CHINESE FOREIGN AID

By LEO TANSKY

I. SUMMARY AND CONCLUSIONS

Since 1953, the People's Republic of China (PRC) has made available a minimum of $5.6 billion of economic and military aid. More than 35% of this total was committed during 1970-71. Approximately $3.1 billion of the total extensions since 1953 have gone to Communist countries and $2.5 billion to Third World countries. Drawings by aid recipients totaled about $3.7 billion at the end of 1971.

In the broad sense, Peking extends aid to both areas for the same purpose to expand and consolidate its influence. As between areas, however, the motivations and tactics differ. The Third World is nonCommunist and less stable politically and contains a wide variety of interests vital to the West. Chinese aid to these countries has been dispensed in order to establish and expand Peking's influence, to purvey Communist ideology and support radical regimes, and to undermine Western and, in recent years, Soviet influence.2

The PRC's aid programs in other Communist countries were originally designed to strengthen friendly regimes and to cement political relations. As Peking's hostility toward Moscow increased, the purpose of the programs shifted-to undermine Soviet influence by offering political and economic leverage to receptive Communist governments. This objective underlies recent Chinese concentration on the more independent East European countries. Peking has continued to aid Albania, has extended aid to Rumania for the first time, and has attempted to improve relations with "revisionist" Yugoslavia. New Chinese aid commitments to North Korea and North Vietnam also are designed to strengthen Peking's influence relative to Soviet influence.

The cost of foreign aid-as measured by the net outflow of men, machinery, materials, and weapons-now runs at least $400 million annually, equal to about one-third of 1% of China's GNP. A large share of this outlay consists of semi-skilled construction workers who are in plentiful supply in China. Another large share, however, is represented by skilled personnel and by military goods, industrial materials, and simple machinery which could be used profitably in China. On balance, if the magnitude and outlays associated with foreign aid are weighed against the benefits, the costs of aid have been small relative to the political returns.

1 The terms Third World and less developed countries are used interchangeably in this paper and include the non-Communist countries of Asia, except Japan; Africa, except the Republic of South Africa; and Latin America.

2 Although the magnitude of Chinese economic aid to each area has been roughly the same, the discussion in this paper centers on Third World countries because the program there is more unique, has had greater political impact, and is of greater general interest.

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II. ECONOMIC AID TO THIRD WORLD COUNTRIES

A. Magnitude and Direction

Since 1956, the Chinese have extended almost $2.2 billion of economic aid to 28 less developed countries (LDCs) of the Third World. About 35% has been used. Nearly 55% of the total extended was made available during 1970-71 (see Table 1). Approximately one-half of the total aid committed since 1956 has gone to Africa. More than 40% has gone to Pakistan, Somalia, Tanzania, and Zambia. Almost one-fifth of the total is committed to a single project-the TanzaniaZambia (Tan-Zam) Railroad. About 10% of total Chinese aid has been grant aid, consisting largely of commodities, foreign exchange, and medical, educational, and cultural equipment. The remainder is in the form of long-term, no-interest loans.

TABLE 1.-CHINA: EXTENSIONS OF ECONOMIC AID TO LESS DEVELOPED COUNTRIES, BY AREA, 1956-71

The Chinese economic aid program has grown by fits and starts. The severe fluctuations in the annual level of new commitments have stemmed mainly from political developments both in China and in the Third World. The program can be divided roughly into four phases. The first period, 1956-60, was one of slow development and growth in which the Chinese and Soviets appeared to be pursuing parallel aims. Aggregate Chinese extensions during those years totaled only about $180 million and were provided to seven countriesCambodia, Ceylon, Egypt, Guinea, Indonesia, Nepal, and Yemen (then under the Imamate). Although the Chinese held that aid should be provided only to revolutionary and anti-Western regimes, few countries met that criterion at the time.

ACCELERATION AND COMPETITION, 1961-64

During the second stage, 1961-64, the magnitude and distribution of Chinese aid expanded rapidly. About $545 million was extended to 16 countries. Although the largest share was committed during 1963-64, the political groundwork for expanding economic relations was developed in the earlier years of the period. During these years, the emphasis of the Chinese aid program shifted to Africa-an emphasis that still obtains-as many new African states achieved independence and became receptive to Peking's overtures. About half of Chinese extensions in those years went to African nations, pri

Not too much should be made of the low expenditure ratio. No country can implement project-type aid rapidly in the LDCs. Moreover, sizable drawings cannot yet be expected on the large extensions of 1970-71.

marily to countries like Algeria, Congo, Ghana, Mali, Somalia, and Tanzania which seemed to fit Peking's revolutionary criteria.

