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Thursday, 16 February 2012

Is China’s aid special?

Recent empirical findings confirm that China’s aid allocation decisions are shaped by politics but this is not exceptional when compared to OECD DAC and other emerging donors. Political self interest appears to drive all kinds of donors, the only difference may be that China communicates more openly that its aid serves mutual benefits :
The fact that Chinese aid is driven by political and commercial motives is not outstanding in international development cooperation. Many studies have shown that Western donor countries provide aid based on strategic considerations....Therefore, we compared China’s aid allocation decisions in 1996-2005 with those of the so-called traditional donors, organised in the OECD's Development Assistance Committee (DAC), and other emerging donors. There is no evidence that China's allocation of aid is inferior from a humanitarian point of view when compared to other donor countries. When it comes to democracy and indicators of governance, there is also little evidence that China's allocation of aid is inferior. Although China does not take institutional quality into account when deciding on its allocation of aid, the same holds for most other donors in our sample. In particular, we did not find that China's aid is biased towards autocratic or corrupt regimes as claimed by its critics. Based on our analysis of China's aid allocation decisions, it seems that fears that Chinese aid undermines the efforts of other donors to promote democracy and good governance are exaggerated. The same holds for commercial motives. While commercial interests matter, our empirical evidence does not support the idea that China puts greater weight on giving aid to either countries with strong commercial ties, or to countries that are more abundant in natural resources, in comparison to other donors.
The overall conclusion by the authors is that China’s foreign aid is not ‘rogue’ and therefore we have nothing to fear. But that is too premature because motivation must be assessed alongside the outcomes of its political actions. That China may not be selective does not diminish its likely impact - which is significant control of resources. The other point is that procedures matter. Chinese resource acquisitions are mainly done through back room deals, something that is not easily assessed through econometric analysis. 

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