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The Nature and Scope of China's Foreign Aid and Investment

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The Nature and Scope of China's Foreign Aid and Investment Notes 1 Introduction: The Nature and Scope of China’s Foreign Aid and Investment Diplomacy 1 . Giving financial help to another country or people has a long history. However, its prominence in world politics is recent. A well-known international relations scholar calls foreign aid one of the “real innovations which the modern age has introduced into the practice of foreign policy.” He further states that among current issues, foreign aid has “proven . baffling to both understanding and action.” If this writer is to be believed, foreign aid giving is a recent phenom- enon, is poorly defined, and the debate about it often confusing. See Hans Morgenthau, “A Political Theory of Foreign Aid,” American Political Science Review , June 1962, p. 301. 2 . Peter Stephenson, Handbook of World Development: The Guide to Brandt Report (New York: Holmes and Meier Publishers, 1981), p. 6. More specifically aid refers to help given to developing countries, defined as those with a per capita income below a certain level, or funds given to multinational institutions such as the UN Development Program or the World Bank. Export credits are usu- ally defined as foreign aid by the OECD. 3 . See Stephen Browne, Aid and Influence: Do Donors Help or Hinder? (London: Earthscan, 2007), pp. 12–13. The author also discusses such terms as “recipi- ent,” “development,” “nonmilitary,” “concessional,” and “overheads.” For a discussion of the purposes of foreign aid and also debt forgiveness or relief, see Carol Lancaster, Foreign Aid: Diplomacy, Development, Domestic Politics (Chicago, IL: University of Chicago Press, 2007), pp. 12–18 and p. 57. After the Jubilee 2000 campaign and the World Bank encouraging aid giving coun- tries to cancel debts owed by developing countries, debt relief came to be con- sidered as “aid” and was so categorized in many cases. 4 . S e e J o h n A l e x a n d e r W h i t e , The Politics of Foreign Aid (New York: St. Martins, 1974). 5 . Lawrence Siring, Jack Plano, and Roy Olton, International Relations: A Political Dictionary (Santa Barbara, CA: ABC-CLIO Publishing, 1995), p. 139. 170 ● Notes 6 . The United States, the world’s foremost foreign aid giver, has often can- celled aid allocations if the recipient countries became too friendly with the Communist Bloc. Aid was cut completely to Cuba when its government “went communist.” The Hickenlooper Amendment to the US Foreign Assistance Act declared that the United States would not provide aid to countries that had nationalized US property. Other countries have used a variety of reasons for discontinuing aid or not delivering on a certain pledge. 7 . This writer has found that almost all of the scholars writing on the subject count aid this way. More will be said about this later in this chapter and in the following chapters. 8 . For a discussion of the different types of aid, see Jacob J. Kaplan, The Challenge of Foreign Aid (New York: Praeger, 1967), chapter 13. 9 . See Eugene W. Castle, The Great Giveaway: The Reality of Foreign Aid (Chicago, IL: Henry Regnery, 1957). The author notes that in the United States a signifi- cant amount of money and effort is made to “propagandize” foreign aid. See Volume 3, Chapter 1. On the other hand, opinion surveys show there is little public understanding of foreign aid. This works to the advantage of interest groups that favor aid giving. See David A. Baldwin, Foreign Aid and American Foreign Policy: A Documentary Analysis (New York: Praeger, 1966), pp. 4–5. 10 . For a recent discussion on the advantages of both grants and loans, see Sabhayu Bandyopadhyay, Sajal Lahiri, and Javed Younes, “Framing Growth: Aid vs. Foreign Loans,” Federal Reserve Bank of St. Louis, October 2013 (online at research.stlouisfed.org). In recent years there has been some shift among experts back to favoring grants over loans. See Benedict Clements, Sanjeev Gupta, Alexander Pivovarsky, and Erwin R. Tiogson, “Grants versus Loans,” Finance and Development (International Monetary Fund), September 2004 (online at imf.org). 11 . The United States wrote off a number of loans beginning in the 1970s when it became apparent that more aid was required for many poor countries and as international conferences and reviews by Congress embarrassed recipients. Many other Western nations did the same. See Kaplan, The Challenge of Foreign Aid, pp. 316–18. 12 . John D. Montgomery, Foreign Aid in International Politics (Englewood Cliffs, NJ: Prentice Hall, 1967), p. 34. 1 3 . B r o w n e , Aid and Influence, p. 5. 