China's Assistance and Government-Sponsored Investment Activities

"China's Assistance and Government-Sponsored Investment Activities in Africa, Latin America, and Southeast Asia," CRS Report for Congress, November 25, 2009 (pdf)

Summary

In recent years, the People’s Republic of China (PRC) has bolstered its diplomatic presence and garnered international goodwill in the developing world through financing infrastructure and natural resource development projects, assisting in the execution of such projects, and backing PRC state enterprises in many developing countries. This report examines China’s foreign assistance and government-supported, often-preferential investment ventures in three regions: Africa, Latin America (Western Hemisphere), and Southeast Asia. These activities often are collectively referred to as “economic assistance” by some analysts and in this report.
Much of China’s “economic assistance” does not constitute “official development assistance” (ODA) as measured by the Organization for Economic Co-operation and Development (OECD) and as generally provided by members of the OECD. However, many activities have an aid component—they are secured through official bilateral agreements, promote development, and provide economic benefits to recipient countries that otherwise might not be made possible.
Furthermore, they are not strictly commercial or do not result in foreign ownership of productive assets, and thus they do not qualify as foreign direct investment (FDI). In terms of development grants, the primary form of assistance provided by major aid donors, China is a relatively small source of global aid. However, when China’s commercial and concessional loans, technical assistance, and state-sponsored or subsidized investments are included, the PRC becomes a major source of economic assistance.
This report is largely based upon research conducted in 2007-2008 by graduate students at the New York University Robert F. Wagner Graduate School of Public Service under the supervision of Wagner School faculty and CRS specialists. The students’ findings, while not comprehensive, suggest a dramatic increase in PRC economic assistance and state-sponsored investment from 2002 through 2007. The numbers provided in this report are not meant to be interpreted as reliable foreign aid totals. Furthermore, some PRC loans or aid pledges may not have been fulfilled and some aid pledges that include multiple projects or that span several years may have been counted more than once.
According to the Wagner School research, during the 2002-2007 period, Africa received the greatest amount of loans and other economic assistance, followed by Latin America and Southeast Asia. The findings suggest that China’s aid activities in Africa and Latin America serve the PRC’s immediate economic interests, while those in Southeast Asia relate to longer term diplomatic or strategic objectives. In Africa and Southeast Asia, PRC-sponsored infrastructure and public works projects constitute the most common form of activity, while in Latin America, where some countries are more developed, Chinese natural resource development projects are more prominent. China is fast becoming a top trading partner with Africa and Southeast Asia, and it is second to the United States as a market for Latin American commodities and goods.
Although the PRC’s economic assistance activities are a highly visible reminder of China’s growing diplomatic and economic influence, or “soft power,” the European Union, the United States, and Japan continue to dominate foreign investment in Africa, Latin America, and Southeast Asia.