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Cambodians welcoming a visit by Chinese President Xi Jinping in 2016, with portraits of Xi, left, and Cambodian King Norodom Sihamoni.   © Reuters
China People's Congress 2018

New agency puts spotlight on China's foreign aid

Beijing putting more focus on overseas assistance while US cuts back support

CK TAN, Nikkei staff writer | China

BEIJING -- The formation of a new high-level Chinese government agency to oversee foreign aid programs highlights Beijing's interest in increasing the use of assistance as a key instrument of diplomacy in support of its global political and economic agenda.

Under an administrative reorganization that is to be voted on by the National People's Congress, the nation's rubber-stamp parliament, on Saturday, the Office for International Development Cooperation will be formed under the State Council, China's cabinet. It will bring together functions now split between the foreign affairs and commerce ministries and other departments.

"The new agency will serve as an important instrument for great power diplomacy," State Councilor Wang Yong told the NPC when unveiling the plan on Tuesday.

China extended $354.3 billion in official foreign aid from 2000 to 2014, according to AidData, a research center at the College of William & Mary in the U.S. In comparison, the U.S. spent $394.6 billion on aid over the same period.

Chinese annual aid spending surpassed that of the U.S. in 2011 and the gap is likely to be expanding with U.S. President Donald Trump taking aim at foreign assistance programs. His proposed annual budget, unveiled last month, would cut overall spending on foreign aid and diplomacy by 26% from last year.

"As [President] Xi looks to position China as a global leader, the [new] office will serve to identify strategic opportunities for Chinese aid and investment," analysts at policy research company Eurasia Group wrote in a client note on March 13. "The new office marks Beijing's increasing comfort being seen as a source of official foreign assistance -- in other words, a donor country rather than a borrower."

In the period studied by AidData, Cuba was China's top aid recipient, receiving $6.7 billion, followed by Ivory Coast, Ethiopia, Zimbabawe and Cameroon. Cambodia, at $3 billion, and Sri Lanka, at $2.8 billion, were the top Asian aid recipients.

In AidData's accounting, aid refers to financing provided on concessionary terms, mostly in grants, and primarily intended for development and welfare. But the center has kept tabs on Chinese financing flows about which too little is known as to whether the terms are concessionary or commercial.

Much of the funding China is providing through its Belt and Road Initiative is on at least partly commercial terms. In Malaysia, China is building and financing 85% of the 55 billion ringgit ($14 billion) East Coast Railway Line, a 688km project to connect a port near Kuala Lumpur to a town on the Thai border.

"BRI has lacked a defined institutional home and a guiding policy," the Eurasia Group's analysts said. "As the initiative matures, the new office will likely act as a single point of contact and also help define BRI's ambitions."

The heavy debt being taken on by some countries for Belt and Road infrastructure projects has come into focus recently. Doubts have been raised about the ability of governments in Sri Lanka, the Maldives and Laos in particular to service their new Chinese debts.

Chinese officials insists that they never impose political conditions on aid. State-owned China Daily in an editorial on Wednesday also claimed that China had not used aid as a means to interfere in the internal affairs of recipient countries.

Aside from sustainability, Chinese aid projects have also come under criticism for requiring the use of Chinese contractors. Such practice is discouraged by the Organisation for Economic Co-operation and Development but China is not a member.

Philippine media reported last week that as part of a $7.34 billion package of infrastructure financing support, China will nominate contractors for the projects. Philippine officials are seeking a preferential interest rate but have noted that China will charge a much higher rate than Japan does for its infrastructure financing support.

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