#03 development cooperation
Hartmut Sangmeister

China’s Development Policy Engagement in Latin America and the Caribbean

As the economic relationship between China and Latin America has intensified, the People’s Republic has also expanded its role as a donor of development aid. China as an emerging donor is pursuing a strategy in which foreign and economic policy interests are closely linked to development policy goals. The shift in the importance of Latin America in Chinese foreign and economic policy was marked by an official visit by Chinese President Hu Jintao to a number of Latin American countries in November 2004. The official slogan “Strengthening friendly cooperation for mutual development!”, released by the Chinese government, was designed to open the path for Latin America to equal partnership. Only in one area did the Chinese government fail to use such partnership jargon: the enforcement of the “One China Doctrine”. Applying the doctrine rigorously, China refuses to establish diplomatic relations with countries that recognise The Republic of China (Taiwan). Beijing did not institute diplomatic ties to Costa Rica, for example, until June 2007 when the Central American country broke off relations with Taiwan. Many Caribbean island nations have also undergone the same “partner exchange”, facilitated by offering generous development cooperation projects, as seen in the Bahamas. The People’s Republic of China is one of the few countries which maintain a diplomatic agency in the capital of the Bahamas, though it was not established until the country severed ties with Taiwan in 1997. China rewarded this step, granting the Bahamas a loan at a special interest rate to build a motorway to the Nassau International Airport. With the support of the Chinese as well, work also began on a national stadium in 2009.

China’s development policy goals have changed

Since its founding, the People’s Republic of China has provided other countries with development aid, assisting neighbours such as North Vietnam and North Korea in particular, but also giving aid to some African countries. Up to the 1970s, when China adopted its open door policy, Beijing centred its development cooperation on ideological and political interests. “Brother countries” received support which fought for freedom from “imperialistic repression” and the overriding goal was to win over allies in developing countries for Mao Zedong’s ideals for establishing socialism. It seems logical then that, after the successful Cuban Revolution, Cuba was the first Latin American country the People’s Republic of China instituted diplomatic relations with.

As part of Deng Xiaoping’s open door policy involving “Socialism with Chinese characteristics”, the People’s Republic of China concentrated on developing and modernising their own economy, which meant a significant drop in spending on development cooperation. Not until the 1990s did China begin to increase spending on development cooperation again with the primary goal of promoting economic interests. In keeping with the four principles of Chinese development cooperation set out in 1983, mutual usefulness and equality among partners topped the agenda. Cooperation was designed to focus on effectiveness, to use a variety of instruments and serve mutual development.

These principles are reflected in China’s policy paper on Latin America and the Caribbean region launched by the Chinese government in November 2008 to further clarify the goals of China's policy in this region. The guiding principles for future cooperation between the two sides outlined in the policy paper include:

  • Promote mutual respect and mutual trust and expand common ground.
  • Deepen cooperation and achieve win-win results in the spirit of joint benefits and shared profits.
  • Draw on each other's strengths to boost common progress and intensify exchanges.
  • Learn from each other and jointly promote development and progress of human civilization.

The rhetoric contained in this strategy document allowed China to do more than just promote its image as a nation that acts responsibly and respects the independence and right to self-determination of other nations. It also conformed to the expectations and sensibilities of the Latin American addressees’ political cultures.

Characteristics of Chinese development cooperation

It is difficult to assess Chinese development cooperation with the countries of Latin America and the Caribbean beyond the rhetoric of official government reports. Such an assessment cannot be based on the criteria Western donor countries use in their reports on official development assistance (ODA). Except for a summary description of its development policy involvement, China has not provided the OECD’s Development Assistance Committee (DAC) with any detailed reports on its donor activities in Latin America and the Caribbean. The data published by the National Bureau of Statistics of China on development cooperation are incomplete and cannot be compared to the respective information provided by Western donor countries since the Chinese statistics do not clearly distinguish between expenditures for development cooperation, foreign trade promotion and direct investments. Furthermore, the criteria to differentiate between humanitarian aid, technical and financial cooperation, and export credits are fuzzy. The People’s Republic does not regard its development policy involvement in another country as mere official development finance in a donor-receiver relationship. Instead it considers offers for support to be imbedded in the entire complex of its economic and foreign policy goals for South-South cooperation. China has recognised the United Nation’s Millennium Development Goals as binding for its development cooperation efforts and has signed the Paris Declaration on Aid Effectiveness in 2005, but it did so assumedly in the capacity of a recipient country of ODA from Western donor countries.

