With the Asian Infrastructure Investment Bank (AIIB) coming into operation with the support of UK, France, Germany and such Western states and the BRICS Bank set to start off, China seems to have taken over the International Aid Regime. The AIIB debacle will be left for another time. China has the ability to spend billions upon billions of dollars on providing aid to developing countries around the globe through various mechanisms varying from grants to low interest loans. Considering that most Chinese MNCs are state owned enterprises, even the FDI they inject can be considered aid since the state coffers subsidize them.
However in sharp contrast USA and the bulk of Western nations are falling behind on their international aid responsibilities. They end up accusing China of using concessionary loans and grants to create client states ranging from Sri Lanka, Fiji to Angola. The truth of the matter is someone has to meet the high demand for developmental aid from the developing world. Pacific island nations with budgets in millions of dollars have come to become highly dependent on foreign aid for most of their developmental projects due to the lack of domestic surpluses. Fiji and Vanuatu have been some of the most high ranking aid receivers from China as a percentage of GDP. It is recorded that for 2013, 26.4% of Fiji’s foreign debt was denominated in Yuan. There is a scare that these nations would not be able to service this debt and would enter a cycle of dependence upon Chinese grants and loans. But what scares the West is that with this dependence come votes at the United Nations.
Another aim of this aid spree in the Pacific is the fact that Taiwan has been a major donor in the region over the last couple of decades. These Pacific nations have provided vital votes to Taiwan related resolutions. Instead of using brute force to counter this, Beijing is using its best soft power – aid power – to woo them onto its side. The Uniting for Peace resolution of 1951 was created, not by the Non Aligned Movement, but by USA to circumvent the Soviet veto to use UN forces to defend South Korea. Thus, traditionally USA has had the ability to lobby and rally over two-thirds of the United Nations General Assembly to block or pass resolutions except for those on Israel-Palestine. However Chinese Aid Power might be encroaching upon that US comfort. With aid being thrown around to all corners of the world – China is gaining votes. And it is not direct aid that is creating this impact. This creates the problem of not being able to measure amount of money China has thrown around since the dragon woke up properly in the 2000s. The Nicaragua Canal is a very good example of indirect aid. Its President has been a staunch anti-American but his economic success has been meager. As of such a Chinese corporation has announced the building of an alternative to the Panama Canal – a project of over $50 billion. The government has declared it has the miracle project that will propel the Central American republic into prosperity. It is now highly dependent upon the Chinese government to arrange for the Chinese investor for sufficient funds from state-owned banks to start the canal work. Considering the best known example of US involvement in Nicaragua was funding the Contra terrorists, it seems China one point up USA Nil.
The Exim Bank of China based in Guanghzhou has been one of the largest providers of developmental loans to emerging economies like Sri Lanka and Bangladesh. The Ports of Hambantota and Chittagong were built by Chinese contractors through funds provided by the Exim Bank of China. In fact a large amount of Sri Lanka’s $4.8 billion Chinese loans have come from the bank. One could say that a bank created the worldwide scare of the Chinese String of Pearls becoming of operational with the Hambantota harbour in 2010. The Colombo Port City Project has become the most controversial of the ongoing Chinese investments with the regime change. Its $1.4 billion FDI by China Communication Construction Corporation is the largest in the island nation’s history. The associated credit infusion and job creation has impact than any amount of grant or aid to the emerging economy. Yet corruption and lack of transparency has plagued the project’s future under the Sirisena regime’s good governance policies. Even China’s Asian rival, India is becoming increasingly dependent upon Chinese FDI to boost its GDP growth. During Xi Jingping’s visit to India, many new projects were agreed upon including railways and highways. In fact Chinese workers are already under the Indian capital expanding its subway system. While India keeps developing China killing missiles to keep up with the ever rising dragon, the dragon keeps winning Indian hearts with its monetary gifts. While Xi brought FDI to India, the result of Obama’s trip was further draining of Indian coffers through billions of military procurements. As USA removes its soldiers from Afghanistan, it leaves behind dozens of Chinese investments in the trillion dollars mineral resources of the Taliban infested country. It’s not US companies that have procured mining rights in Afghanistan but Chinese companies with heavy profits and government subsidies. Again it’s not direct aid but its money that Afghanistan’s ailing economy needs and as the mining expands, China will definitely build the roads and airports its trucks and workers require to feed the demand back home. US spent billions freeing Afghanistan but it seems China will win Afghan hearts in the long run. The US economy is growing again, but the federal budget is constrained by burgeoning welfare payments and debt servicing. It falls short annually by $90 billion to repair its own highways.
Thus, USA cannot even dream of competing with China’s greatest soft power asset; Aid Power. USA has its own soft power and that is being the epitome of freedom and democracy. China cannot compete with the soft power of Hollywood. But it will win on the development front by feeding the aid starved developing world and winning long-term allies that are ever grateful to China for a better future. One cannot forget the Asian values and Mahatir Bin Mohammed’s claim that Asians (and other developing country citizens) will prefer economic development to personal liberty .