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China aid or investment?



Gone are the days of Mao’s China when overseas assistance or aid meant support for newly independent countries in the ’50s and ’60s. This support included setting up the government bureaucracy and providing social services. It also included economic development and socio-cultural projects.

Post-Mao China is now very much a capitalist developing country. Then, it became uber-capitalist since the new millennium, cashing on foreign investments for speedy industrialization. It is now the other global economic power and is still growing. It has eclipsed the US economically, except that the world remains pegged to the dollar.

China’s economic tentacles have spread all over the world, reaching as far as the farthest islands of the Pacific, Latin America and Africa. But China’s main thrust is consolidating its hold on Asia, Europe and Africa where the One Belt-One Road or OBOR is the flagship program.
OBOR extends all way to Europe, reminiscent of the Old Silk Route, but it also has the Sea Belt that traverses the ports from East China all the way to Madagascar down south in Africa.

As a US held outpost of the West in East Asia after the Second World War, the Philippines has a peculiar situation similar to Japan, Taiwan and Korea. But while the US sponsored the industrial development of the latter countries, we remained underdeveloped and poor. Since then Japan, Korea and Taiwan as new industrialized economies have dealt with China pragmatically despite US military control and political economic dominance.

The Philippines remained beholden to Uncle Sam and the West. Thus, the country remains the client bastion of trade and investment with the US while the rest of Asia have become strong economic partners of China. For example, in terms of portfolio investment, the US accounts for 43 percent of inward hot money while mainland China accounts for only 6 percent and Hong Kong, 3 percent. The US can wield these flows to destabilize domestic financial markets and even the peso exchange rate.

Trade and investment data can be misleading because much of trade and investment are made by US, Japan and Europe in particular, which are major players in transnational corporation-dominated global value chains spread across Factory Asia, which do not necessarily reflect trade by Filipino or Chinese enterprises, but by US, Japanese, European, Korean, Taiwanese or other firms merely located in the Philippines or China.

China’s official development assistance (ODA) commitment to the Philippines ballooned from only $1.5 million in 2016 to $63.5 million in 2017, but this is still miniscule compared to Japan’s $5.3 billion.

The US Partnership for Growth is also much more far-reaching. It coordinates efforts by the United States Agency for International Development, US State Department, Millennium Challenge Corporation and other US agencies, involves the World Bank, International Monetary Fund and various United Nations bodies and incorporates economic policy dictates.
This, apart from the considerable military and security aid given by the US.

Nevertheless, it is important to understand that China ODA is very different from the Western ODA which has pretensions of separating development from private sector trade and investment. Western or traditional ODA is meant to assist socio-cultural-economic development to eradicate poverty; thus, official or government support is channeled mainly to receipt governments to implement development programs and projects.

China’s ODA was changed under Deng in the 1990s with the concept of development assistance focused on economic and infrastructure development promoting private sector trade and investment. Thus, boundaries of what is official and private have become conflated. On the other hand, the relationship between government and its corporations has become blurred. So, as Chinese corporations are both public and private, so are their ODA and projects in the Philippines.

Are they official and for public purpose and scrutiny or are they private? They don’t tell and don’t care to tell, since there are no clear boundaries. Is it tied aid? It does not matter, since the norms and methods are different. When companies come in for the different supposedly China ODA projects, they are investments or both. Thus, there is no bidding in traditional ODA; projects are awarded as investments anyway.

All of this is explained away with the new concept of South-South Development Cooperation (SSDC), which is very different from traditional official development cooperation of the West. But then again SSDC is very different from China’s ODA where the state and the corporation are mixed together as one and the distinction of development from economic growth is blurred.

When what is official is blurred with what is private, then we face severe problems of accountability and corruption. These are easily swept away through politics and diplomacy. Sustainable development disappears as a concept when environmental and labor standards are off the charts.

How then should we ensure that public money is used for the public benefit?