China’s Foreign Aid

Information Office of the State Council The People’s Republic of China

April 2011, Beijing

Contents

Preface

I.Foreign Aid Policy

II.Financial Resources for Foreign Aid

III.Forms of Foreign Aid

IV.Distribution of Foreign Aid

V.Management of Foreign Aid

VI.International Cooperation in Foreign Aid

Conclusion

Preface

China is a developing country. Over the years, while focusing on its own development, China has been providing aid to the best of its ability to other developing countries with economic difficulties, and fulfilling its due international obligations.

In the 1950s, soon after the founding of the People’s Republic of China, although it was short of funds and materials, China began to provide economic aid and technical assistance to other countries, and gradually expanded the scope of such aid. Since China adopted the reform and opening-up policies in the late 1970s, its economy has been developing rapidly, with the overall national strength growing notably. However, China remains a developing country with a low per-capita income and a large poverty-stricken population. In spite of this, China has been doing its best to provide foreign aid, to help recipient countries to strengthen their self-development capacity, enrich and improve their peoples’ livelihood, and promote their economic growth and social progress. Through foreign aid, China has consolidated friendly relations and economic and trade cooperation with other developing countries, promoted South-South cooperation and contributed to the common development of mankind.

Adhering to equality and mutual benefit, stressing substantial results, and keeping pace with the times without imposing any political conditions on recipient countries, China’s foreign aid has emerged as a model with its own characteristics.

I. Foreign Aid Policy

Course of Development in Foreign Aid

China’s foreign aid began in 1950, when it provided material as-sistance to the Democratic People’s Republic of Korea (DPRK) and Vietnam, two neighboring countries having friendly relations with China. Following the Asian-African Conference in Bandung, Indonesia in 1955, the scope of China’s aid extended from socialist countries to other developing countries, along with the improvement of China’s foreign relations. In 1956, China began to aid African countries. In 1964, the Chinese government declared the Eight Principles for Economic Aid and Technical Assistance to Other Countries, the core content of which featured equality, mutual benefit and no strings attached, hence the basic principle for China’s foreign aid was formulated. In October 1971, with the support of other developing countries, China resumed its legal seat in the United Nations, established relations of economic and technical cooperation with more developing countries, and funded the Tanzania-Zambia Railway (TAZARA) and other major infrastructure projects. In this period, China overcame its own difficulties, and provided maximum assistance it could afford to other developing countries in their efforts to win national independence and to develop national economy, thus laying a solid foundation for its long-term friendly cooperation with developing countries.

After the adoption of the policies of reform and opening up in 1978, China’s economic cooperation with other developing countries extended from economic aid to multi-form and mutually-beneficial cooperation. China adjusted the scale, arrangement, structure and sectors of its foreign aid in accordance with its actual conditions. It strengthened its foreign assistance to the least developed countries, paid more attention to the economic and long-term effects of aid projects, and provided aid in more diversified and flexible ways. To consolidate the achievements of existing productive projects, China conducted multi-form technical and managerial cooperation with recipient countries, such as managing aid projects on behalf of recipient countries, lease management and joint ventures. After adopting the aforesaid cooperation models, some already-completed productive projects accomplished more than traditional technical co-operation in improving enterprise management and production level. Through adjustment and consolidation, China’s foreign aid embarked on a development road which suits better to China’s actual conditions and the needs of recipient countries.

In the 1990s, in the course of the shift from the planned economy to the socialist market economy, China took a series of measures to reform its foreign aid mechanism, focusing on diversifying the sources and means of funding. In 1993, the Chinese government set up the Foreign Aid Fund for Joint Ventures and Cooperative Projects with parts of the interest-free loans repaid to China by developing countries. The fund was mainly used to support Chinese small and medium-sized enterprises to build joint ventures or conduct cooperation with the recipient countries in the production and operation spheres. In 1995, China, via the Export-Import Bank of China, began to provide medium- and long-term low-interest loans to other developing countries, effectively expanding funding sources of its foreign aid. Meanwhile, it attached greater importance to supporting the capacity building of recipient countries, and kept enlarging the scale of technical training. Officials from recipient countries receiving training in China became an important part in the cooperation of human resources development between China and those countries. In 2000, the Forum on China-Africa Cooperation (FOCAC) was initiated, and it became an important platform for dialogue between China and friendly African countries and an effective mechanism for pragmatic cooperation in the new circumstances. Through reforms in this period, China further ex-panded its foreign aid with more notable effects.

