China is one of top foreign aid providers, but only some projects have strong economic impact: Study

BEIJING - China has emerged as one of the most important foreign aid providers in recent years, rivalling the traditional Western donors in terms of spending and impact, a recent study has found.

However, out of the more than US$350 billion (S$475 billion) committed over 15 years from 2000 to 2014, only about 23 per cent produced strong economic growth impact for the recipient countries, said US-based research lab AidData on Wednesday (Oct 11).

These are funds provided through projects classified as Official Development Assistance (ODA), which are considered aid in the strict sense, said AidData Executive Director Brad Parks.

According to the Organisation for Economic Cooperation and Development (OECD), official financial transfers have to meet two key criteria to be considered as ODA. They have to be concessional loans with at least 25 per cent grant element, and are primarily for economic development and welfare.

Out of the 4,300 projects that China has financed in 140 countries and territories, a vast majority falls outside ODA, according to the study.

China's financial transfers to other countries are mostly in the form of non-concessional loans, export credits to buyers or suppliers, or commodity-backed loans, said Dr Parks.

"These are flows with commercial or representational intent, which produce no detectable effect on economic growth for the recipient countries," he added.

An example of a project with commercial intent is a US$1 billion loan that China Development Bank gave Petroecuador of Ecuador in 2010 for an oil agreement, according to the research lab.

And an example of a project with representational intent is an offer of US$230 million that China made to Jamaica to build a Chinese garden in 2013.

The release of the study comes as China rolls out its Belt and Road Initiative, which is an ambitious plan to build a series of infrastructure projects along two ancient trading routes on land and via sea.

"This new window into China's overseas development programme is particularly important given the possibility of US retrenchment in both the aid and diplomatic spheres, and the challenges European donors have had meeting foreign aid spending targets," said Ms Samantha Custer, director of AidData's policy analysis unit.

"If the US follows through on its rhetoric and scales back its global footprint, China may be well-positioned to step into the breach and cement its role as a preferred donor and lender to the developing world."

During the same 15-year period, the US provided US$394.6 billion in official financing to other countries. But unlike China, the US devoted 93 per cent of its spending to ODA.

The study found that aid from China produces the same economic growth impact as aid from the US and other Westerner donors, debunking the notion that China is a "rouge donor" who has helped countries build infrastructure that resulted in few economic benefits.

It also found that Chinese aid does not undermine the effectiveness of Western aid.

But since not all financial flow produces the same economic growth impact, China should relook its portfolio if it intends to increase the impact of its aid projects just as Chinese President Xi Jinping has recently indicated, said Dr Parks.

"If China could reorient more of it overseas spending towards ODA, low- and middle- income countries would potentially be in a position to reap even larger economic growth dividends," he added.