China's foreign-policy ambitions could change the way it spends its money abroad.
- By Evan A. FeigenbaumEvan A. Feigenbaum is Vice Chairman of The Paulson Institute at the University of Chicago and Nonresident Senior Associate at the Carnegie Endowment for International Peace. He served twice during the George W. Bush Administration as Deputy Assistant Secretary of State, including with responsibility for US-India relations.
In April, the United Nations and the U.S. government co-hosted a conference in New York to raise funds for the reconstruction of earthquake-ravaged Haiti. More than 50 countries kicked in $5.3 billion in all, at least a billion dollars over their initial goals. But the world’s fastest-growing economy ponied up a miserly $1.5 million, comparable to the donations made by Gambia and Monaco — hardly top-three economies — and less than the cost of a house in some of the tonier suburbs of Shanghai.
Yet tensions are growing between the way China spends its money abroad and its goal of being viewed as a responsible global player. Chinese leaders face increasingly stark choices about whether and how to move China closer to the international mainstream. And at least some recent Chinese decisions suggest that changes might be afoot.
China has come under frequent criticism for failing to play by the rules followed by the established powers and institutions when opening their checkbooks to the rest of the world. No wonder: Chinese loans are often negotiated in secret, come without conventional expectations or conditions attached, and are offered to countries where Western money fears to tread, usually with good reason. China is both an investor and a donor of aid — it converted $75 million in loans to Afghanistan into grants last year — but Beijing generally prefers to act alone, rarely coordinating its strategies or programs with other countries.
Still, some Chinese policies might be changing. In 2007, China joined the list of donors to the International Development Association, the World Bank’s fund for the poorest countries, which offers no-interest loans on generous terms. Beijing is beginning to work jointly with the World Bank in developing countries — last month, for example, the bank’s private-sector unit, the International Finance Corporation, agreed to pump $10 million into a Chinese real estate development in Tanzania. And, however modestly, China is also coordinating with other donors, including with the United States on projects in Ethiopia and Angola.
These are small steps, to be sure. But for a country that has long preferred to go it alone in the international development arena, they were hard to imagine not so very long ago. And as China’s power grows, it will come under even greater pressure to forego a solo approach. For one thing, as China continues to pursue — and attain — greater voting influence and financial stakes in the major multilateral lending institutions, Beijing will face contradictions between its own lending policies and the practices of these very international organizations. Indeed, China’s loans have, in many cases, undermined the reform message of the institutions in which it now seeks to play a greater role.
Chinese aid and loans do have conditions, but not the kind that more established donors usually impose. China hasn’t demonstrated much concern with reducing graft, increasing transparency, or improving conditions for private-sector firms; instead, it requires recipient countries, to varying degrees, to buy and hire from China. Recent Chinese loans of $10 billion for Kazakhstan, $4 billion for Turkmenistan, and more than $630 million for Tajikistan, for example, have arguably done little to advance reforms or improve economic decision-making, much less to improve governance.
But as China grows in reach, its economic incentive to revisit these practices might also expand — not least to protect its own investments. Beijing has encouraged Chinese enterprises to become more active investing overseas. But some business environments are proving too hazardous even for hardy Chinese state-owned enterprises, which, with government backing, have in the past been willing to take risks that many others will not.
This might be why the Chinese surprised their U.S. counterparts in a round of 2004 policy-planning discussions by asking about the good-governance provisions in then-President George W. Bush’s Millennium Challenge Account development fund. And more recently, as commodity prices have become more volatile, Chinese enterprises have become more concerned with the need for predictability in some of the countries in which they are investing.
"The Chinese have changed their strategy," a senior economist in Guinea’s Finance Ministry — a longstanding Chinese partner — told the New York Times last year. "They are not going to inject $5 billion into an unstable country in an uncertain market climate." This was a modest, but important, reminder that while China’s money is changing the rest of the world, growing involvement with the world might yet change China, too.