CityReads│Where has China’s Aid Gone?

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Where has China's Aid Gone? 

A new dataset tracks China's global development footprint.

Dreher, A., Fuchs, A., Parks, B.C., Strange, A. M., & Tierney, M. J. (2017). Aid, China, and Growth: Evidence from a New Global Development Finance Dataset. AidData Working Paper #46. Williamsburg, VA: AidData.

Source: https://www.aiddata.org/data/chinese-global-official-finance-dataset

China began to offer foreign aid in the 1950s. Now China has become the largest developing country to offer foreign aid. The scale and scope of China’s overseas infrastructure activities now rival or exceed that of other major donors and lenders. Its flagship “One Belt, One Road” (OBOR) initiative—a “Belt” of road, rail, port, and pipeline projects that create an infrastructure corridor from China to Central Asia and Europe and a “Maritime Silk Road” that links China to South and Southeast Asia, the Middle East, and Africa through a series of deep-water ports along the littoral areas of the Indian Ocean—has “little precedent in modern history, promising more than $1 trillion in infrastructure and spanning more than 60 countries”.

Between 2000 and 2014, the Chinese government committed more than U.S.$350 billion in official finance to 140 countries and territories in Africa, Asia and the Pacific, Latin America and the Caribbean, the Middle East, and Central and Eastern Europe. China’s annual provision of official finance now rivals that of the United States, and in some countries, China has become the single largest source of official finance.

China’s emphasis on economic and social infrastructure stands in contrast to Western suppliers of development finance, which have scaled back their involvement in the infrastructure sector. There are also major differences in the types of “aid” that China and its Western counterparts provide to developing countries. A large proportion of the financial support that China provides to other countries comes in the form of export credits and market or close-to-market rate loans.

Global Chinese Official Finance Dataset 

AidData, a research lab at the College of William & Mary, has created a new dataset of official financing includes foreign aid and other forms of concessional and non-concessional state financing from China to 138 countries in the five major world regions (Africa, the Middle East, Asia and the Pacific, Latin America and the Caribbean, and Central and Eastern Europe) between 2000 and 2014.

More specifically, it captures (a) highly concessional, Chinese development projects that meet the OECD’s criteria for Official Development Assistance (ODA); and (b) officially-financed Chinese projects that lack development intent or are provided with higher interest rates and lower grant elements (i.e. projects that fall within the OECD’s criteria for “Other Official Flows”, or OOF); and (c) Clearly Official Finance, but insufficient information to assign to either ODA or OOF.

This dataset was constructed with the Tracking Underreported Financial Flows (TUFF) methodology, which triangulates information from four types of sources—English, Chinese and local-language news reports; official statements from Chinese ministries, embassies, and economic and commercial counselor offices; the aid and debt information management systems of finance and planning ministries in counterpart countries; and case study and field research undertaken by scholars and NGOs—in order to minimize the impact of incomplete or inaccurate information. The dataset includes 4,304 projects financed with Chinese official development assistance (ODA) and other official flows (OOF) in 138 countries and territories around the world. AidData's Global Chinese Official Finance Dataset (Version 1.0) tracks the known universe of overseas Chinese official finance between 2000-2014, capturing 4,373 records totaling $354.4 billion.

Where has China' aid gone? 

The Chinese State Council’s official White Papers from 2011 and 2014 claim that the vast majority of Chinese aid flows to Africa, rather than other regions of the world. This view is reinforced by press accounts and academic sources that emphasize a new, Chinese-led “scramble for Africa” in the 21st century. This is also what one observes in our global dataset. African countries received a large proportion (59 percent) of the total number of projects financed by China between 2000 and 2014. Seven of the top-ten recipient countries are African countries

However, a very different picture emerges when one counts total dollars, rather than projects, committed. These cross-country rankings reflect the fact that the number of “mega-projects” in Southeast Asia, the former Soviet Union, and Latin America dwarfs the number of “mega-projects” in Africa. Of the 25 largest Chinese projects in financial terms, only six are located in Africa and the largest is #13 on that list. More broadly, if one measures the average size of officially-financed Chinese projects in terms of constant dollars, only one African country is on the list of top 20 recipients

Ranked by financial amount, the top 10 Recipients of Chinese ODA include Cuba ($6.7 billion), Cote d'Ivoire ($4.0 billion), Ethiopia ($3.7 billion), Zimbabwe ($3.6 billion), Cameroon ($3.4 billion), Nigeria ($3.1 billion), Tanzania ($3.0 billion), Cambodia ($3.0 billion), Sri Lanka ($2.8 billion) and Ghana ($2.5 billion.

And the top 10 Recipients of Chinese OOF include Russia ($36.6 billion), Pakistan ($16.3 billion), Angola ($13.4 billion), Laos ($11.0 billion), Venezuela ($10.8 billion), Turkmenistan ($10.1 billion), Ecuador ($9.7 billion), Brazil ($8.5 billion), Sri Lanka ($8.2 billion) and Kazakstan ($6.7 billion).

China invests significantly more money in the “hardware” areas of energy generation, transportation industry, mining, and construction than it does on the “software” side of development in sectors like education, health, and governance.

The annual production volume of Chinese steel interacted with the recipient province’s probability of receiving aid. The Chinese government considers steel to be a strategically important commodity and therefore maintains excess production capacity. This policy choice by the Chinese government results in a surplus of steel, some of which China uses for aid projects around the world. In years when production volumes are high, China’s supply of aid is also higher.

But the measure using project counts actually shows health, education, and governance as the most prominent sectors. These smaller, software projects are disproportionately ODA-like, while the large infrastructure projects tend to be funded with OOF-like loans.

China and the US have similar sized portfolios with very different compositions. In terms of total official finance, between 2000-2014, Chinese official finance was at $354.3 billion. During the same period, US official finance was at $394.6 billion. US ODA dwarfs Chinese ODA in  development aid. Less concessional and more commercially oriented projects make up the bulk of the China’s global official finance portfolio.

The effectiveness of China's aid 

Chinese official development assistance (ODA) boosts economic growth in recipient countries. For the average recipient country, one additional Chinese ODA project produces a 0.7 percentage point increase in economic growth two years after the project is committed. We also benchmark the effectiveness of Chinese aid vis-á-vis the World Bank, the United States, and all members of the OECD’s Development Assistance Committee (DAC). Chinese, U.S., and OECD-DAC ODA have positive effects on economic growth, but no robust evidence shows that World Bank aid promotes growth. Irrespective of the funding source, less concessional and more commercially-oriented types of official finance do not boost economic growth. Finally, the significant financial support from China does not impair the effectiveness of grants and loans from Western donors and lenders. 

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