Opinion and Analysis

China’s ‘unconditional foreign aid’ for African countries is a big myth

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From left: China’s first lady Peng Liyuan, Tanzania’s first lady Salma Kikwete, Chinese president Xi Jinping, and Tanzanian president Jakaya Kikwete being entertained at Julius Nyerere International airport in Dar es Salaam on March 24, 2013. AFP

From left: China’s first lady Peng Liyuan, Tanzania’s first lady Salma Kikwete, Chinese president Xi Jinping, and Tanzanian president Jakaya Kikwete being entertained at Julius Nyerere International airport in Dar es Salaam on March 24, 2013. AFP 

By Richard Mshomba

Posted  Monday, April 1  2013 at  17:32

In Summary

  • A recent study found Chinese loans carry tougher conditions than World Bank’s.
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The President of China, Xi Jinping, has promised Africa $20 billion in financial assistance with no strings attached. If you can believe that, you might as well believe that there are no labour violations in China and that China does not manipulate its currency.

There is no unconditional foreign aid. (By the way, what is often called aid is actually a low-interest loan.)

When President says that China will not interfere with the internal affairs of African countries, he is implicitly placing a condition that African leaders must not interfere with China’s internal affairs.

And “internal affairs” has broad interpretation. If you complain that China has an unfair advantage in exports due to child labour or other labour rights violations, you are interfering with internal affairs.

In other words, if African leaders accept China’s aid, they better be prepared not to criticise the Chinese government or its policies. Of course, Mr Xi was not only addressing African leaders. He was criticising the West and the World Bank and the International Monetary Fund (IMF) for tying economic aid to conditions.

Some of the conditions set by the World Bank and the IMF are indeed quite intrusive, but it would be naïve to think that China is above it all.

China will expect its contractors to be given priority for, if not the exclusive right to, projects financed by China’s loans, even if there are other contractors who can do a better job at a lower cost.

China will also try to bring a lot of its own people to do the work, including non-technical work. This is not to suggest that China will be doing anything different from other donors.

The point is that China’s aid is not as unconditional as President Xi is trying to make Africans believe. In 1994, China established an Export-Import Bank that functions more or less like the one in the United States. It is a government bank with the primary purpose of subsidising and promoting Chinese exports.

A common scenario is that a Chinese company would propose a project to a given country and then help that country secure a loan. Just as an example, China Harbour Engineering Company (CHEC) may propose expansion of an existing harbour or construction of a new one.

When that proposal is accepted, the host country applies to the Export-Import Bank for a low-interest loan with the understanding that the project, or at least a major part of it, would be implemented by CHEC.

A recent study, “The New Banks in Town: Chinese Finance in Latin America,” by a think tank (Inter-American Dialogue) based in Washington, D.C., concludes that although “Chinese banks impose no policy conditions on borrower governments, [they] do require equipment purchases and sometimes oil sale agreements [and that] China Development Bank (CDB) loans carry more stringent conditions than World Bank loans.”

While one can expect a certain bias, the study’s point still carries merit.

Another point to be made is that while policy conditionality can limit flexibility and policy space of the aid-receiving countries, some conditions by the donor countries and organisation are important. This is not necessarily to say that those donors know better than Africans themselves.

However, there is no denying that not all African countries have good governance and not all African leaders have the best interests of their own people at heart.

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