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How 'rogue' is China’s aid?

- June 10, 2014

Chinese President Hu Jintao, center, walks past delegates as he prepares to deliver an opening speech for the 5th Ministerial Conference of the Forum on China-Africa Cooperation in Beijing, China on July 19, 2012. (Andy Wong/AP)
In May Chinese Premier Li Keqiang pledged $12 billion in new development assistance to African governments and promised technology transfers to make high-speed rail a reality on the continent. His pledge reflects China’s rise to the status of major player in global development finance, with annual development assistance equaling or surpassing aid from the United States, the biggest player in the aid game. In addition, China has had a meteoric rise as an international trader and source of foreign direct investment (FDI).
These trends could be heralded as good news. Trade and financial integration tends to pacify relations between states, creating vested interests that prefer peace to war. As Dartmouth’s Stephen Brooks argues, the rise of global supply and production networks only enhances these tendencies.
Other observers are more skeptical, if not contemptuous. Moisés Naím has called Chinese development assistance “rogue aid,” claiming that it is nondemocratic and harmful to progress and to average citizens. To Stefan Halper, China’s economic rise is “marginalizing the values that have informed Western progress for 300 years.”
These concerns arise from what some call the “Beijing Consensus,” an alternative to the market-oriented logic of the Washington Consensus. The most benign aspect of the “Beijing Consensus” is that China ignores democratic institutions and practices in its investment and aid decisions, focusing exclusively on securing natural resources. Dambisa Moyo likens China to “a 19th century colonial power” determined to exploit resources “to meet its ambitions.” The 21st century commodity boom, in which real prices for most globally traded commodities have more than doubled, has produced a gold rush-like frenzy of investment in exploration by China and other major economies, much of it in parts of Africa plagued by internal political conflicts.
But the Beijing Consensus also points to an illiberal, antidemocratic bent in China’s investment and development assistance, according to other critics. Halper, for example, argues that China prefers to invest in nondemocratic countries and seeks to subvert post-war global governance institutions like the United Nations, the IMF, and the WTO. “China cannot be housebroken,” he says. “It marches to its own drummer.”
These characterizations have not been subjected to rigorous empirical analysis. Are China’s 21st century investment, aid, and security ties disproportionately to nondemocratic countries, reflecting an affinity for authoritarian governments, or does China’s interest in natural resource wealth undermine democratic institutions?
In our recent book, we show some resource-seeking bias in Chinese outward foreign direct investment (OFDI), development assistance, and arms transfers. But this link is not terribly strong or inconsistent with patterns of the US or other major powers.
Some studies putting Chinese OFDI in extractive industries like metals, coal, oil and natural gas at 73.5 percent of all flows at the regional level. Others show Chinese OFDI to be disproportionately targeted toward states with larger natural resource endowments and weaker rule of law. But these correlations do not imply nefarious intent or preference for corrupt environments. The Chinese are relative latecomers and many of the new discoveries that haven’t already been sewn up by Western producers are in states with weak rule of law.  Western companies are discouraged from operating in these environments by the Foreign Corrupt Practices Act and Dodd Frank’s Section 1502 rule on conflict minerals, so the upshot is that Chinese producers gravitate toward these relatively undercapitalized markets.
As for aid flows, new data on Chinese activity in Africa suggests, that it appears to be resource motivated. The top 10 recipient countries account for 50 percent of the region’s natural capital and 41 percent of the region’s population but receive 67 percent of Chinese aid. Multivariate statistical models that include proxies for need (population, level of development) and Chinese preferences (i.e., diplomatic recognition of Taiwan) indicate only modest evidence of a resource seeking bent in Chinese development assistance, however. They suggest that the primary drivers of aid are population – more populous countries get more aid – and non-recognition of Taiwan. These findings are consistent with those of Axel Dreher and Andreas Fuchs, who find little evidence of a resource-seeking bias in Chinese aid.
China has pursued a policy of self-sufficiency in arms production. But between 1990-2011, its military transfers, excluding small arms, were comparable to those of the Netherlands, an economy 1/16th its size. The evidence of a resource-seeking bias in China’s arms transfers is weak. By contrast, the evidence is stronger of a resource-seeking bias in the United States’ arms transfers to Africa, a finding similar to Indra de Soysa’s and Paul Midford’s conclusion that Chinese arms transfers to Africa are more likely than US transfers to go to democrats and less likely to go to countries with human rights abuses.
China is hardly unique in shaping its foreign policy around natural resource needs, especially energy. After World War II, the US worried about the foreign policy implications of dependence on oil imports and has evolved policies to military aid and assistance — including troops — to protect Middle Eastern oil producers from Communist aggression or influence. In conclusion, the resource-seeking hypothesis holds for Chinese FDI and, to a lesser extent, development assistance. Arms transfers are not as driven by resource wealth as conventional wisdom would suggest.
Cullen Hendrix is assistant professor at the Josef Korbel School of International Studies at the University of Denver and nonresident senior fellow at the Peterson Institute for International Economics. Marcus Noland is executive vice president and director of studies at the Peterson Institute for International Economics. They are the authors of Confronting the Curse: The Economics and Geopolitics of Natural Resource Governance.