The perils of Chinese foreign aid

Abstract

As China has become a major donor of foreign aid to developing and underdeveloped countries, concerns have been raised about the political and economic consequences for recipient countries. Traditionally, Organization for Economic Cooperation and Development countries offer aid to other countries in the form of official development assistance (ODA), which is usually concessional and conditional. Recipient countries are required to adopt policy reforms or adjustments to ensure continued aid. However, China advocates for the principle of “non-interference” and often gives aid without hard conditionalities surrounding political or economic reforms. Sometimes China also uses its aid to fulfill its political goal of isolating Taiwan by demanding that recipient countries sever formal diplomatic relations with Taiwan. In this chapter, we argue that non-conditional Chinese aid leads to detrimental political and social consequences in recipient countries. These include the deterioration of democratic development and the erosion of the rule of law, freedom of expression, and gender equality. Poorer quality education can also result, and corruption can increase. Our arguments are supported by empirical data collected in 117 countries between 2000 and 2017, and by robustness to alternative models addressing the issue of reverse causality. This chapter contributes to the literature on the perils of Chinese foreign aid.

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