In the 21st century, especially since 2004, on the basis of sus-tained and rapid economic growth and enhanced overall national strength, China’s financial resource for foreign aid has increased rapidly, averaging 29.4% from 2004 to 2009. In addition to deciding aid projects arranged through traditional bilateral channels, group consultations were held by China with recipient countries at the international and regional levels. The Chinese government announced a series of well-targeted foreign aid policies at many international and regional conferences, such as the UN High-Level Meeting on Financing for Development, UN High-Level Meeting on the Millennium Development Goals, Forum on China-Africa Cooperation, Shanghai Cooperation Organization, China-ASEAN Leaders Meeting, China-Caribbean Economic & Trade Cooperation Forum, China-Pacific Island Countries Economic Development & Cooperation Forum, and Forum on Economic and Trade Cooperation between China and Portuguese-Speaking Countries, to strengthen foreign aid in the fields of agriculture, infrastructure, education, health care, human resources, and clean energy. In August 2010, the Chinese government held the National Conference on Foreign Aid to summarize its experience of foreign aid work, and define the major tasks for strengthening and improving foreign aid in new circumstances. China’s foreign aid thus entered a new stage.

Foreign Aid Policy

China’s foreign aid policy has distinct characteristics of the times. It is suited both to China’s actual conditions and the needs of the recipient countries. China has been constantly enriching, improving and developing the Eight Principles for Economic Aid and Technical Assistance to Other Countries — the guiding principles of China’s foreign aid put forward in the 1960s. China is the world’s largest de-veloping country, with a large population, a poor foundation and uneven economic development. As development remains an arduous and long-standing task, China’s foreign aid falls into the category of South-South cooperation and is mutual help between developing countries.

Basic features of China’s foreign aid policy are as follows:

— Unremittingly helping recipient countries build up their self-development capacity. Practice has proved that a country’s development depends mainly on its own strength. In providing foreign aid, China does its best to help recipient countries to foster local personnel and technical forces, build infrastructure, and develop and use domestic resources, so as to lay a foundation for future development and embarkation on the road of self-reliance and independent development.

— Imposing no political conditions. China upholds the Five Principles of Peaceful Coexistence, respects recipient countries’ right to independently select their own path and model of development, and believes that every country should explore a development path suitable to its actual conditions. China never uses foreign aid as a means to interfere in recipient countries’ internal affairs or seek political privileges for itself.

— Adhering to equality, mutual benefit and common development. China maintains that foreign aid is mutual help between developing countries, focuses on practical effects, accommodates recipient countries’ interests, and strives to promote friendly bilateral relations and mutual benefit through economic and technical cooperation with other developing countries.

— Remaining realistic while striving for the best. China provides foreign aid within the reach of its abilities in accordance with its na-tional conditions. Giving full play to its comparative advantages, China does its utmost to tailor its aid to the actual needs of recipient countries.

— Keeping pace with the times and paying attention to reform and innovation. China adapts its foreign aid to the development of both domestic and international situations, pays attention to summarizing experiences, makes innovations in the field of foreign aid, and promptly adjusts and reforms the management mechanism, so as to constantly improve its foreign aid work.

II. Financial Resources for Foreign Aid

Financial resources provided by China for foreign aid mainly fall into three types: grants (aid gratis), interest-free loans and concessional loans. The first two come from China’s state finances, while concessional loans are provided by the Export-Import Bank of China as designated by the Chinese government. By the end of 2009, China had provided a total of 256.29 billion yuan in aid to foreign countries, including 106.2 billion yuan in grants, 76.54 billion yuan in interest-free loans and 73.55 billion yuan in concessional loans.

Foreign aid expenditure is part of the state expenditure, under the unified management of the Ministry of Finance in its budgets and final accounts system. The Ministry of Commerce and other departments under the State Council that are responsible for the management of foreign aid handle financial resources for foreign aid in their own departments in accordance with their respective jurisdictions. Each of these departments draws up a budget for foreign aid projects every year and submits it to the Ministry of Finance for examination, and then to the State Council and the National People’s Congress for approval and implementation. Each department controls and manages its own funds for foreign aid projects in its budget. The Ministry of Finance and the National Audit Office supervise and audit the implementation of foreign aid budget funds of these departments based on relevant state laws, regulations and financial rules.

Grants

Grants are mainly used to help recipient countries to build hospitals, schools and low-cost houses, and support well-digging or water-supply projects, and other medium and small projects for social welfare. In addition, grants are used in projects in the fields of human resources development cooperation, technical cooperation, assistance in kind and emergency humanitarian aid.

Interest-free Loans

Interest-free loans are mainly used to help recipient countries to construct public facilities and launch projects to improve people’s livelihood. The tenure of such loans is usually 20 years, including five years of use, five years of grace and ten years of repayment. Currently, interest-free loans are mainly provided to developing countries with relatively good economic conditions.

