Foreign Aid

China learning how to play the foreign aid game

(August 10, 2010) China has learned how to be both receiver and giver of foreign aid, writes Brady Yauch.

The Chinese government is quickly learning how to milk the foreign aid game. In a recent report, China—despite holding on to more than $2.4-trillion of foreign reserves and, itself, giving billions of dollars in aid to less developed countries—has received $1-billion in aid money from the Global Fund, with the World Bank as its trustee, to fight AIDS, Tuberculosis and Malaria, making it the fourth largest recipient of the aid program, and putting it ahead of traditional aid favourites such as Ethiopia, India and Tanzania for the program’s grants.

China receives more than three times the money from the fund to fight AIDs and malaria than one of the most afflicted countries, South Africa.

Highlighting the seemingly absurd flow of aid money to China, Jack Chow, former U.S. ambassador on global HIV/AIDS and lead U.S. negotiator at talks that established the Global Fund to Fight AIDS, Tuberculosis and Malaria wrote in a recent article for Foreign Policy, that China has won $149 million in malaria grant money, yet just 38 deaths from the illness were reported in China last year.

In fact, China received more money than the Democratic Republic of Congo to fight malaria, which suffered nearly 25,000 deaths from the disease in the same period. He added that only seven sub-Saharan African countries receive more malaria aid than China—while 29 countries in Africa get less. Combined, he says, those 29 countries report 64,000 deaths from the disease each year.

China, being the world’s second largest economy, does contribute to the fund—about $2-million annually, making its total contribution $16-million to date. That means China has recouped its investment in the fund 60 times over. In comparison, the U.S. has donated more than $4-billion, France more than $2-billion and the United Kingdom more than $1-billion—none of which, understandably, are eligible for grants from the fund.

Chow says China is exploiting a loophole in the fund, in which lower-middle-income countries like China, which remains in this middle category because its large population keeps its per capita to GDP ratio low, are eligible for grants on a cost-sharing program. Under this program, the fund covers 65 percent of the grant if the host country agrees to pay the rest. China, flush with cash, is able to put a relatively small amount of cash down in order to qualify for much larger grants.

Because of the loophole, China ends up competing with developing countries such as Bolivia and Cameroon for the limited grant money, Chow says, thereby reducing the remaining money available for all eligible countries.

Though, he says, the real reason for China’s milking of the World Bank’s health program is likely a political one. According to Chow, China’s Health Ministry is the only member of the State Council that is not spearheaded by a political party member—which, he says, hampers its ability to compete for state funds. This could be one reason that the ministry is forced to rely on international funds.

Or, Chow says, “China’s participation on the fund’s board might be useful to Beijing’s global politics, confirming its importance on the world stage.”

He says the biggest reason why leaders in other developing countries are struck mute while watching China enjoy a massive chunk of aid money is also political. These leaders, particularly those from African countries, do not want to incur Beijing’s diplomatic wrath in their other dealings with China, he believes.

“Health ministers are skittish to imperil their country’s broader interactions with China, which in the case of African countries, often entails Chinese loans, grants, infrastructure projects, and investment—and indeed, even further, health aid,” he says. “In turn, African countries seeking access to the burgeoning Chinese market must curry Beijing’s favour. Any country that openly opposes China at the Global Fund might see these economic links broken or be put at a disadvantage to competitors.”

When the Global Fund approached China for an increase in its donations to the program, “the Chinese told me they would think about it,” said Michel Kazatchkine, the executive director of the fund.

Chow’s criticism of China’s aid cash grab comes as the country has, in recent years, become a major donor itself. According to Deborah Brautigam’s, “The Dragon’s Gift: The Real Story of China in Africa” China gave more than $2.5-billion in aid to African countries alone in 2009—along with $375-million in debt relief and more than $1.5-billion in concessional loans from its export-import bank.

China has also recently pledged to give $10-billion in concessional loans to Africa.

China’s bizarre role as aid giver and taker, proves the extent to which foreign aid is abused, says aid critic Probe International, and fuels arguments to end it.

Brady Yauch, Probe International, August 10, 2010

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