Article: Determinants of Aid and Other Forms of State Financing from China to Africa Flashcards
What does the article say:
aid motivations: China=West
misconception due to absence of data
important to distinguish China’s ODA and more commercially-oriented sources and types of state financing.
Chinese ODA allocation to be driven primarily by foreign policy considerations, while economic interests explain the distribution of less concessional forms (e.g., grants vs. loans) of Chinese official financing.
Political motivations for aid: GRANTS
recipient country’s stance on the “One-China” policy (i.e., voting behaviour in UNGA/ recognizes the government in Beijing or Taipei as representing China).
Countries that recognize Taiwan receive fewer official finance projects
Countries that vote similarly in UNGA receive more projects
the ability of financial flows to “buy” policy concessions from developing countries increases with the degree of concessionality of the financing used for a development project. The larger the grant element, the larger the “favor” a donor can expect in return → ODA flows are more likely to be designed to achieve foreign policy goals
→ grants driven to a larger extent by foreign policy motives than loans.
none of the foreign policy variables are significant in the OOF and loan regressions
ODA flows to Africa are strongly oriented towards poorer countries, = Beijing also considers humanitarian needs
Economic Motivations for aid: LOANS (OOF)
Variables:
- value of China’s existing trade with a particular country
- access to natural resources (energy depletion in a given country)
- debt-to-GDP ratio to account for creditworthiness→ probability of repayment
commercial motives drive the allocation of loans more than grants.
Prefers less concessional types of Chinese official financing in relatively creditworthy states.
increase in debt as a share of GDP reduces OOF funding
less concessional forms of official financing are more market-based and tied to economic motives:
economic returns from investments & a desire for resource security & promotes exports and stimulates business for Chinese firms in recipient countries (tied-aid loans) borrowers are incentivized to purchase Chinese goods and services.Chinese firms to gain a foothold in new markets where they can export goods and services and secure future contracts.
policy of non-interference
Total number of projects (mostly OOF) increases with more corruption and more trade with China, corruption “greases the wheels” of commerce facilitating more profit-oriented financial transactions between China and African partner countries
or China is better positioned than Western countries to transact with poorly governed countries because they rely on financial modalities, such as commodity-backed loans, that reduce the risks of financial misappropriation, loan repayment delinquency, and default. China typically uses its loans to pay Chinese contractors for work performed in counterpart countries, thereby enabling Beijing to retain more fiduciary oversight and indirectly impose restraint on its borrowers
it decreases when an African country has a higher level of outstanding debt
China: number of projects x money allocated
grants >⅔ of the projects but only 1/10of total dollars committed
loan projects ¼ of total projects but 86% of the total dollars committed.
The distribution of ODA-like and OOF-like projects and financial flows mirrors this pattern.
Projects by sector:
social sector: large number of projects, indicating an active Chinese presence in education, health, and government infrastructure, BUT provide less funding than economic projects
Why does not China publish transparently its aid flows?
one explanation: government’s concern over domestic political support for the country’s foreign aid program and its desire to partially reform international normsrather than integrate into the prevailing system constructed by Western powers
