China presents its Belt and Road Initiative as a way to address global deficits of development, peace and governance and has called for an international community with a shared future, while some of its critics see these initiatives as a challenge to a Western-dominated liberal world order and an attempt at securing hegemony.
In many ways, China does challenge the Western liberal model and its domination of international discourse and practice—as its distinctive foreign aid practices show—though there is little evidence China is seeking global hegemony. As a new white paper makes clear, China’s path is founded instead on a moral order (Confucian but also socialist) involving lofty ideals of universal harmony (the Great Way), the concept of repayment of kindness by kindness, a tradition of internationalism and a sense of responsibility. That these values might drive international development cooperation derives from the fact that in China the state is not controlled by economic class interests, as is the case in Western liberal capitalist societies.
In some respects Chinese aid is similar to Western aid in that it involves concessional financial flows. However, the aims, principles and practices differ. Moreover, a Western attempt to co-opt China and other emerging aid donors has failed, with implications for the future of development finance and the shape of the world order.
Official Western development assistance dates from the activities of colonial powers in their overseas territories, and is rooted in the idea that developed countries had responsibilities to civilize less developed nations while bringing an overall military, economic and political strategy to prevent the spread of communism and create markets for companies based in the United States. Since 1961, North-South aid has been overseen by the Organization for Economic Co-operation and Development’s Development Assistance Committee (DAC). The outcome has been an interventionist model involving coordination, harmonization, monitoring, evaluation and accountability requirements, complex multi-tiered organizational structures and high administrative costs. After the debt crisis, developed countries conditioned aid on a set of neoliberal policy, political and governance reforms.
From 1950, China provided aid to Third World countries. From the 1980s it received DAC aid. In the new millennium DAC aid to China declined, while China emerged as a major provider of South-South aid. China provides grants, interest-free loans and concessional assistance advanced by the Export-Import Bank of China (CHEXIM), as well as preferential export credits, while the China Development Bank (CDB) provides patient capital.
China’s principles and practice do differ significantly from Western aid. China’s aid is based on the Five Principles of Peaceful Coexistence. These principles reflect the desire of countries that suffered from imperialism and colonial and semi-colonial rule for respect for their territorial integrity and sovereignty, treatment as equals and non-interference in their internal affairs. These horizontal South-South relations of mutual respect differ from vertical North-South power relationships and stand against the view that Western civilization has the right to impose its norms, values, and social model. In a world of multiple civilizations, China calls for a community with a shared future whose principles include equality and mutual benefit, respect for sovereignty, absence of conditionality and the promotion of self-reliance.
Mutual benefit or mutual advantage (and reciprocity) indicates that for China aid is not a unilateral gift—instead, China seeks win-win outcomes. Win-win outcomes are advantageous for the donor and the recipient. This path implies equal partnerships and partner ownership and responsibility, and is reinforced by the notion of equality: the nations involved are equal and not organized into vertical North-South relationships between dominant and dominated countries.
The administrative model is also simpler. In contrast to the complex modalities for fund transfer and management of DAC, Chinese foreign aid is mainly delivered through in-kind transfers. Aid does not require unduly complex project appraisal as China considers that feasibility and implementation issues involve co-responsibility of the recipient country (whereas DAC donors are often distrustful of local actors and strongly interventionist). China funds host-country government-selected projects that DAC does not consider developmental, while its aid is often perceived as ‘real aid’ because it does not involve high consultancy and managerial costs, whereas DAC donors tend to develop assistance strategies that predominantly reflect the donor’s goals.
Learning from the successes and failures of policies a country itself chooses plays a vital role in helping it assume responsibility and find a development path that suits its conditions. An important aim is to make the recipient countries self-reliant and help them escape dependence.
Another feature shared with other East Asian countries is the view that infrastructure is crucial. Yet another is that China gives a good deal of assistance to relatively less developed countries. Japan, South Korea and China all focused on infrastructure construction as a foundation for export-led industrialization and linked aid with direct investment and trade. This threefold combination of aid, investment and trade that mixes concessional and non-concessional loans and can involve agreements to purchase recipient exports at above-market prices conflicts with the liberal OECD-DAC model.
DAC donors have neglected infrastructure and productive activities. As early as the 1970s DAC countries and multilateral institutions shifted attention from growth to poverty alleviation and from transport infrastructure, agriculture and industry to social sectors (health, education, clean water). This switch was strengthened by the rise of non-governmental organizations whose agendas and sectional interests came into play, shaping welfare and development programmes. After the fall of communism, development finance agencies adopted new mandates relating to Western conceptions of democracy, human rights, capacity building, and good governance and paid more attention to the environment, gender and the reconstruction of countries devastated by war. And yet in the case of poverty alleviation it is a Chinese path of development-oriented poverty alleviation that has achieved the most astonishing results.
