China is not the new super-aid power, it prefers investing

The international development community keeps rediscovering, and misunderstanding, China. The latest episode came in September, when Chinese President Xi Jinping gave a speech at the United Nations after the launch of the new sustainable development goals.

Xi pledged to support the goals. Specifically, China would set up a $2-billion fund to support south-south co-operation. China would also try to increase its investment in the least developed countries to $12-billion by 2030. Finally, his government would cancel some of the debt owed to China by developing countries.

The flush of media attention around these pledges suggested that they were something new and unprecedented. By giving assistance on this scale and forgiving debt, a BBC reporter wrote, China was willing to take on “more of the responsibilities that go with its status as an emerging superpower”.

Seeing Xi’s pledges in historical context helps us to see what is actually new, and what this means for our understanding of China’s rise.

First, a south-south co-operation fund is new. It is not yet clear whether the fund will be established at the UN or in Beijing, but wherever it lands, it will be the largest Chinese contribution of this nature to date.

Second, although huge in the context of China’s previous south-south co-operation donations, $2?billion is not a grand sum. It pales before earlier financing pledges by Chinese presidents at past UN meetings.

Ten years ago, for example, Chinese president Hu Jintao told a high-level UN meeting on financing for the millennium development goals (MDGs) that China would provide $10-billion in concessional loans and preferential export buyer’s credit to developing countries between 2006 and 2009 to help meet the MDGs. Loans have to be repaid. This year’s smaller figure of $2-billion suggests that the new pledge is likely to be a true donation: a grant, not loans.

Third, loan cancellation is nothing new. China regularly pledges to cancel overdue debt – first in 2000, for Africa’s least developed countries. In 2005 Hu extended debt cancellation to poor countries outside Africa. Announcements of Chinese debt cancellations have been regular features of summits over the past 15 years.

However, the relatively small figures suggest that the debt cancellation programme is limited. Countries that expected cancellation of new concessional loans from China’s Eximbank, export credits or commercial loans were disappointed.

Xi’s announcement that debt cancellation could be extended to vulnerable countries – landlocked and small island nations – was the only new feature in 2015.

Finally, why did so many news outlets combine the Chinese leader’s pledge of $2?billion in a new south-south co-operation assistance fund with his next statement that China would continue to invest in the least developed countries, and strive to reach a target of $12-billion by 2030?

This fits a tradition in the West of overestimating Chinese aid. Grants and official development aid make up a small portion of China’s toolkit for co-operation with other developing countries. After all, for 2013 alone, the United States budgeted $30.9-billion for development assistance and China just $3.2?billion.

The fact that the largest target was about investment, not aid, illustrates Beijing’s view that investment is a positive force for development. They are offering to use China’s vast array of incentives and instruments to direct more of it to the least developed countries.

A giant among other developing countries, China is still no superpower when it comes to aid. And Xi’s new pledges make sense as a modest evolution, not a revolution. – © Guardian News & Media 2015

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