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CHINA'S ECONOMIC RELATIONS WITH THE

THIRD WORLD

By CAROL H. FOGARTY

I. SUMMARY

After the disruptions of the Cultural Revolution, the People's Republic of China reappeared on the international scene in 1970, with renewed determination to assert itself as a major world power. It sought to gain wider international acceptance by becoming a responsible spokesman for the Third World.1 În assuming its new leadership role, China deemphasized its former activist policy of promoting radical change and upsetting established governments. Economic and military assistance and trade have thus risen in importance as instruments of policy toward the less developed countries (LDC's). At the same time that its own position in the LDC's was being strengthened, Peking sought to reduce Soviet and Western influence in the Third World.

In the past 5 years, 1970-74, China has boosted its economic aid commitments to the LDC's by $2.4 billion, more than double the $1.1 billion extended in the previous 14 years, 1956-69. Nearly two-thirds of the aid in the 1970's went to Africa. The single most important Chinese aid project is the almost completed Tan-Zam Railroad, into which Peking has poured an average of almost $100 million annually beginning in 1970.

The revitalization of China's relations with the LDC's has also found expression in stepped-up military aid. In the last 5 years, the People's Republic has furnished the developing countries a total of $300 million in military assistance compared with only $250 million previously. About three-fourths of Peking's military aid to LDC's has gone to Pakistan.

As for trade, the LDC's have become large markets for Chinese rice, iron and steel, and textiles, as well as important sources of supply for rubber, cotton, and nonferrous metals. In addition, the LDC's of East Asia are a major source of hard currency for the People's Republic. Chinese exports to the LDC's were about $1.4 billion in 1974, imports $900 million.

II. GENERAL DEVELOPMENTS

In the 1960's China's credibility as a responsible power was severely taxed in the LDC's, first by its indiscriminate support of dissident elements in Africa and Asia and later by its inability to control events at home during the Cultural Revolution. The volume of China's economic aid to the LDC's declined precipitously after 1964, largely because of LDC's disenchantment with the program. African governments resented China's support for dissident groups, and two major Asian clients, Burma and Indonesia, broke relations with the PRC

1 For purposes of this paper, the terms Third World and Less Developed Countries include the following: all countries of Africa except the Republic of South Africa; all countries of East Asia except Hong Kong and Japan: Malta in Europe; all countries in Latin America except Cuba; and all countries in the Near East and South Asia.

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in the mid-1960's largely over the question of subversive activities. These setbacks to Peking's foreign policy objectives in the LDC's had not been digested when China's domestic, political, and economic structure was shaken by the Cultural Revolution. The People's Republic turned its attention inward, all but one of its ambassadors were withdrawn from their posts, and purges at the top of the government brought foreign policy initiatives to a standstill.

The upsurge in trade and aid in 1970 signaled China's break with radical ideological criteria for assistance to the Third World. In 1970 the PRC pledged more than $700 million of new economic aid to the LDC's, the largest annual aid commitment Peking had ever made. This commitment was almost 10 times Peking's average aid undertakings in any previous year and was equal in amount to two-thirds of all Chinese economic aid extended to the Third World during the previous 14 years of its aid program (see table 1). By the end of 1974, Chinese offers of economic aid to even the most obscure governments had become commonplace, as China's aid program maintained a brisk pace.

TABLE 1.-CHINA: DISTRIBUTION OF ECONOMIC CREDITS AND GRANTS COMMITTED TO LESS DEVELOPED COUNTRIES, BY AREA

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Military assistance to the LDC's, always a secondary program to economic aid, also was affected by the new look. Military aid commitments in 1970-74 have exceeded the level of 1958-69.

III. THE ECONOMIC AID PROGRAM

Recent Directions

The past 5 years have witnessed a more than doubling of the amount of Chinese economic aid extended as well as a near doubling of the number of countries receiving aid. Since the beginning of 1970, Peking has pledged $2.4 billion of economic assistance to the Third World, bringing its total commitments since 1956 up to $3.5 billion.

During 1970-74, Chinese aid to the LDC's averaged about $480 million a year with the annual aid package fluctuating widely from the average. From its record $710 million committed in 1970, China's aid offerings declined to $505 million in 1971 and $555 million in 1972, then slid to $430 million in 1973 and $200 million in 1974. The drop between 1970 and the latest year does not suggest necessarily a change in China's aid policy; rather it may suggest a lack of opportunities, especially in Africa, for undertaking programs of the scale and kind China was able to initiate in the early 1970's. The spectacular level of aid commitments in 1970 stemmed from two key extensions; a $400 million

pledge for building the Tan-Zam Railroad, China's largest aid project in the LDC's, and a $200 million credit for Pakistan. (See table 2.) In subsequent years, about one-half of the 50 separate aid allocations were for amounts ranging between $40 million and $100 million, and much of this aid is still in the pipeline to be drawn down.

