Common Values, Common Rules: How Should DAC Countries Engage with China in International Development?

The People’s Republic of China is not a new development actor, but it is now a major one, and it brings distinct historical experiences and approaches to the table. While foreign aid and models of development have traditionally been the domain of Northern (transatlantic) countries, the emergence of new global powers—such as China—cannot be ignored. Some have framed this as a new East-West rivalry, and others even see a new Cold War on the horizon. Neither framing is constructive for those less developed countries struggling to stabilize their societies, their economies, and their security architecture.

A truly global international development regime should be based on shared values and common rules, while also respecting the wants and rights of recipient countries and societies. If the Development Assistance Committee (DAC)—the “traditional donors”—find common ground and build mutual trust with China, improved understanding and learning, and transparency, may follow. The DAC countries need to find the right balance between building a trusted partnership with China and calling for integrity from all partners. For traditional donors to engage more effectively with China, they first must understand China’s different approach to development.

Doing development differently

Contrary to the hyperbole of “rising China,” China is not a new development actor. Like many other countries of the Global South, China took part in the Bandung Conference in 1955, which brought together newly independent states from across Asia and Africa at a time when some European countries were still holding on to their colonial assets. The Bandung Conference set a new discourse of South-South Cooperation, whose principles include non-conditionality and non-interference in sovereign affairs.

These norms have been integral to China’s own foreign policy and economic engagement overseas—at least in theory. Chinese loans and aid are widely purported to have “no strings” or political conditions attached, in contrast to loans from the IMF and Bretton Woods institutions, which have historically required often-problematic abrupt economic liberalisation or political and governance reforms, particularly during the structural adjustment era. (Interestingly, the World Bank’s Articles of Agreement do include a non-interference clause.)

In reality, however, Chinese loans and aid are not free from politics. Instead, they are used, strategically and deliberately, as political instruments. The first condition of receiving aid or finance from the People’s Republic of China is to recognise the “One China” policy: breaking off diplomatic relations with Taiwan in favour of the Mainland, a trend that has been accelerating in Africa, where only one Taiwanese ally remains.

China’s development model is also notable for its high-level bilateral exchanges through prestigious events like the Forum for China Africa Cooperation (FOCAC) or the China and Community of Latin American and Caribbean states (CELAC) Forum, rather than civil society actors. This often involves exchanges between political and business leaders from Africa and Latin America, with the aim of fostering “mutual learning” and “development cooperation” between partners, rather than top-down aid. Current and future elites in developing countries take home lessons on how China governs its people with its single-party system. While “Western” institutions use hard power in a top-down relationship, China’s leaders master soft power and the psychology of reciprocity.

China, in contrast to many DAC countries, makes no secret that its efforts in international development are for its own commercial benefit. Development cooperation is for mutual benefit, and aid projects and infrastructure finance are a means to create new markets for Chinese firms abroad and demand for Chinese goods and services—ensuring the sustainability of China’s domestic growth.

China’s aid programme differs from the traditional donors’ in another important aspect: transparency. While China-initiated international institutions like the new Asian Infrastructure Investment Bank (AIIB) adhere to high standards of transparency and accountability, China’s bilateral aid is more nebulous. Several academic initiatives, including AidData and the SAIS China-Africa Research Initiative (CARI), track Chinese overseas lending, but there are few official sources on bilateral aid and lending, hindering coordination efforts and effectiveness across aid agencies. The most recent official White Paper on Chinese foreign aid reports that China provided foreign assistance to 121 countries (up to 2012), though estimates of the volume of aid differ widely.

These philosophical and material differences have generated some mistrust between Chinese and DAC aid agencies. More broadly, trust in Western institutions has long been impaired due to slow reform processes of the Bretton Woods international development architecture, which has kept control over the IMF and World Bank presidencies in the hands of American and European governments. China became increasingly frustrated with the reluctance of the existing power to increase their influence in accordance to their rising global economic importance, and the request for increased voting shares in the World Bank and IMF was repeatedly rebuffed by influential states, notably the US. The reform of IMF governance and voting rights became effective only in January 2016, even though they were agreed upon in principle in 2010. Under the Obama administration, US efforts to dissuade its allies from the AIIB also fuelled mutual perceptions of threat and containment. The current US administration treats China’s engagement in the developing world as a greater strategic threat, setting a tone of rivalry that undermines mutual trust and cooperation.

China’s evolving international development institutions

The recalcitrance of Bretton Woods to integrate rising powers perhaps strengthened China’s will to build and lead its own institutions, resulting in the establishment of the BRICS New Development Bank (NDB) and the AIIB in 2014, both focused on infrastructure finance. The AIIB has gained strong international backing as country membership has grown to 93 countries (including 20 prospective members), compared to only 67 for the Asian Development Bank (ADB) (despite the US’ misguided efforts).

Closely related to these new institutions is the Belt and Road Initiative (BRI), first announced by President Xi Jinping in 2013. The BRI has created suspicion in the international development community, partly because of China’s seemingly obscure deals with the countries involved. Hambantota Port in Sri Lanka and the two railway projects recently halted by Malaysia’s new prime minister have been cast as examples of China using its financial leverage to advance its strategic and economic interests at the expense of recipient partners. While these accounts of “debt-trap diplomacy” are overplayed, a CGD study finds that Chinese loans have contributed to high risks of debt distress in many countries along the “Belt and Road.”

