Chinese aid and the Aid Effectiveness Agenda

Development Policy10 Oct 2011Philippa Brant

Should the ‘aid effectiveness’ agenda be replaced by ‘development effectiveness’ principles

The debate in the lead up to Busan has questioned whether the ‘aid effectiveness’ agenda should be replaced by broader ‘development effectiveness’ principles, to encompass the substantial development input from South-South Cooperation (SSC) providers that falls outside the strict OECD Development Assistance Committee’s (DAC) definitions. There is an increasing imperative to ensure SSC providers (and other actors) are actively involved in the new aid architecture, but many have noted this should not be at the expense of progress on Paris Declaration principles. In a recent article, Jonathan Glennie has suggested a ‘twin track’ approach might be a useful compromise.

As one of the largest providers of SSC, China’s engagement (or lack thereof) is particularly pertinent. Although most of China’s development assistance is not classified as ODA and there is no imperative for China to adopt the aid effectiveness agenda (China is not a member of DAC and signed onto the Paris Declaration as a recipient), examining the realities of how Chinese aid relates to the agenda is useful as many Western donors are concerned that China may be undermining accepted ‘best practice’ and ‘their’ efforts. Of course many DAC donors themselves have mixed results in abiding by the Paris guidelines – as the recent monitoring report attests.

So how does Chinese aid relate to the components of the Paris Declaration?

Ownership Yes
Alignment Yes
Harmonisation No
Results Yes (quantity not quality)
Accountability Yes, but not transparency
Conditionality Not political or policy (but tied aid)

Unlike traditional donors, China doesn’t develop specific country strategies or country programs with multiyear plans detailing individual projects and objectives. It does, however, advocate country ‘alignment’, frequently relying on recipients to select projects. It prides itself on its aid being ‘recipient-focused’ and ‘responsive’ to a country’s needs. Its norm of non-interference arguably coincides with the idea of ‘ownership’, and the Chinese Government stresses the importance of each country developing and articulating its own development path. In the project design and implementation process Chinese aid is regarded as particularly responsive to recipient (government) needs and capacities. This recipient-led development does, however, rely on recipient governments to select ‘beneficial’ priorities on behalf of communities; it assumes community agreement with these government choices.

There are cases of nascent involvement in coordination and harmonisation efforts, though only when led by the host country and only at a participatory level rather than through support for sector wide approaches and pooled funds. Chinese aid is substantially tied to Chinese contractors – in line with its mutual benefit norm – and this is unlikely to change dramatically in the near future.

Transparency is a strong norm and is likely to be a key element in Busan. 18 donors that are not members of the DAC have been reporting through the DAC, and the International Aid Transparency Initiative (IATI) movement is gaining prominence. China’s transparency is still minimal and is a concern of both Western donors and within recipient countries. It has, however, improved markedly in recent years and in countries that have strong requirements there are cases where China is involved in recipient-led coordination and reporting efforts – the most significant being Cambodia where China reports its aid projects to a common database alongside other donors. The transparency norm currently only extends to ‘ODA’ – in terms of OOF (such as export credits) traditional donors are often as non-transparent as China and there has been recent debate about this short-coming of the aid effectiveness agenda.

China has issued quite extensive debt relief throughout the world, and in this regard is abiding by one of the expectations of the development community. Because China doesn’t attach explicit conditions to its loans or debt cancellation, however, there are concerns about debt sustainability, and potential problems posed by China’s resource-backed loans for the IFI’s preferred creditor status. Chinese lending is usually based upon an assessment of the individual project’s risk, not risk at a broader country level – which enables countries greater access to development finance as well as commercial loans. This has benefits and drawbacks and depends much upon the country’s ability and willingness to manage its levels of debt.

A common concern about Chinese aid relates to issues of corruption and governance. Since the majority of Chinese aid is ‘in kind’ or tied, the Chinese system doesn’t actually transfer significant funds to other developing countries. The Chinese (rightly) argue this reduces likelihood of aid money being siphoned off. However, details of contracts and procurement are often scarce and recipient communities have legitimate issues with ensuring that they are getting the best value for money. There is also scope for corruption between Chinese actors, and Chinese Embassies have significant leeway to select projects and disburse grant funding (not the larger concessional loans though) – meaning that (good) project decisions depend on specific individuals.

China has yet to develop a strong monitoring and evaluation framework and its focus on ‘results’ mostly concerns the completion of projects rather than their quality and ongoing sustainability. As China continues to expand its aid program (at a rate of ~30% per year for the past five years) there are signs that the government (and other actors) are seeking ways to improve the quality and impact of projects and policies – and there is an interest in learning about traditional donors’ practices, including some of the aid effectiveness principles.

There are many elements of SSC that are relevant and beneficial to other developing countries – just as many components of the aid effectiveness agenda remain salient. And, as China demonstrates, they are not always mutually exclusive. The challenge is to find a path that protects the positive elements of both and reflects the needs and desires of all actors – traditional donors, SSC providers, and, importantly, the communities and governments in developing countries.