TABLE 2.-CHINA: ECONOMIC CREDITS AND GRANTS COMMITTED TO LESS DEVELOPED COUNTRIES [In millions of U.S. dollars]

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The largest share of Chinese economic aid to the LDC's in the 1970's continued to go to Africa, which received almost two-thirds of the total. Among the African nations, Tanzania and Zambia were the largest recipients, accounting for more than one-third of the total extended to the continent. They ranked after Pakistan, as second and third among all Chinese aid clients. South Asia has received almost 20 percent of China's total aid package in the last 5 years, mostly because the PRC nearly doubled its commitments to Pakistan. The Near East, never an important claimant on China's aid resources, has received less than 10 percent of China's recent undertakings in the LDC's. A $45 million extension to Iraq in 1971 was the only commitment to a new recipient in the area. This assistance, together with additional pledges to old clients-Egypt, Syria, and the Yemensaccounted for all of the $185 million of new aid to the Near East in 1970-74. In 1971, China made its first overtures to Latin America and since then has signed aid agreements totaling almost $135 million. Chile, Guyana, and Peru have been the beneficiaries. Because of political changes in Chile that program is currently dormant while little has been done toward implementing aid to Peru and Guyana.

Almost half of China's economic aid commitments have actually been delivered. The People's Republic, which gets deeply involved in its foreign aid projects, has successfully coped with shortages of local funds and skills. These shortages have jeopardized the success of some foreign aid undertakings by other donor nations in developing countries. The Chinese usually retain control over projects at least until they are operational. They usually provide credits to cover the local cost component of aid projects, using the proceeds of sales of Chinese consumer goods and commodities on LDC markets. These funds are intended to cover the purchase of land, local building materials, equipment, and the payment of the salaries of local workers. China provides the administrators, skilled personnel, and usually large numbers of unskilled laborers as well. There were 23,000 Chinese technicians in the LDC's in 1974. In Africa, it is estimated that one Chinese technician is present for every $5,000-$6,000 of project aid expended.

Peking's record on its nost ambitious project, the Tan-Zam Railroad, has been particularly impressive. This railroad will join the Zambian copper belt to the Tanzanian port of Dar es Salaam. Drawdowns averaged almost $100 million a year, and the line, begun in 1970, is nearing completion in early 1975, a year ahead of schedule. At the peak of construction, 16,000 Chinese workers were employed; where sales of consumer goods were not sufficient to cover local expenditures, China is thought to have provided hard currency.

Compared with other foreign aid programs during the past 5 years, the Chinese have had a good performance record. Earlier frictionscharges of subversion and inefficiency-have practically disappeared and the LDC's appear satisfied with the operation of the program. The Chinese have avoided some of the bottlenecks and delays that impede most aid programs by assuming a larger share of responsibility for implementation. China's success as an aid donor also is attributable to its understanding of the needs of developing nations, for, as its spokesmen hasten to explain, China, too, is a developing nation. Another factor in PRC success is the character of its projects-mostly light industrial, agricultural, and transportation. These labor-intensive projects often

are easier to implement with sizable inputs of Chinese labor. The skills needed to operate the completed projects also are more consistent with the ability of the local labor force.

A Pragmatic Program

The sectoral distribution of China's aid among project-types has not varied much over time. Economic aid normally goes to economic sectors in which China performs well; these also are areas of development that are basic to most LDC plans. Peking continues to allocate the largest share of its aid resources to the development of infrastructure, primary industries, and agriculture. More than $1 billion of its aid (35 percent) has been designated for the construction of railroads, roads, bridges, and ports; another 23 percent for labor-intensive light industrial plants; and about 15 percent for agriculture and related multipurpose projects. Only 5 percent of China's aid has been allocated to heavy industry, all in Pakistan. (This contrasts with 65-70 percent of Soviet aid for heavy industrial projects.) The balance of PRC assistance has been channeled to urban development, to geological surveys, and to medical, tourist, sports, educational, and cultural facilities.

China's project assistance provides easily perceived development benefits in a short time. Profiting from its own postwar experiences, China has emphasized low-cost, easily operated projects. Projects often provide simple processing facilities for local raw materials. For example, light industrial projects such as textile, plywood, paper, food processing, and agricultural implements plants-are constructed at low cost and are put into production rapidly. They draw on large local manpower and material resources. Usually minimal skills are required for their operation and maintenance. These plants often involve production of goods that the LDC's have heretofore imported in large amounts.

Commodities and cash transfers-often in the form of outright grants are an important component of Chinese aid, accounting for possibly one-third of total Chinese aid deliveries. Commodities are used to generate currency to cover local project expenditures; China also has provided more than $400 million of commodities and hard currency as balance-of-payments support, not necessarily related to development projects.

In recent years, Peking has softened the already liberal terms of its aid to the Third World. The typical Chinese agreement of the sixties was interest-free and allowed repayment over 10 years after 10 years grace. Now, longer grace periods are allowed, ranging up to 20 or 30 years, and amortization periods often are longer than before. These terms make Chinese aid even more attractive, particularly to the poorer LDC's. Since the inception of its program, China has provided more than half a billion dollars of its aid in the form of grants. Grant aid recently has averaged about $40 million annually. In addition. China has provided the equivalent of about $1 billion of grant aid in the form of free technical services to development projects. China does not include the value of these services in estimates of its aid undertakings, and the figures in tables 1 and 2 do not take them into account. Generous payment terms and rapid delivery of Chinese aid combine to make it an attractive form of assistance. High ratios of Chinese in

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