Rogue Aid? The Determinants of China’s Aid Allocation Axel Dreher University of Heidelberg Andreas Fuchs Universities of Goettingen and Heidelberg International Political Economy Society Conference 11 November 2011

Motivation (Re-)Emergence of non-DAC donors Woods (2008): ‘silent revolution’ taking place in the world of development assistance China is the most important ‘new’ donor Plenty of anecdotes Naím (2007) characterizes development aid from China as ‘rogue aid’ –Access to natural resources –International alliances –Support of countries with bad governance

Motivation No empirical study exists confronting the various claims about Chinese ‘rogue aid’ with data Why? Data on the allocation of China’s development aid are difficult to obtain (“state secret”) We make use of four types of aid indicators 1.We test whether China’s allocation decisions are guided by need in the recipient countries and/or by China’s national interests over five periods of China’s aid program ( ) 2.We compare China’s aid allocation decisions with traditional and other emerging donors ( )

1. Need, merit and self-interest – Is China different? State Council (2011): China makes “great efforts to ensure its aid benefits as many needy people as possible.” In the 1980s, even the CIA (1980) confirmed that the Chinese aid program “fits the needs of the poorest LDCs.” Naím (2007): rogue donors as China “couldn’t care less about the long-term well-being of the of the countries they “aid””

1. Need, merit and self-interest – Is China different? Aid allocation literature (Morgenthau 1962, Alesina and Dollar 2000, Neumayer 2004,…): Recipient needs: Aid is focused on the needy countries Merit: Aid is given to countries with better policies (“selectivity”) Commercial self-interests: Aid is channeled for commercial reasons, i.e., to promote exports or extract resources Political self-interests: Aid is given for political reasons, i.e., to reward allies or punish enemies  China’s aid is exposed to the criticism that it is driven to a higher extent by domestic economic and political interests than development aid by traditional DAC donors

2. Measuring Chinese aid (1)Aid commitments in US$ ( ) –Sources: Bartke (1989), OECD (1987), CIA ( ) (2)Number of medical staff dispatched ( ) –Source: China Commerce Yearbook (3)Food aid in tons of grain equivalent ( ) –Source: International Food Aid Information System (4)Number of completed aid projects ( ) –Sources: Bartke (1989), China Commerce Yearbook (AidData) 1,039

2. Measuring Chinese aid | Number of aid projects First completed aid project: Textile mill built in Thamaing (Burma) in 1956 Last completed aid project recorded in our dataset: Teaching appliances, medical apparatus and agricultural machines provided to Colombia in 2005 Tanzania is the single most important recipient of China’s project aid The single most outstanding project was the construction of the Tanzania-Zambia railway line

Number of aid projects ( , as % of total aid)

Number of aid projects ( , as % of total aid)

Number of aid projects ( , as % of total aid)

3. Empirical analysis | Estimation techniques We estimate the models using Poisson Pseudo Maximum Likelihood (PPML) DV: Number of completed aid projects that a developing country receives as a share of China’s total aid The variables that we employ can hardly be assumed to explain yearly volatility  5 cross-sections We run nested regressions to increase to statistically test for differences between donors / time periods

3. Empirical analysis | Explanatory variables RECIPIENT NEEDPOLITICAL INTERESTSPOLICIES & INSTITUTIONSCONTROLSCOMMERCIAL INTERESTSNEIGHBORHOOD

3. Empirical analysis | Phases of China’s aid program 1st research question: Are there differences in China’s allocation decisions between the five phases of China’s aid program? In contrast to other emerging donors, China does not favor neighboring countries (anymore) China’s aid shows some need orientation China’s aid is independent of institutional characteristics (with the exception of phase 3 – ) China’s allocation decisions are shaped by politics in all five phases Chinese aid allocation is related to its export pattern in phase 3 ( ) and phase 5 ( )

3. Empirical analysis | Comparison with other donors 2 nd question: Is China’s foreign aid different from other donors? (5 th phase of China’s aid program: ) Traditional DAC donors: USA EU-3 (Germany, France and United Kingdom) ‘Good donors’ (Denmark, Netherlands, Norway and Sweden) Japan Emerging donors: Korea Arab donors (Kuwait and Saudi Arabia)

3. Empirical analysis | Comparison with other donors RECIPIENT NEEDPOLITICAL INTERESTSPOLICIES & INSTITUTIONSCONTROLSCOMMERCIAL INTERESTSNEIGHBORHOOD

3. Empirical analysis | Comparison with other donors RECIPIENT NEEDPOLITICAL INTERESTSPOLICIES & INSTITUTIONSCONTROLSCOMMERCIAL INTERESTSNEIGHBORHOOD

3. Empirical analysis | Governance matters? As a robustness check, we make use of 7 alternative measures of policies and institutions China’s project aid seems to follow the principle of non- intrusion into internal affairs Compared to China, aid from traditional DAC donors is biased towards countries with good institutions In turn, some evidence that Korea’s and Arab aid allocation decisions are biased towards recipients with bad governance

3. Empirical analysis | Natural resources As a robustness check, we make use of 15 alternative measures of natural resource extraction With only one exception (bilateral imports of agricultural raw materials), there is no evidence that China provides on average more aid to countries that are more abundant in natural resources Compared to Korea in particular, it even seems that China pays less attention to those resources, rather than more

4. Conclusion At least to some extent, China’s aid is need-oriented China’s aid is independent of institutional characteristics China’s aid allocation decisions are shaped by politics and commercial interests (as it is the case for many DAC donors!) However, the verdict that China’s foreign aid is ‘rogue aid’ is unjustified China should publish its aid statistics since transparency might reduce fears about its aid program

Thank you!

China-Africa Forum in 2006 Aid reform of th phase: Tiananmen Square massacre in th phase: Deng Xiaoping takes power in rd phase: th Party Congress in nd phase: Setup of China‘s aid program in the 1950s 1st phase: Introduction of market-oriented principles and emphasis of linkages between aid, trade and investment “New strategic partnership” China seeks actively for diplomatic support and increased its aid substantially Economic Reforms and Openness: Economic considerations became more influential Mao Zedong’s claim to assume political leadership in the Third World Political and ideological considerations dominate in the early years

3. Empirical analysis | Phases of China’s aid program RECIPIENT NEEDPOLITICAL INTERESTSPOLICIES & INSTITUTIONSCONTROLSCOMMERCIAL INTERESTSNEIGHBORHOOD