China's announcement that it will be setting up the National Development and Cooperation Agency – a new foreign aid agency – signals development is a critical state function deserving of dedicated high-level attention and institutional support. Initial reports suggest the new Chinese agency will be separate from both the Ministry of Commerce (MOFCOM) and the Ministry of Foreign Affairs. Institutional reform was expected but what does this new architecture offer Chinese development cooperation and the world at large? Five of our experts offer their thoughts.
This announcement is another sign of China’s rapid emergence from poorhouse to powerhouse.
In 1978, the average Chinese citizen was significantly poorer than the average African. Between 1980 and 2000, China received $38 billion in foreign aid. By 2015, it had the second largest economy in the world and had lifted some 800 million people out of extreme poverty. Despite persistent development challenges, China has moved from recipient to donor in a dramatic way – providing an estimated $8 billion a year in development assistance, and some $350 billion in loans and other support between 2000 and 2014. In the last two years China has launched two new international development banks and the One Belt One Road Initiative, promising to bring over a trillion in infrastructure investment to over 68 countries.
This journey has made China a lender of choice to many countries looking to build infrastructure. It has also demonstrated that the use of its resources abroad – to create markets, alliances and foreign employment for its citizens – can help pave the path to becoming a superpower.
Until now, official Chinese aid has lagged significantly behind these bold initiatives. At present, Chinese aid is spread through the mercantilist Ministry of Commerce, the Foreign Ministry, the quasi-state banks, and other domestically-oriented entities like the Ministry of Public Health, the Army, and the Earthquake Agency. But as China’s aid and desire for influence have expanded, it has outgrown its bureaucratic muddle.
In common with most powerful and wealthy nations, it needs to be able to respond to humanitarian crises like Ebola and the Nepal earthquake with resources, capabilities, and expertise. And if it wants to be effective with its development aid, it needs a strategy, some comparative advantages, and the ability to know who’s doing what where and whether it is working.
With a consolidated aid agency headed by a senior official, Chinese aid can be expected to become more effective, more transparent, and more coherent. The agency should be welcomed into the international system with open arms, and a clear expectation that the significant and hard-fought advances in development effectiveness that other donors have made will be adopted by China as well.
Alex Thier, ODI’s Executive Director, led the US-China Development Dialogue at USAID from 2013 to 2015.
Given the mixed record of mergers between foreign affairs ministries and development agencies, this autonomous structure is to be welcomed. It might arbitrate competition between the Ministry of Commerce (MOFCOM), the Ministry of Foreign Affairs, the Ministry of Finance and corporate contractors. Greater coherence of Chinese aid is a tantalising prospect for those who view its current set-up as unwieldy, opaque and inefficient. It also hints at the political desirability of robust and focused support to the One Belt One Road Initiative, possibly increasing the overall likelihood of its success.
On the other hand, it is within China's weak and complex institutional architecture that space for innovation in support of its global development ambitions has grown. Political scientist Yuen Yuen Ang has shown how weak Chinese institutions have successfully permitted innovation by under-specifying its trajectory –a process she describes as directed improvisation. Will a strong centralised development agency under State Council authority blunt the bureaucratic autonomy and experimentation critical to China's own developmental success? Given the State Council retains control over large-scale assistance projects and the direction of aid policy, there is likely to be much less room for independence in the new agency than in the UK's Department for International Development, an agency to which it is now being somewhat awkwardly compared.
Overall, the announcement of a new agency cannot be disassociated from Chinese President Xi Jinping’s desire to shape and steer ideas in global development. The ability of the new agency to meet both Chinese economic ambitions and global development goals will critically rely on his ongoing political stewardship.
China’s proposed new development cooperation agency could enhance delivery of its international humanitarian assistance which has been increasing in volume in recent years. Driven by a long tradition of solidarity with people affected by crisis, China is positioning itself as a ‘responsible great power’ that simultaneously pursues other diplomatic, security and economic objectives.
But as its global ambitions take it into fragile regions, in which its landmark ‘Belt and Road’ infrastructure is developing, China is seeing the limits of its traditional bilateral relationships with these states. It needs to manage the risks of engaging in conflict-affected regions, and the new agency could be crucial in these efforts.
If the new agency focuses on developing policy frameworks and institutional capacity for humanitarian action, this could improve coordination between the complicated web of multiple ministries involved and deliver more effective and strategic responses for both people in need and the country’s wider foreign policy objectives.
The new agency could also support better engagement between Chinese humanitarian assistance programmes and the wider humanitarian community at a time when crises in Syria, Yemen and elsewhere are pushing the international system to its limits. But this will require give and take on both sides. The international humanitarian community needs to engage China on its own terms as it pursues its new development strategy alongside other foreign policy ambitions, while keeping the focus on people in need.
This agency should drive a stronger and more effective role for China as a provider of development finance, both globally and at the country level.
In an ‘age of choice’ for development finance, China is now one of the largest financiers in several Sub-Saharan African and South-East economies. In Kenya, Chinese assistance matches that of the African Development Bank and China is the largest bilateral lender to the Kenyan government. Despite China’s role as a finance provider, its visibility and participation in country coordination mechanisms and global fora has often been low.
A new agency will help close the gap between its increasing disbursement of financial resources and its position as a development partner.
Details about the structure of the agency are incomplete. It is expected to set policy directions and strategies on development cooperation while strengthening and consolidating coordination across those ministries with a development mandate.
Leadership at the highest level of government matters for the delivery of development cooperation both in terms of aid volumes (for example, rising or ring-fenced aid budgets) and higher scores across a variety of aid quality indicators. An agency reporting directly to the State Council should help achieve this leadership; perhaps by improving programme design and implementation at the country level, and increasing the efficiency and effectiveness of programmes.
China’s foreign aid has a strong bilateral component. In addition, it includes a wide range of players, such as national and local governments providing technical and financial assistance. In recent years, however, China has increased its participation to multilateral organisation and platforms, but the approach has remained relatively fragmented.
With China affirming their commitment to a (managed) globalisation and an increasing role on fighting climate change, China has taken a prominent position on the global scene. This calls for a revised outward strategy, and a more coordinated approach to international development. And while the Chinese media pointed out that a national-level agency is common in developed countries like the UK, the US and Australia, some highlighted that China is not a high income country but will nonetheless set up a development agency.
Most importantly, the new agency could coordinate the development impact of other flagship initiatives, such as the Belt and Road. As State Councilor Wang said, it, ‘will allow aid to fully play its important role in great power diplomacy ... and will better serve the building of the Belt and Road.’
As discussed in our commentary on the recent National People’s Congress, the Belt and Road Initiative has the potential to promote development through investment, stimulating job creation and encouraging economic transformation. However, this is not a given – it needs effort and coordination to ensure that Chinese outward investment under the Belt and Road framework provides a positive development impact. The new agency could coordinate and guide this process, ensuring a beneficial outcome for the host countries.