Concessional Loans

Concessional loans are mainly used to help recipient countries to undertake productive projects generating both economic and social benefits and large and medium-sized infrastructure projects, or to provide complete plant, mechanical and electrical products, technical services and other materials. Concessional loans are raised by the Export-Import Bank of China on the market, and since the loan interest is lower than the benchmark interest of the People’s Bank of China, the difference is made up by the State as financial subsidies. At present, the annual interest rate of China’s concessional loans is between 2% and 3%, and the period of repayment is usually 15 to 20 years (including five to seven years of grace). By the end of 2009, China had provided concessional loans to 76 foreign countries, supporting 325 projects, of which 142 had been completed. Of China’s concessional loans, 61% are used to help developing countries to construct transportation, communications and electricity infrastructure, and 8.9% are used to support the development of energy and resources such as oil and minerals.

III. Forms of Foreign Aid

China offers foreign aid in eight forms: complete projects, goods and materials, technical cooperation, human resource development cooperation, medical teams sent abroad, emergency humanitarian aid, volunteer programs in foreign countries, and debt relief.

Complete Projects

Complete projects refer to productive or civil projects constructed in recipient countries with the help of financial resources provided by China as grants or interest-free loans. The Chinese side is responsible for the whole or part of the process, from study, survey, to design and construction, provides all or part of the equipment and building materials, and sends engineers and technical personnel to organize and guide the construction, installation and trial production of these projects. After a project is completed, China hands it over to the recipient country.

Complete projects are a major form of China’s foreign aid. From 1954, China had helped Vietnam and DPRK repair war-damaged railways, roads, ports, bridges and urban transport facilities, and assisted them in building a number of basic industrial projects, thus making great contributions to their post-war reconstruction and economic development. Later, foreign aid in complete projects expanded in scale and scope, and accounted for a bigger proportion among China’s foreign aid expenditure. At present, they account for 40% of China’s foreign aid expenditure.

By the end of 2009, China had helped developing countries con-struct and complete over 2,000 complete projects closely linked to local people’s life and production, covering industry, agriculture, culture and education, health care, communication, power supply, energy, transportation and others.

Table 1 Sectoral Distribution of Complete Projects Overseas Completed with the Help of China (by the end of 2009)

Note: Data in this table exclude projects undertaken with concessional loans.

Goods and Materials

They include materials for production and living, technical products or single-item equipment, and necessary technical services covered by foreign aid financial resources provided by China.

China started foreign aid by providing goods and materials. In the 1950s and 1960s, China was short of goods and materials at home. But to help Asian and African countries win national independence and develop their economies, it provided these countries with a large amount of goods and materials. In addition, China provided support-ing equipment and materials for complete projects. China always uses products of the highest quality for foreign aid, and the materials it provides include machinery, equipment, medical devices, testing equipment, transport vehicles, office equipment, food and medicine. These supplies meet recipient countries’ urgent needs in life and production; and some equipment, such as civil airplanes, locomotives and container-testing equipment, have helped recipient countries improve their equipment capacity and develop their industries.

Technical Cooperation

Technical cooperation means that China dispatches experts to give technical guidance on production, operation or maintenance of complete projects after they are completed, and train local people as managerial and technical personnel; to help developing countries grow crops, raise animals and process products on a trial basis, and teach local people China’s agricultural technologies and traditional handicraft skills; and to help developing countries in inspection, survey, planning, research and consultation work of some industries.

Technical cooperation is an important means by which China helps recipient countries to strengthen their self-development capacity. It covers a wide range of fields, including industrial production and management, farming and poultry raising, handicrafts such as weaving and embroidery, culture and education, sports and physical training, medical and health care, clean energy development such as bio-gas and small hydropower generation, geological survey and prospecting, and economic planning. Technical cooperation projects usually last one to two years, and can be extended at the recipient country’s request.

Human Resource Development Cooperation

Human resource development cooperation means that China, through multilateral or bilateral channels, runs different kinds of re-search and training programs for government officials, education programs, technical training programs, and other personnel exchange programs for developing countries.

China started to run such programs in 1953. From then until 1979, China hosted a large number of trainees from the DPRK, Vietnam, Albania, Cuba, Egypt and some other countries, covering over 20 sectors including agriculture and forestry, water conservancy, light industry, textiles, transportation and health care. Since 1981, China has worked with the United Nations Development Program and hosted training courses in practical techniques in different fields for developing countries. In 1998, the Chinese government began to run seminars for officials. The departments involved and the scale and scope of such training programs have expanded rapidly. By the end of 2009, China had run over 4,000 training sessions of different types for developing countries, attended by some 120,000 people, including interns, managerial and technical personnel and officials. These trainees were from over 20 fields, including economy, diplo-macy, agriculture, medical and health care, and environmental protection. At present, roughly 10,000 people from developing countries receive training in China every year. Moreover, China has trained a large number of managerial and technical personnel for recipient countries by means of technical cooperation and other ways.

