure Consortium for Africa, the Food and Agriculture Organization’s South-South Cooperation program, and regional malaria initiatives are all areas that show promise.

Finally, the West could move to engage China as a partner in supporting African business. A 2006 OECD study on donor support for private investment in developing countries argued that donors “need to change the way they do business” and adopt “an appropriate range of aid instruments … to strengthen the capacities of local firms:

Engaging China7



to respond to new investment opportunities, •including those created through stronger international trade and investment linkages, and

to enter into business relationships with foreign •investors and to expand downstream and upstream linkages.” 41

The innovative, firm-led special economic zones China is establishing in Africa offer real potential to meet these goals, while helping to fill Africa’s deep need for employment opportunities. Cooperation to help African companies take advantage of this opportunity or the promise of joint ventures in the China–Africa Development fund, may also be fruitful.

B. Standards in the Business of Aid

The global move toward corporate environmental and social responsibility has reached China. Both China Eximbank and China Development Bank have recently published their environmental standards for loans, and both have engaged with the World Bank’s International Finance Corporation to receive training on the Equator Principles and on social and environmental responsibility standards. In August 2007, China’s State Forestry Administration and MOFCOM released guidelines that Chinese logging companies are expected to use abroad; these include an emphasis on consulting and compensating local communities. We can expect other sectoral guidelines to be developed.

Joint ventures that provide incentives to transfer norms as well as technology and skills are one way that change can be accelerated. Chinese companies have already joined European companies in some joint tenders for aid-financed projects: the World Bank-funded Songo Songo pipeline project in

41 OECD, “Promoting Private Investment for Development: the Role of ODA,” Paris, DAC Guidelines and Reference Series, 2006 pp. 9, 17.

Tanzania, for example. More than 50 Chinese companies have won competitive tenders for World Bank-funded projects. Here they learn, and are required to play by, the Bank’s rules on the environment and social impact. Agreements signed in 2007 between Chinese banks and the World Bank and the IFC to develop joint projects should be useful for norm transfer. As China’s state-owned companies move to develop global reputations, they will learn that corporate social responsibility will help them avoid expensive reputational risks.

C. Looking In the Mirror

The United States and Europe should continue to engage China as a “responsible stakeholder” in the area of aid, but at the same time the West has work to do to boost its own credibility as Africa’s development partners. Following through with aid pledges made in support of the Millennium Development Goals would help, as would continuing to untie aid and to be transparent about tied aid. As the Washington-based Center for Global Development reports in its annual Commitment to Development Index, several OECD countries (France, the United Kingdom, the United States, and Belgium) continue to profit from arms sales to undemocratic, militaristic governments in Africa. A shared commitment to eliminate these sales would do much to make similar demands of China more credible. And despite oft-expressed concerns about China’s impact on governance in Africa, a number of OECD members continue to support African regimes of questionable character. France has intervened militarily to support the Chadian government against its rebels. Spain is the largest aid donor to the brutal and corrupt regime of Obiang Nguema in Equatorial Guinea. The OECD has yet to develop shared guidelines for aid in situations like these.





vullandio odo


At first glance, the nervous handwringing that has surrounded the debate on China in Africa to date seems unwarranted. — Overseas Development Institute (U.K.)

Annual Report 2007

Chinese aid has a very long history in Africa. This gives China legitimacy and credibility in its current relationships on the continent. But Chinese aid has evolved differently from aid in the West. MOFCOM’s Department of Aid to Foreign Countries and Chinese universities and institutes have been isolated from the extensive research on aid effectiveness in the West, and they have formed independent judgments about the ways to ensure sustainability of their aid investments. China’s aid emphasizes local ownership, and at the same time, reflects China’s own development experience. China has successfully reduced poverty at home, and some of the lessons of China’s own experience are being transferred through their aid.

Many of the fears about China’s official development assistance are misinformed. The evidence suggests that it is not enormous, it is not primarily used in resource swaps, and it is not even a prominent feature of China’s relationship with Sudan or Zimbabwe (investment is far more important in both). On the other hand, China’s aid and state-subsidized loans are bundled into a non-transparent system that violates many of the norms current in the OECD. Unlike most of the West (but similar to Japan), the Chinese government uses all the tools of a developmental state, including aid, to support its goals in Africa. While Western donors have moved to separate aid from business, China only recently began to link the two, and perceives itself to be playing

catch up behind the advanced industrial countries whose economic stake in Africa is much deeper. Perhaps most frustratingly for the West, China is not transparent about its aid figures, and this inevitably fuels uninformed media speculation, rumor, and concern.

Much is changing in China. Aid policy is being rethought, as China’s policy makers rapidly move up the learning curve. Domestic pressures for environmental protection are growing in China, and may soon help to shape China’s global engagements. China has begun to show sensitivity to pressures from outside on Darfur and perhaps on Zimbabwe. Their understanding of what “non-intervention” means has evolved in the past, and is certain to continue to evolve. Transatlantic partners can best engage China by offering to share experiences on what has and has not worked in our own aid. Some humility is in order, as the West has no sure recipe for development assistance, and our own record in Africa is far from perfect. Steady invitations to Chinese officials to participate in regional and multilateral meetings and workshops on aid and development will help build a cadre of people in China who can more critically analyze the effectiveness of aid and other forms of economic engagement. Strengthening the ability of African governments to critically appraise finance and investment proposals would also be useful. Above all, keep in mind that China’s ultimate goals for aid in Africa are not so different from ours. They, too, want to use aid to help countries develop their people and their assets so that they can be better trading partners, hosts for investment, and stable, prosperous members of a peaceful global community.

Toward New Partnerships8

O f f i c e sWashington • Berlin • Bratislava • Paris

Brussels • Belgrade • Ankara • Bucharest

www.gmfus.org

china’s african aid transatlantic challenges

Government & Nonprofit

united states gmf

aid effectiveness

foreign aid

chinese aid system

todouble chinas aid

gmfthe german marshall

united states program

united statesapril