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China’s engagement in international development - banker or benefactor?

A discussion on the effects of China’s engagement in international development - banker or benefactor?

The impressive economic growth of the Chinese economy in the past decades can be considered as the largest achievement in the world of international development. Hundreds of millions of people have been lifted from poverty and the Chinese government made this happen.[1] The growth of the Chinese economy also means that the Chinese needs for oil and other raw materials increased rapidly. To secure these resources, China is now investing heavily abroad.

Much of the debate on China’s increased engagement in developing countries has focused on the question whether China should be viewed as a development actor and the reasons behind China’s engagement in international development. Is China’s aim to expand access to foreign markets and secure strategic resources? Or do Chinese leaders truly want to support developing countries? Regardless of the intentions behind Chinese investments, there might be positive consequences for developing countries. For this reason, this blog aims to discuss the effects of China’s development projects rather than to question the nature of its investments and its goals.

 

 

Nature of Chinese development cooperation

Since 1955 China’s foreign policy has been characterized by “the Five Principles of Peaceful Coexistence”: mutual respect for sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other’s internal affairs, equality and mutual benefit, and peaceful coexistence. Although China inevitably has become entwined in the domestic politics of partner countries while implementing development projects, China’s development discourse is still in line with these guiding principles.

 

Because of its rhetoric of non-interference, China has mostly focused on infrastructure and the manufacturing industry in development. Most of these initiatives fall within China’s Belt and Road Initiative, the country’s massive infrastructure project that stretches from East Asia to Europe.[2]

This sectoral focus clearly differs from Western donors who also promote democratic values such as rule of law and human rights, and decide to hold back financial support if governments do not comply with their norms and values. This year, for example, the European Union decided to suspend nearly 90 million euros in aid to Ethiopia over its internal conflict.[3]

 

While many principles around China’s aid can still be found today, its development policies are everything but static. This year, the country published its much-awaited update to its White Paper on development (first in 2011, then in 2014). This document outlines various changes in China’s development policy such as increased commitments on aid effectiveness and transparency, as well as a broader model of development cooperation and strengthened global partnerships with bilateral and multilateral development partners.[4]

 

The Chinese “debt trap” and “tying” of loans

The biggest concern about China’s involvement in developing countries is that its activities have worsened these countries’ debt burdens. As China has used loans rather than aid in its development projects, many people argue that China is guilty of neocolonialism and label China’s involvement as “debt-trap diplomacy”. This means that once countries fail to pay back their loans, they are forced to support the strategic interests of China.[5] An often cited example is that of Sri Lanka. The Sri Lankan government received loans from China to construct a port. After the government was unable to pay back the interest on these loans, the ownership of the port was transferred to China.[6] Control over this port has many strategic benefits for China due to its location.

 

Conversely, it can also be argued that China is providing the necessary capital to enable much needed infrastructure projects to be realized. The African Development Bank has estimated that African countries needs about 150 Billion USD per year worth of infrastructure[7]. Many African countries do not have sufficient funding to implement these projects and need external help[8]. Apart from the needs for support, some scholars have noted that most of the countries that are in debt with China voluntarily signed these loans, and positively experience this cooperation. According to this paper, the alarming messages about China’s debt trap diplomacy are a bit overblown: “a large number of people have favorable opinions of China as an economic model and consider China an attractive partner for their development.”[9]

 

Another problematic aspect about the current Chinese policy for loans is the frequent requirement that loans should go to projects that are built by Chinese companies.[10] This means that the creation of employment and growth of local industries in the recipient country will be limited. The Chinese have also been accused of tying their loans in other ways. Conditions in loans would allow state-owned Chinese companies to charge higher prices for their products and services than those that would be charged on the free market.[11] These loans can therefore seem attractive at first sight, but might not be attractive if these other factors are taken into consideration.

 

Social and environmental factors

Other problems relate to the socio-economic effects of China’s development projects. The Wall Street Journal has described the BRI as “poorly defined, badly mismanaged, and visibly failing”.[12] Other research also found that 35% of BRI projects encountered serious implementation problems such as “corruption scandals, labor violations, environmental hazards, and public protests”.[13] Like most infrastructure projects, the construction of the BRI had negative side-effects such as the discharge of pollutants and consumption of resources, as well as decreasing biodiversity. These issues have sometimes threatened the livelihood of people who rely heavily on local environmental resources, with a negative spillover into sectors such as fisheries and farming.[14] Apart from these detrimental socio-economic effects, China has also been accused of allowing dictators to maintain power and thus undermining the possibility of good governance reforms, but cross-country data does not support this claim.[15] Moreover, one might wonder if it Western donors should be deciding what good governance constitutes and what an appropriate development agenda is.

 

Despite the environmental and social downsides of Chinese investments, some scholars also argue that these negative aspects are somehow needed because they will lead to better regulation and “historically regulation has always come after industrialisation – not before”.[16] Besides, China’s involvement during the COP26 demonstrates that the country might increase its efforts to promote Agenda 2030, which includes climate action. Another argument in favour of the availability of additional funds from Southern development partners is that these funds have enlarged the policy space of developing countries as authorities can play out donors against each other and can also attract funding for projects that traditional donors do not want to finance. In Cambodia, for example, Western donors focused solely on health and education. China’s investments were thus much-needed to help the Cambodian government to achieve its infrastructure goals. Besides, China has promoted poverty reduction in countries with poor human right standards like Nicaragua, where Western donors halted budget support and instead decided to work with civil society organisations.

 

Conclusion

This brief discussion on the effects of Chinese development cooperation demonstrates that one cannot present China’s involvement in development as being either good or bad. Investment can have economic benefits, and might create more space for developing countries to choose their own development path. At the same time, Chinese engagements may have direct negative effects if Chinese investments pollute the environment and locals lose their livelihoods. Besides, Chinese aid can postpone reforms in developing countries and increase debt burdens.

This blog was written by Paco Mens and Marie Smit in November 2021




[9] Brautigam, D. (2020). A critical look at Chinese ‘debt-trap diplomacy’: The rise of a meme. Area Development and Policy, 5(1), 1-14.

[15] Bader, J. 2015. China, Autocratic Patron? An Empirical Investigation of China as a Factor in Autocratic Survival. International Studies Quarterly 59 (1):23–33.