Why does China still receive foreign aid?

Dr Philippa Brant is a Lowy Institute Research Associate.

Over the weekend ForeignPolicy.com published an article by Isaac Stone Fish pondering why the US and Japan still provide aid to China, their potential geopolitical rival.

It is legitimate to ask why aid is still being provided to a country that is the world's second-largest economy and a rising global power. Indeed, China has a large and growing foreign aid program of its own.

National interest obviously plays a role. The US, for example, uses its aid to China in part to promote human rights and democracy initiatives through NGO and civil society activities. More altruistically, there is a case to be made for providing aid to the poorest people, not just the poorest countries; the global poor are increasingly concentrated in so-called 'middle-income countries' (see Andy Sumner's research for a key contribution to this debate).

One element that is often missed in this discussion, however, is the interesting way that parts of the Chinese bureaucracy sometimes use foreign aid. [fold]

I have sat in meetings in Beijing where central government officials have bluntly said that the aid from international agencies is merely a drop in the ocean of their massive departmental budgets. What this aid does do, however, is allow central government agencies to initiate programs and reforms involving lower levels of government that may otherwise be politically difficult or blocked by vested interests. Indeed, the much-discussed 'crossing the river by feeling the stones' development strategy of the Deng Xiaoping era continues today through the central government's use of bilateral and multilateral aid.

In a decentralised political and administrative system like China's, trialling initiatives under the banner of a foreign donor gives the Chinese central government space to take risks in its reform process. Many foreign aid-funded projects are set up as pilots, trialled in a number of county-level areas, evaluated, and, if deemed successful, expanded with Chinese government funds. The external funding serves as a catalyst for further investment by county or provincial-level governments that may initially have been wary of central government requests to finance yet another poverty-reduction or reform initiative from their own already overstretched resources. Lower levels of government in China also benefit from the technical assistance and evaluation expertise that comes with foreign aid.

As the dynamics of both global poverty and foreign aid-giving continue to change, the debate about who to give aid to, and why, should also continue. Understanding the way different governments use the aid they receive should be an important part of these discussions.

Photo courtesy of The White House.

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