Parallel structures and a lack of transparency in jurisdictions appear in the institutional distribution of responsibility for Chinese development cooperation [see illustration]. Below the State Council with the general authority to set strategies and guidelines is the Ministry of Finance (MOF) responsible for allocating funds to subordinate authorities involved in economic and development cooperation. These include in particular the Ministry of Commerce (MOFCOM), the Export-Import Bank of China (China Eximbank) and the China Development Bank (CDB). MOFCOM administers all payments with a complete grant element along with partial components of package deals. Such package deals are comprehensive problem solving solutions involving complex financing, investment and payment-in-kind agreements. The Eximbank is responsible for allocating interest-subsidized credits to developing countries and low-interest loans to those in developing countries who buy Chinese products. The Eximbank receives an interest subsidy from the MOF or MOFCOM for its loan business and refinances its own capital disbursements by issuing bonds. The Ministry of Foreign Affairs (MFA) acts as an intermediary between China and the recipient countries of Chinese development cooperation support. The MFA also assumes an advisory role for project agreements with recipient countries and at development policy conferences. Within the MOFCOM, the Department of Foreign Aid acts as a leading institution responsible for setting guidelines and rules for development cooperation. MOFCOM’s Executive Bureau of International Economic Cooperation has been granted responsibility for managing, executing and evaluating Chinese development projects on an operative level. The Department of Outward Investment and Economic Cooperation manages the Chinese firms that execute projects in Latin America. The MOFCOM Division of American and Oceanian Affairs has a purely advisory role for Chinese cooperation in Latin America.

Fig. 1: Institutional distribution of responsibility for Chinese development cooperation (Source: http://english.mofcom.gov.cn/)

Depending on the respective partner country and the project to be implemented inside the framework of development cooperation, China offers different financing methods:

 

 

  • Grant aid (not requiring repayment) generally consisting primarily of Chinese produced material assets (for hospitals, for example, and for training and humanitarian aid)
  • Interest-free loan financing from the Chinese government, in particular for infrastructure projects in partner countries
  • China Eximbank loans at interest rates below applicable market interest

These financing modalities are designed to suit the individual projects that predominate China’s bilaterial development cooperation with Latin American and Carribean countries. As a rule, these projects take place within the framework of comprehensive agreements on economic cooperation in the areas of foreign trade and direct investment and most are implemented as turnkey projects. All the components for the entire project cycle – from project planning to completion – are provided by China; the use of local project input, such as labour and materials, is generally quite limited. This form of tied aid and the deployment of Chinese workers in particular, are, however, increasingly subject to criticism in Latin America. On the other hand, Chinese projects are also valued since they are generally completed in less time than comparable projects from Western donor countries whose planning and tendering procedure is considered more complicated and time-consuming.

Chinese development projects in Latin America and the Carribean

The Chinese government does not publish a complete overview of the extent and structure of Chinese development with Latin America and the Carribean. A very rough profile of Chinese development cooperation can be garnered from (Chinese language) reports issued by the MFA, MOFCOM and the Xinhua News Agency, the official government press agency [see table]. Accordingly in past years, Chinese involvement in Latin America and the Carribean seems to have focused on projects for expanding infrastructure in the raw materials and energy sectors along with conventional technical cooperation projects. China also offers free training courses as part of its TCDC Programme (technical cooperation among developing countries). The courses cover areas such as agricultural economy, computer science, solar energy and medical training. Interested parties from developing countries can apply at the commerce division of the Chinese embassy in their respective country and need only cover the costs of travelling to China.

The extent to which China offers its Latin American partners package deals cannot be sufficiently ascertained from the official reports on Chinese development cooperation. In package deals, such as those China concluded with African countries, natural resources in the receiver country are pledged as security for loans or infrastructure construction is paid for with raw materials from the recipient country. According to information provided by the Chinese, package deals have also been concluded with Costa Rica and Suriname. However, these reports do not reveal the exact form of the required payment for services.

Fig. 2: Examples of Chinese development cooperation projects in Latin America and the Carribean

Ideal for such a package deal may be a project involving the construction of a railway line between the Atlantic and Pacific coasts of Columbia, for example. In October 2010, high-ranking managers from the CDB and the state-owned Chinese Railway presented Colombian President Manuel Santos with plans for just such a project. Columbia could pay the investment cost for the 250-kilometre stretch of railway with its rich stores of mineral coal so sought after in China for steel production. Brazilian investors have also announced interest in the railway project. The development policy furore surrounding this project is, however, based less on the competition between China and Brazil to be the project’s donor and more on the fact that the railway would cut straight through a protected natural area in the Colombian rain forest and that this new overland connection between the Atlantic and Pacific could cost neighbouring Panama much of its income from the canal. Consequently Latin America would do well to weigh the opportunities and risks of cooperation with China equally.