How Effective Is China’s Foreign Aid?

China’s growing contributions to foreign development aid in Africa, Asia, and Latin America have been the subject of much consternation in U.S. policy circles. Seen by some as a soft power threat to Western development institutions, by others as a malign effort to exercise political control by ensnaring countries into debt traps, and by others still as a simple economic calculation to chase new markets, Beijing’s overseas spending sprees remain a source of fevered debate, with little consensus on their motivation and actual effect.

A new study from the College of William and Mary’s AidData research lab offers the most comprehensive look at the issue yet. As the Washington Post summarizes, it’s a study that confirms some prevailing narratives and confounds others:

AidData’s research offers a picture of a rising financial giant that is challenging even the biggest donor nations. China provided $354.4 billion in official funding around the world between 2000 and 2014 — not far off the amount spent by the United States in the same period, $394.6 billion. In some counties, the two nations looked like competitors, with China sometimes usurping the United States to become the preeminent donor.

The research also turns some widespread assumptions about Chinese foreign assistance on their heads. In a previously released project, AidData was able to show when you look at Chinese aid that matches the strict, internationally agreed-upon definition — official development assistance, also known as ODA — it does not appear to be motivated by acquiring natural resources or propping up Beijing-friendly authoritarians. […]

AidData’s research also shows the lions share’s of China’s global development spending is not official aid but rather distributed via “other official flows,” or OOF. This bracket of funding includes huge deals, like the enormous loans given to Russian oil companies in 2009, in which the motivation is clearly commercial.

This distinction between official development assistance (ODA) and other official flows (OOF) is a crucial one. Roughly a quarter of China’s aid falls into the former camp: development assistance that is broadly in line with Western financing standards, and which has spurred growth rates that match those of World Bank or OECD-financed projects. According to AidData, the top recipients for that assistance include Cuba, Cote d’Ivoire, Ethiopia, and Zimbabwe. While China may be targeting such countries for political reasons (to curry favor in Africa, for instance), the new study actually shows little evidence that such aid disproportionately creates boondoggles.

But the vast majority of China’s foreign aid falls into the OOF category: Chinese-financed projects that come with lucrative commercial sweeteners for Beijing. As Evan Ellis puts it to the Wall Street Journal, “The Chinese don’t just give loans… They are almost all tied to using Chinese companies as subcontractors.” These sorts of projects are widely seen as external outlets for China’s excess industrial capacity and self-serving business opportunities for Beijing, rather than good-faith efforts to spur development in partner countries. The new research offers no reason to dispute that assessment.

That doesn’t mean that all these projects are wise investments, though. Among the top 10 recipients of Chinese aid here are Pakistan, the troublesome lynchpin of Xi Jingping’s Belt and Road Initiative, and Venezuela, where China has been struggling to collect its debts.

The new study does not directly focus on the political effects of all this aid, whether China’s money can effectively “buy” soft power or political favors within the countries it is targeting. There is certainly some anecdotal evidence to suggest so: Cambodia, for instance, is one of the top recipients of Chinese ODA, and has in recent years become a reliable proxy for Beijing in institutions like ASEAN. And an earlier AidData study showed that African countries who voted in China’s favor at the UN enjoyed a statistically significant bump in financing from Beijing.

It’s not clear, however, whether correlation is causation in this instance. And the broader evidence is mixed when it comes to the effects of Chinese aid on winning foreign hearts and minds. Ghana, for instance, is the 10th largest recipient of Chinese ODA, a country where China enjoyed 80% favorability as recently as 2015. By this year, however, that number had , amid a controversy over China’s illegal gold mining practices. It’s a telling indication of how China’s transactional foreign partnerships can buy temporary goodwill, but go south quickly and attract major local opposition.

Ultimately, there is no single rubric that can neatly explain or predict the effects of China’s money flows. The data here fits several narratives partially but none completely; Chinese development projects are neither invariably white elephants nor strokes of strategic genius that will permanently tie debtors’ fates to Beijing’s.

What is certain is that as Xi Jinping’s Belt and Road Initiative ramps up and the United States scales down its foreign aid commitments, much more money will be flowing from China’s coffers in the years to come.

The post How Effective Is China’s Foreign Aid? appeared first on The American Interest.