14 . This is a view commonly espoused by Communist nations for ideological rea- sons. This point will be discussed further ahead. However, Communist Bloc countries, especially after they were in the aid business for a short time, gave much of their aid as loans. There, of course, have been Western advocates of gift aid as opposed to loans. 15 . For discussion on this point, see George Liska, The New Statecraft: Foreign Aid in American Foreign Policy (Chicago: University of Chicago Press, 1960), p. 6. The original argument comes from Lenin’s Imperialism: The Highest Stage of Capitalism. Also see Judith Hart, Aid and Liberation: A Socialist Study of Aid Policies (London: Victor Gollangz, 1973), chapters 8 and 9. Notes ● 171 16 . There is a visible tendency for nations that lack natural resources to try to gain guaranteed sources. Japan is a case in point. See Robert M. Orr Jr. and Bruce M. Koppel, “A Donor of Consequence: Japan as a Foreign Aid Power,” in Bruce M. Koppel and Robert M. Orr Jr. (eds.), Japan’s Foreign Aid: Power and Policy in a New Era (Boulder, CO: Westview Press, 1993), p. 2. 17 . See Teresa Hayter, Aid as Imperialism (New York: Pelican, 1971). 18 . Rostow argues that economic development occurs in stages and that aid can be essential in helping a developing country move from one stage to another. See W. W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (London: Cambridge University Press, 1960). 1 9 . L l o y d D . B l a c k , The Strategy of Foreign Aid (Princeton, NJ: D. Van Nostrand, 1968), pp. 14–15. 20 . Western countries, especially the United States, have given considerable food aid to poor countries while at the same time encouraging them to improve their agricultural sectors. This seems a contradiction since a lot of poor nations needed food and the United States had a surplus. 21 . Thus there is a dichotomy between “project aid” and other aid that has been used by writers on the subject. 22 . The United States moved to giving more tied aid due to a balance of pay- ments problem in the 1960s. See Robert E. Asher, Development Assistance in the Seventies: Alternatives for the United States (Washington, DC: Brookings, 1970), p. 200. 23 . See Kaplan, The Challenge of Foreign Aid , pp. 341–71 for a discussion of what multilateral aid is and the problems associated with it. By the late 1960s, 20 percent of aid from Western countries was given through multilateral insti- tutions. Also see Black, The Strategy of Foreign Aid , p. 3. 2 4 . B r o w n e , Aid and Influence, p. 12. 25 . See Denis Goulet and Michael Hudson, The Myth of Aid (Maryknoll, NY: Orbis Books, 1971), p. 106, 117 and 258–59. The authors note that World Bank and International Monetary Fund are status quo oriented and thus dis- courage institutional change. They also note that much international insti- tution aid is tied aid, generally to improve governance, the rule of law, and human rights. 26 . This has been the case of most Communist nations’ aid not only because they did not want to forsake the political influence that aid provided, but also because they gave foreign aid largely for ideological reasons. For details, see Kurt Muller, The Foreign Aid Programs of the Soviet Bloc and Communist China: An Analysis (New York: Walker and Company, 1964). 27. Some writers, in fact, prefer the term “security assistance” to include both economic and military assistance. In the case of the United States, when aid proposals are made in Congress, security is generally used as justification. See Max F. Millikan, “The Political Case for Economic Development Aid,” in Robert A. Goldwin (ed.), Why Foreign Aid? (Chicago, IL: Rand McNally, 1962), pp. 90–91. It is worth mentioning here, given that this book is about China’s aid, that US aid to Taiwan from 1950 to the mid-1960s was given 172 ● Notes largely in the form of military aid—around 60 percent—and Taiwan was one of the big success stories of American aid producing economic growth and democracy. See H.Y. Wen, Behind Taiwan’s Economic Miracle: A Political and Economic Analysis of the US Aid Experience in Taiwan (Taipei: Tsu-Li Wan- Pao, 1990). 28 . Giving a nation military assistance also frees much of its budget for other purposes—often for economic development. Likewise “economic aid” is often funneled to the military to pay the military budget or buy more weapons. 29 . See Kaplan, The Challenge of Foreign Aid, p. 283 for more details on this issue. 3 0 . B l a c k , The Strategy of Foreign Aid , p. 86. The author notes that “economic and military aid are merely two different ways of achieving the same objective.” 3 1 . K a p l a n , The Challenge of Foreign Aid , pp. 282–83. 32 . This point will be discussed at length in subsequent chapters. 33 . Landrum R. Bolling with Craig Smith, Private Foreign Aid: U.S. Philanthropy for Relief and Development (Boulder, CO: Westview Press, 1982).
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