More recently, the Western model has been subject to explicit criticism and a new narrative has been advanced: it centres on a combination of aid, investment and trade in driving structural transformation.
Chinese involvement offers prospects of sustainable and higher growth through access to credit, low cost consumer goods, cheaper and more appropriate capital goods, industrial transfer and new market opportunities. The China induced commodities price boom increased export revenues of many developing countries, although the ability to take advantage depends on the capacity of governments to promote linkages. The existence of China alongside other donors also strengthens the negotiating position of developing countries seeking fairer agreements. China seeks outcomes that are mutually beneficial but the distribution of the gains (and perhaps losses) in each country depends on a multiplicity of factors.
Numerous studies suggest that projects funded with DAC development assistance funds damage the environment and displace people, and that, while beneficial for some sections of the population, most do not benefit. As in the DAC case, Chinese programmes have come in for criticism on these and other grounds. In DAC circles, it was argued that Chinese aid increased the risks of recipient debt default as it reduced the incentives to adopt Western liberal economic and good governance reforms. Yet more critical were the voices that claimed China was engaging in debt-trap diplomacy.
This claim ironically reflected the allegations made about the World Bank and USAID in John Perkins’ Confessions of an Economic Hit Man. Perkins claimed that political and financial leadership of underdeveloped countries was pressed (including by US security agencies) to accept substantial development loans for large construction and engineering projects contracted to American companies. These benefitted elites and saddled developing countries with unrepayable US dollar loans to ensure they served US interests. In the case of China the strongest claims were made about the Port of Hambantota that Sri Lanka sold on a long lease to a Chinese state-owned port operator to repay external debts—the debts due for repayment were not however Chinese loans which amounted to about 10 percent of Sri Lanka’s external debt but maturing international sovereign bonds (for a detailed account, read Johns Hopkins University professor Deborah Brautigam’s recent analysis).
Other claims that, for example, China does not employ local workers are also questionable, as is the criticism of deals in which exports of natural resources pay for construction projects. This particular course of action derives from China’s own experience when it accepted Japanese loans with which it paid Japanese companies to construct the infrastructures that underpinned China’s subsequent growth and that were repaid with exports of coal and oil.
The new millennium saw the establishment of the United Nations Millennium Development Goals and the Sustainable Development Goals, new financial commitments and the rise and fall of an aid effectiveness agenda, reflecting the emergence of new donors and the developmental success of countries that did not adopt the Western liberal model. Generally speaking, the growth in Chinese aid and South-South co-operation was welcomed as a complementary source of much needed assistance, but it was also criticized for deviating from DAC rules and practices.
DAC’s initial aim was to co-opt China and other new donors, as it had with earlier new members through the establishment of the China-DAC Study Group, possible trilateral activities and the aid effectiveness agenda. China learned from these engagements about management, accounting and evaluation methodologies and social and environmental safeguards, but institutional and political collaboration proved elusive.
Instead of adopting Western liberal norms and values, China asserted its right to promote its own values and vision of mutual benefit, mutual respect and responsiveness to developing countries’ perception of their own needs. And in the face of disproportionate Western control of international institutions—and development finance needs beyond the capacity of existing institutions and private capital markets—China helped establish new development finance institutions, announced the Belt and Road Initiative and established the China International Development Cooperation Agency, marking perhaps a decision to compete with the liberal Western order rather than just complement it. These institutional changes raised Western concerns about US leadership, the role of transparency, procurement, and environmental and social safeguards and the impact on contractors’ commercial interests. Chinese leadership responded that it will set high standards and increase its financial commitment to existing institutions.
The outcome was a deep crisis of the Western paradigm and of Western-dominated multilateralism. DAC donors placed increasing emphasis on national interests, mutual benefit and aid as a catalyst for private investment and in some cases merged their aid agencies with ministries of foreign affairs and trade. This crisis and the continued progress of China’s Belt and Road Initiative suggests that new structures and new (pluricentric) models of international governance may well be taking shape, although their emergence faces considerable resistance from the governments of the United States and its allies.
Michael Dunford is Visiting Professor at the Institute of Geographical Sciences and Natural Resources Research (IGSNRR), Chinese Academy of Sciences, Beijing, and Emeritus Professor at the University of Sussex.