Chinese Medical Teams Working Abroad

China sends medical teams to recipient countries and provide free medical devices and medicines. These medical teams then provide location-based or touring medical services in those countries.

In 1963, China dispatched the first medical team to Algeria. So far, China has sent medical teams to 69 countries in Asia, Africa, Europe, Latin America, the Caribbean and Oceania. These teams usually work in underdeveloped areas where conditions are harsh and people lack medical services and medicines. These teams have cured many patients with common and frequently occurring diseases, and treated some complicated and serious diseases with acupuncture and moxibustion, medical massage and integrated use of traditional Chi-nese and Western medicine, saving many critically ill patients. They have also passed on their skills to local medical staff, helping improve local medical and health services. With sound medical skills, lofty medical ethics and a high sense of responsibility and mission, they have worked hard to serve the people of the recipient countries, and thus won respect and praise from the governments and peoples of these countries. By the end of 2009, China had altogether sent over 21,000 medical workers to other countries, and they have treated 260 million patients in the recipient countries. In 2009, 60 Chinese medical teams composed of 1,324 members provided medical services at 130 medical institutions in 57 developing countries.

Emergency Humanitarian Aid

Emergency humanitarian aid is provided when a country or region suffers a severe natural or humanitarian disaster. In such cases, China provides materials or cash for emergency relief or dispatches relief personnel of its own accord or at the victim country’s request, so as to reduce losses of life and property in disaster-stricken areas and help the victim country tackle difficulties caused by the disaster.

Over the years, China has taken an active part in emergency relief operations in foreign countries, and has been playing a more and more important role in international emergency humanitarian relief. To make relief actions quicker and more effective, the Chinese government formally established a response mechanism for emergency humanitarian relief and aid in foreign countries in September 2004. In December 2004, when a tsunami hit countries by the Indian Ocean, China launched the largest ever emergency relief operation in its history, providing 700 million yuan worth of aid to the disaster-stricken countries. In the past five years, the Chinese government has provided on nearly 200 occasions emergency aid to foreign countries, including offering emergency technical aid to Southeast Asian countries for the prevention and treatment of bird flu; providing emergency aid in materials and cash to Guinea-Bissau hit by a locust plague and cholera, to Ecuador to fight dengue fever and to Mexico to fight influenza A (H1N1). It also assisted Iran, Pakistan, Haiti and Chile following severe earthquakes, Madagascar after a hurricane, Burma and Cuba following tropical storms, and Pakistan following a flood. In addition, it sent emergency food aid to DPRK, Bangladesh, Nepal, Afghanistan, Burundi, Lesotho, Zimbabwe, Mozambique and other countries.

Overseas Volunteer Programs

China selects volunteers and sends them to other developing countries to serve the local people in education, medical and health care and some other social sectors. The volunteers now China sends mainly include young volunteers and Chinese-language teachers.

In May 2002, China dispatched, for the first time, five volunteers to Laos to provide services in education and medical and health care for half a year. By the end of 2009, China had dispatched to 19 de-veloping countries, including Thailand, Ethiopia, Laos, Myanmar, Seychelles, Liberia and Guyana, 405 young volunteers who provide services in the fields of Chinese-language teaching, traditional Chinese medicine treatment, agricultural technology, sports and physical training, computer skills, international relief and so on. China has sent regular teams of volunteers to Ethiopia, Guyana and a few other countries. In 2003, China started to dispatch volunteer Chinese-language teachers to other countries. By the end of 2009, China had dispatched 7,590 Chinese-language teachers to over 70 countries around the world.

Debt Relief

Debt relief means that China cancels the mature governmental debts of some developing countries that they owe China. China never urges indebted countries to pay back governmental debts. When re-cipient countries encounter difficulties in repaying due interest-free loans, the Chinese government usually adopts flexible ways and ex-tends the period of repayment through bilateral discussions. To re-duce the debt burden on financially troubled countries, China has, on six occasions, declared that it would cancel debts incurred by mature interest-free loans owed to China by those heavily indebted poor countries and least developed countries which have diplomatic ties with China. Those occasions were the FOCAC First Ministerial Conference in 2000, UN High-Level Meeting on Financing for Development in 2005, Beijing Summit of the FOCAC in 2006, UN High-Level Meeting on the Millennium Development Goals in 2008, the FOCAC Fourth Ministerial Conference in 2009 and UN High-Level Meeting on the Millennium Development Goals in 2010. By the end of 2009, China had signed debt relief protocols with 50 countries from Africa, Asia, Latin America, the Caribbean and Oceania, canceling 380 mature debts totaling 25.58 billion yuan.

Table 2 Statistics on Debts Owed to China That Have Been Canceled by the Chinese Government (by the end of 2009)