China’s foreign aid activities in Africa, Latin America and Southeast Asia

China's foreign aid activities in Africa, Latin America and Southeast Asia
Thomas Lum et al.
Washington, Congressional Research Service, 2009

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In the past several years, the People's Republic of China (PRC) has bolstered its diplomatic presence and garnered international goodwill through its financing of infrastructure and natural resource development projects, assistance in the carrying out of such projects, and large economic investments in many developing countries. This report examines China's economic impact in three regions - Africa, Latin America (Western Hemisphere), and Southeast Asia - with an emphasis on bilateral foreign assistance.
China's foreign aid is difficult to quantify. The PRC government does not release or explain Chinese foreign aid statistics and much of PRC foreign aid does not appear to be accounted for in the scholarly literature on foreign aid. Some Chinese foreign assistance partially resembles official development assistance (ODA) as defined by the Organization for Economic Cooperation and Development (OECD), but in other aspects shares characteristics of foreign investment. In terms of development grants, the primary form of assistance provided by major OECD countries, China is a relatively small source of global aid. However, when China's concessional loans and state-sponsored or subsidized overseas investments are included, the PRC becomes a major source of foreign aid.
This report is based on research done by the New York University Robert F. Wagner Graduate School of Public Service in 2007-2008. The Wagner School study, while not comprehensive, suggests a dramatic increase in PRC foreign aid and related activity. According to the research, which is largely based upon news reports of Chinese foreign economic activity, PRC foreign assistance and government-supported economic projects in Africa, Latin America, and Southeast Asia grew from less than $1 billion in 2002 to $27.5 billion in 2006 and $25 billion in 2007. Aid and related investment to Africa showed the most significant increase. These totals, however, should be interpreted with caution. Some aggregate values may be inflated: Some PRC loans or aid pledges may not have been fulfilled and some aid pledges that include multiple projects or that span several years may have been counted more than once. Some PRC investment activities may more closely resemble FDI than aid. In other ways, totals may be undervalued, such as when economic projects or data have not been reported or when the values of Chinese materials and labor have not been included.
Overall, China's foreign assistance during the past several years has been driven primarily by Beijing's desire to secure and transport natural resources and secondarily for diplomatic reasons. According to the NYU Wagner School study, during the 2002-2007 period, Africa received the greatest amount of loans and development assistance, followed by Latin America and Southeast Asia. The study suggests that China's foreign aid activities in Africa and Latin America serve the PRC's immediate economic interests, while those in Southeast Asia relate to longer term diplomatic or strategic objectives. In Africa and Southeast Asia, Chinese infrastructure and public works projects constitute the most common form of aid, while in Latin America, where some countries are more developed, PRC-sponsored natural resource development activities are more prominent.
China is fast becoming a top trading partner to Africa and Southeast Asia, and it is second to the United States as a market for Latin American commodities and goods. Although the PRC's aid projects are a highly visible reminder of China's growing "soft power," other countries and regions, such as the European Union, the United States, and Japan, continue to dominate foreign direct investment in Africa, Latin America, and Southeast Asia.