In spring 2018, China created a new government agency for development cooperation, CIDCA—the China International Development Cooperation Agency. Institutionally, it mimics the international development agencies of the OECD-DAC countries, such as USAID and DFID, and its goal is to coordinate China’s overseas “development cooperation.” CIDCA supervises foreign aid projects, previously the domain of the Ministry of Commerce, but also takes a new strategic planning and overall coordination role in foreign aid, designed to ensure stronger links between commercial and diplomatic objectives in foreign aid.

Finding common ground between China and the DAC

It remains to be seen how the new CIDCA navigates China’s fragmented development and aid bureaucracy. Its establishment highlights areas of overlap and alignment between China’s emerging development cooperation framework and the existing, OECD-led international development regime. There are several potential areas of cooperation.

CIDCA’s stated goals are to reduce and eliminate poverty, improve the livelihood and ecological environment, promote economic development and social progress, and enhance the self-development capacity of aid recipients. These objectives resemble the DAC mandate, which aims to promote “sustained, inclusive and sustainable economic growth, poverty eradication, improvement of living standards in developing countries, and to a future in which no country will depend on aid.”

Besides these broadly aligned normative objectives, there are also technical similarities between the CIDCA and DAC approaches. In particular, new CIDCA guidelines call for a number of measures to assess projects. To establish an evaluation system for foreign aid and implement evaluations, CIDCA is also obliged to set up statistical rules to collect, summarize, and prepare statistical data on foreign aid projects. CIDCA is also compelled to implement projects according to law and through competitive bidding (though solely among Chinese firms). Although these measures do not necessarily translate to complete transparency, they do indicate a greater emphasis on its importance, and an area where DAC countries can contribute their experience and expertise. They also point to the need for greater oversight as well as stronger data collection—a major challenge across China’s aid bureaucracy.

Another area of agreement between China and DAC countries is the need for research on development cooperation policies. CIDCA’s goal of researching and reforming modes of foreign aid and their implementation indicates the growing relevance of aid effectiveness in China’s aid policies and discourse. The new AIIB and NDB provide further ground to find common values and guiding principles. The AIIB was founded as an alternative financing vehicle to Western-led institutions, such as the World Bank, the Asian Development Bank, and the International Monetary Fund (IMF). Despite that, its structure and legal framework borrows from existing global best practice. The AIIB has a sophisticated accountability framework that incorporates high standards of transparency, including through policies on information disclosure, such as its Policy on Public Information. The mandate further asks for policies addressing environmental and social impacts. These high standards of public information and governance demonstrate that Chinese-led initiatives can follow international standards, and offers a basis for engagement with CIDCA on future cooperation in aid projects.

Finally, while China’s combining of commercial and development objectives and its use of lending instruments have been viewed with suspicion, particularly in the US, DAC countries can learn from this approach. Like China, DAC countries could view sub-Saharan countries as emerging economic partners and areas of potential commercial opportunities for their firms. This win-win mindset of linking business interests with aid is taking root in DAC development agencies, though donors must ensure that the needs of developing countries are prioritised.

Building bridges

The deterioration of trust between the DAC countries and China can be reversed through small steps of cooperation. To achieve the best outcomes for the most vulnerable people on our planet, DAC countries should not lower their standards, but should engage China based on the common values and common rules extant in the policies and institutions on both sides. DAC countries can build trust and mutual understanding through discussions built on common values and rules, after which, bridging the differences—particularly pushing for greater transparency and accountability—should be the crucial next step.

The OECD-DAC has previously tried to engage with China in international development: in 2009, the China-DAC study group shared lessons from China’s development cooperation and experience in a policy-targeted forum. The Global Partnership for Effective Development Cooperation (GPEDC), which brought together 161 countries, also attempted to incorporate rising powers and non-traditional donors through the Busan Partnership Agreement of 2011. However, many BRICS countries, including China, resisted joining the forum, viewing the GPEDC as a “Northern” institution that lacked legitimacy because it was outside the UN. Many BRICS also worried that participation in the GPEDC would come with pressure from Northern countries to raise their aid obligations.

China still views itself as aligned with the Global South, and future engagement must proceed on this basis, with the common goals of poverty reduction, self-development, and sustainable growth. China has been a strong proponent of the UN Sustainable Development Goals (SDGs), and using the UN as a forum for engagement would provide assurance that norms around sovereignty would be respected. Developing countries should also be partners in these discussions, and any trilateral cooperation between DAC and Chinese aid agencies should be at the initiative of recipient governments. Finally, while China eschews the title of “donor,” its sheer financial clout and its outsized economic impact in the developing world sets it leagues apart from other “Southern” development actors. As its presence grows, China also has a growing interest in ensuring the development effectiveness of its aid and its projects abroad, and an interest in learning from the experiences of the “traditional” donor regime.

Continuing the East-West or North-South pattern of thinking—from both sides—will not help achieve the mutually held goals of international development and security. The greatest danger is that the contest for influence on the African continent—and also in Latin America and Asia—may once again disregard the rights and interests of the people in these countries, who already grapple with the task of holding their own governments responsive and accountable.