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April 25, 2018

From poorhouse to powerhouse


April 25, 2018

Last month, Beijing decided to launch a new agency – the International Development Cooperation Agency – to spearhead its ever-increasing aid programmes around the world.

The new government agency will be required to answer to the State Council, China’s highest executive body. The main rationale behind the creation of this agency is to consolidate roles and responsibilities that have, so far, been divided between the ministries of commerce, and foreign affairs.

As described by Beijing, the main purpose of the new agency is to give attention to foreign aid as a veritable means of soft diplomacy. The goal of the agency is to “enhance strategic planning and coordination of foreign aid, and better serve the country’s overall diplomatic layout and the Belt and Road Initiative”.

With the creation of a specialised aid agency, China has also officially shifted from a recipient of development cooperation to a major bilateral donor. As per the 2014 White Paper, from “2010 to 2012, China appropriated in total [Yuan] 89.34 billion ($14.41 billion) for foreign assistance in three types: grant, interest-free loan and concessional loan”. The policy document further elaborates that 36 percent was obtained in the form of grants; nine percent in interest-free loans; and 56 percent in concessional loans.

In terms of the focus of China’s development finances, there were 121 countries – 30 in Asia; 51 in Africa; nine in Oceania; 19 in Latin America and the Caribbean; and 12 in Europe. Regarding sectoral prioritisation, agriculture; education; health; industry; and infrastructure are the main areas where China has been allocating aid.

The combination of domestic reforms and the transformations that have taken place over the past three decades has made China a remarkable success story, even though it is still a developing country in terms of its GDP per capita and various other indicators. It is the world’s second-largest economy after the US. It is also the world’s largest trading nation (China trades with 124 nations while the US trades with 56 countries), exporter, manufacturer, energy consumer and auto market. China is also the world’s largest user of steel, cement and copper, and the largest applicant for patents.

Due to all these factors, China has gradually emerged as a key development actor in the global development landscape. Developing countries of the Global South could benefit from the lessons learnt from China’s experience. But they also need to avoid making the same mistakes committed by China regarding social and environmental choices.

Prior to the establishment of the new aid agency, academics and researchers in China commonly maintained that it was unlikely for the country to establish such an agency. One of the obvious reasons was that Ministry of Commerce (MOFCOM) wouldn’t want to relinquish control over the business of foreign aid, particularly at a time when it is significantly expanding.

However, some Chinese scholars have been emphasising the need for such an agency. The key argument in favour of this initiative was that the “fragmentation of aid funding and management has greatly compromised the efficiency of China’s current inter-ministerial aid coordination system”. In order to improve and enhance the impact and visibility of China’s development cooperation, it was maintained that it is the right time to establish an aid agency that is fully dedicated to the policy and practice of development cooperation.

Until recently, the Ministry of Commerce played a central role in the formulation and planning of a foreign aid policy and the approval of aid-funded projects along with over 20 other ministries, including the Ministry of Foreign Affairs (MFA); Ministry of Finance; Ministry of Health; and Ministry of Agriculture. Due to the involvement of so many government entities, China’s aid system was plagued with challenges over coordination. This blurred the lines between aid and other development financing, such as investments and concessional loans.

Details about the precise role and structure of an independent Chinese aid agency have yet to be released. However, as the Chinese government has stated, the agency’s main task will entail designing aid policies and plans in addition to approving, monitoring and evaluating projects. Implementation will remain the responsibility of existing agencies.

This announcement is another sign of China’s rapid emergence from a poorhouse to a powerhouse and from an aid recipient to a donor. For example, before the era of reforms, there was more poverty in China than in Africa. It is estimated that between 1980 and 2000, China received $38 billion in foreign aid. Now, it is the second-largest economy in the world and has lifted more than 800 million people out of extreme poverty. Despite the development challenges that it has faced, China has journeyed from an aid recipient to a provider of development aid in an extraordinary way. It has provided an estimated $350 billion in concessional loans and other forms of assistance between 2000 and 2014.

With an aid agency headed by a senior official and responsible to the State Council, aid from China is likely to become more transparent, effective and coherent. According to the executive director of the UK-based Overseas Development Institute (ODI):“The agency should be welcomed into the international system with open arms. A clear expectation that the significant and hard-fought advances in development effectiveness that other donors have made will be adopted by China as well”.

The agency should be at the forefront to provide complete and updated data and information regarding what other government departments and ministries in China have been funding in numerous countries and various sectors. This will result in two key advantages. First, there will be stronger coordination among other institutions. Second, a single list of projects and programmes will be created to inform recipient governments as well as other relevant stakeholders – such as universities and research think-tanks – about the effectiveness and impact of China’s development assistance.

Keeping in view the ambitious 2030 Agenda and multifaceted Sustainable Development Goals (SDGs) that focus on the social, economic and environmental aspects of human life, there is a need to improve the quality of development financing to fill the gap and address the financial needs of developing countries. In this respect, it is expected that China should play a positive and constructive role to catalyse development beyond its shores. To this end, committed, legally-mandated and qualified individuals should be welcomed to drive the aid and development-effectiveness paradigm.

In the context of Pakistan, where China has engaged in numerous projects under the CPEC umbrella, the new agency could join hands with China’s National Development Reform Commission (NDRC) and its Pakistani counterparts to increase its value for money and the subsequent development impact. In order to ensure that related development work to complement private sector investments, the proposed agency could play a vital role in financing social sector projects to reap maximum dividends.

If the agency wants to be effective with its development aid, it needs a concrete strategy; some comparative advantages; and the ability to know who is doing what and where, and whether it is working or not. Effective involvement and collaboration with domestic actors should be its key priority in order to target its activities in areas where there is an urgent need for assistance. It must also seek to maximise the impact of its development cooperation.

The writer is a postdoctoral research fellow at the German Development Institute at Bonn, Germany.

Email: [email protected]

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