This month, Chinese President Xi Jinping announced a new package of aid and loans to more than 50 African leaders visiting Beijing for the Seventh Forum on China-Africa Cooperation (FOCAC). Much of the domestic and international reaction has fixated on the $60 billion price tag.
Yes, $60 billion seems like a lot of money — but it’s about 0.49 percent of China’s gross domestic product, which is below the 0.7 percent target that OECD countries have set for development aid. Furthermore, closer examination of the figures reveals that only a portion of the $60 billion may qualify as official “development assistance,” as defined by the OECD.
There’s another important dimension of this aid package. This featured prominently in Xi’s keynote speech, when he stressed that China’s aid and loan to Africa will not “come with any political conditions attached.” This promise of unconditional aid is in contrast to most aid from traditional donors — who usually require the recipient to undergo changes in governance structure and adhere to international “best practices.”
To be sure, China’s aid and development financing do come with other strings that are tied in with Beijing’s commercial interests or foreign-policy objectives, such as upholding the “one China” policy. But the absence of political conditions makes this aid more attractive to countries that struggle with fulfilling requirements such as reducing corruption and increasing accountability.
What are the consequences of China’s “no political strings attached” aid for traditional donors?
Conditionality is difficult to enforce when there are multiple donors
Aid conditionality is particularly difficult to enforce when there are multiple donors with competing priorities. This was the case during the Cold War, when the United States and Soviet Union gave aid to “strengthen corrupt but geopolitically useful autocracies.” With the end of the Cold War, Western donors were able to commit more credibly to using conditionality to push for governance changes.
China’s rise as a major donor and investor in Africa has led to renewed competition in the continent. The European Union, for example, launched the Africa-E.U. Strategic Partnership in 2007 and pledged to mobilize more than $54 billion in sustainable investment for Africa by 2020. In July 2018, the U.S. Congress passed the Better Utilization of Investments Leading to Development Act to compete with China’s growing presence in Africa.
A consequence of this competition is that countries unwilling or unable to implement the political changes required by traditional donors may turn to China as an alternative source of funding. This may lead to a delay in changes that improve the quality of governance in these countries.
Nevertheless, competition between China and the West is not, by definition, a bad thing for Africa. African leaders, for example, welcome China’s increased role in the continent, reporting that “competition between donors has had positive consequences for African development” by giving African countries “options after several decades of a largely Western development model.”
What comes first, good governance or development?
One question to ask is whether good governance leads to economic development. This is one of the underlying assumptions of making aid conditional. Some scholars suggest the causal arrow may actually be reversed — that is, some initial level of economic development is needed to enable institutions of good governance to generate further growth and development. In fact, China’s own development trajectory demonstrates that the relationship between governance and growth cannot be simplified as a “chicken-or-egg” issue.
Recent evidence shows that China can help countries such as Kenya and Ethiopia realize such initial growth through investment and industrialization. A study based on extensive fieldwork in Africa similarly concludes that “China’s growing involvement is strongly positive for Africa’s economies, governments, and workers.” On a broader scale, scholars have found that Chinese-funded infrastructure projects result in increased economic activities and reduced inequality.
The bottom line is that there is nothing inherently good or bad about China’s aid and investment, though the “no political strings attached” approach means that the potential benefits can more easily be compromised by corruption and local politics. Researchers at AidData, for instance, find that Chinese development finance projects tend to be more concentrated in birth regions of African leaders and politicians — rather than regions that are the most in need.
China could coordinate with traditional donors to promote development
There has been some pushback from within China, calling for the restructuring of its aid regime. This has led to the promulgation of the new Measures for the Administration of Foreign Aid in 2015 and the establishment of the State International Development Cooperation Agency this year.
Recent public outcry in China over the $60 billion package further suggests that Beijing may face more domestic scrutiny over its aid policies, particularly in light of concerns about an economic slowdown and the ongoing trade war with the United States.
The bigger pressure, however, will probably come from the risk of defaults in countries that receive billions of dollars from China. Such risks have reportedly prompted Beijing to reconsider its development finance strategies.
This points to opportunities for more coordinated efforts for China and traditional donors to each focus on what they do best — building infrastructure and institutions at the same time. This type of cooperation potentially can amplify the benefits for local communities in Africa. The recently signed memorandum of cooperation between the Asian Infrastructure Investment Bank and the African Development Bank would be a step toward this goal.