Cover: China's Foreign Aid and Government-Sponsored Investment Activities

China's Foreign Aid and Government-Sponsored Investment Activities

Scale, Content, Destinations, and Implications

Published Sep 18, 2013

by Charles Wolf, Jr., Xiao Wang, Eric Warner


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Research Questions

  1. What are the differing definitions of foreign aid?
  2. What are relevant metrics for measuring its magnitude?
  3. What sort of aid has China pledged to other countries?
  4. What is the project composition of China's assistance?
  5. How much aid has China delivered?
  6. What are the future prospects for China's assistance to emerging market nations?

With the world's second largest economy, China has the capacity to engage in substantial programs of economic assistance and government-sponsored investments in 93 emerging-market countries. In the first decade of the 21st century, China has expanded and directed this capacity in these countries for both their benefit and for China's own benefit. Using several data sources and aggregation methods, RAND researchers built a large database, expanding upon prior Congressional Research Service data and enabling the programs to be more fully described and analyzed. Access to the database is available to interested readers who wish to request it from RAND. The RAND research assessed the scale, trends, and composition of these programs in the emerging-market economies of six regions: Africa, Latin America, the Middle East, South Asia, Central Asia, and East Asia. Finally, the research derived inferences and insights from the analysis that may enhance understanding of the programs and policies pertaining to them. In general, China's use of foreign aid and government-sponsored investment activities has burgeoned in recent years, with emphasis on building infrastructure and increasing supplies of natural resources (including energy resources and ferrous and nonferrous minerals). Loans that include substantial subsidies provide financing for many of these programs, but the loans are accompanied by rigorous debt-servicing conditions that distinguish China's foreign aid from the grant financing that characterizes development aid provided by the United States and other nations of the Organization for Economic Cooperation and Development.

Key Findings

Aid Structure and Size

  • Because Chinese economic growth depends on supplies of natural resources, especially energy-related resources, much of China's foreign aid has sought to expand supplies of such resources.
  • Newly pledged aid from China was $124.8 billion in 2009, $168.6 billion in 2010, and $189.3 billion in 2011 — all far above the $1.7 billion it pledged in 2001.

Breakdown by Region

  • Latin America received more aid than any other region between 2001 and 2011.
  • In Africa, aid has been focused on a mix of natural resource programs and infrastructure.
  • Middle East countries have received aid aimed at debt forgiveness, oil and gas projects, and railway construction.
  • Aid in South Asia has focused on infrastructure and financial aid.
  • Central Asia received relatively little aid. Most assistance was offered to fund oil, natural gas, and mining projects.
  • Aid to East Asia reflected a more balanced approach than those taken in other regions, with a primary focus on infrastructure.

Future Directions

  • Whether the scale of China's aid will increase, decrease, or remain the same in coming years is unclear.
  • Facing slower economic growth, some policymakers in China may seek to maintain or even increase aid as a valuable stimulus for exports.
  • If China's industrial demands for natural resources continue to grow, China may have incentives to expand supplies through aid agreements with developing countries and regions.
  • Competing claimants on domestic, government-financed resources may view reductions of aid as a way to free resources to meet these other claims.

The research described in this report was prepared for The Smith Richardson Foundation, The Hoover Institution, and The Bradley Foundation — and by the Director of Net Assessment in the Office of the Secretary of Defense (OSD). The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by OSD, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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