By Hyun Ju Kim

School of Public Policy at George Mason University

Email: hkim14@gmu.edu

Phone: (540) 454-8203

Abstract

            As China emerges as a new donor in foreign aid, particularly to African countries, critics have argued that Chinese foreign aid only serves its self-interest. Specifically, the criticisms note that China has increased its aid flows to Africa in an attempt to exploit energy resources from recipients while promoting China’s trade gains without considering the long-term prosperity of the recipient countries. Furthermore, the critics have been increasingly skeptical about the Chinese aid activities because China is not obliged to report the official foreign aid flow to the Development Assistance Committee (DAC) at OECD, thus creating room for doubts on its aid decisions.

            While the major donor countries do not have a clear idea in terms of Chinese aid allocations to Africa without the official reports from China, for recipient countries, the Chinese aid flows provide attractive financial resources. To be specific, Chinese aid usually does not require “Washington Consensus” style policy reforms to the recipients as the major donors do, nor does it interfere with the domestic politics of recipient countries. Without conditionality to the aid, China has emerged as an attractive donor to recipient countries that are not willing to accept the policy reforms in exchange of aid.

            By using the recently developed data set by AidData in a panel analysis, this paper aims to empirically test whether the criticisms are based on the actual Chinese aid practices in Africa, covering 50 African countries from 2000 to 2011. By doing so, the expectation is that this study provides better understanding as to what determines the Chinese foreign aid allocations to African nations.

            In empirically testing donor’s aid allocation decisions, the literature suggests two models: the recipient-need model and the donor-interest model. The recipient need model posits that donors send bilateral aids based on i) economic needs, ii) emergency needs, and iii) fragile status of the recipients. While the recipient-need model focuses on the recipient side, the donor-interest model sheds light on donors’ political and economic motivations in allocating aid flows. The literature lists i) political and security interests, ii) investment interests, and iii) trade interests as the driving forces of donors’ decision in aid allocation.

            In evaluating major donors’ aid allocation, previous studies state that most of the donor countries take both approaches into account if not more towards the donor interest model. Based on the panel analysis, this paper suggests that Chinese aid policy has mixed intentions as it takes both self-interest and recipient needs into consideration.

            However, this analysis has its limits that the data on the Chinese aid flows to Africa are not official, though the official data are not readily available. Also, while this analysis proves that Chinese aid takes both recipient needs and donor interest approaches, the results call for further research on how in detail the major donors and China as a new donor are different in terms of aid allocation decisions.