These years also witnessed the surfacing of the Sino-Soviet conflict and the struggle of the two Communist giants for influence in Third World countries. As the struggle intensified, Chinese aid commitments soared. Extensions climbed from $12 million in 1962 to $88 million in 1963 and jumped to $311 million in 1964. This surge in Chinese aid commitments was accompanied by polemical exchanges between the two countries, as each sought to demean the other's program. For example, Chinese Premier Chou En-lai toured Africa around the beginning of 1964 and hit hard on the themes that the U.S.S.R. was ready to sell out Africa's interests in order to achieve accommodation with the West, that Soviet aid was costly, and that aid from Moscow carried dangerous strings. Seeking to make the most of China's limited capacity to provide economic assistance and to contrast unfavorably the Soviet aid effort, Chou put forward eight principles guiding China's aid policy, as follows:

1. Aid is dispensed on the basis of equality and mutual benefit;
2. The recipient's sovereignty is respected and no special privi-
leges are sought;

3. Credits are provided interest-free or at a low rate of interest;
4. Chinese aid seeks to help the recipient become self-reliant;
5. Projects selected will require less investment and yield quick
returns;

6. The best quality equipment will be provided at "international
market prices;"

7. In rendering technical assistance, the Chinese will make certain that the personnel of the recipient country fully master such techniques; and

8. Chinese technicians will have the same standard of living as their job counterparts in the recipient country.

In other forums, the Chinese cautioned the Afro-Asian countries about becoming dependent on Soviet aid, complaining that Moscow had "even gone so far as to cancel aid, withdraw experts, and tear up contracts as a means of applying pressure." The Soviets, for their part, attacked what they regarded to be the poor record of implementation of Chinese aid and its "low technical level." 5

While the upswing in Chinese extensions and the polemics between the two countries left the appearance of competition, in reality, China's meager resources prevented it from engaging in any meaningful economic aid competition. The U.S.S.R. extended more than $1 billion of aid to LDCs during that period, but the largest part went to countries already receiving sizable amounts of Soviet aid, countries which were not likely to be swayed by Chinese offers. Only about $325 million of Soviet extensions went to African countries-the only area where the Chinese offered any real challange to Soviet influenceand more than 70% of that was allocated to Algeria as part of Moscow's overall Arab policy. Thus, while the Chinese programs may have affected the timing of some Soviet extensions, they did not significantly affect the pattern or magnitude of Soviet aid.

Peking Review, July 3, 1964, p. 20.

Izvestia, July 12, 1964, p. 4.

SETBACKS AND DECLINE, 1965-69

The Chinese aid programs eventually encountered various political setbacks and declined sharply in 1965-69. New aid commitments averaged only $60 million annually during those years and generally went to countries already receiving Chinese aid. New commitments fell to almost nothing in 1969.

The general receptivity to Chinese aid in many LDCs began to diminish early in 1965. A series of military coups ushered in a number of regimes less inclined to extensive relations with the Communist countries. The repercussions of the abortive coup in Indonesia in 1965 cost the PRC its chief ally (and largest aid recipient) among the LDCs. Africans, in particular, began to attack Chinese activities. Many of them had become concerned over frequent Chinese references to the "excellent revolutionary prospects" in Africa as well as Chinese support for dissident African movements. Several African countries severed relations with Peking, others expelled Chinese personnel for dealing with opposition elements. The onset of the Cultural Revolution (1966-69) in China accelerated the decline in the economic aid program as Peking became preoccupied with internal affairs."

THE NEW LOOK, 1970-71

The Chinese began to emerge from their self-imposed diplomatic isolation during 1969 and by 1970 were moving aggressively to recoup their diplomatic losses. During 1970-71, the Chinese extended nearly $1.2 billion of economic aid to the LDCs. These commitments represent almost 55% of their total extensions since 1956. Included in Chinese peak extensions of nearly $710 million in 1970 were more than $400 million for the Tan-Zam Railroad and some $200 million to Pakistan. Smaller amounts went to Ceylon, Guinea, Sudan, and Yemen (Aden). More than $465 million were extended in 1971, with Somalia receiving about $110 million. Sizable credits also were extended to Mauritania, Sudan, and Ceylon, and Peking revived $57 million of unused credits to Burma in an effort to repair relations with Rangoon. Ethiopia, Peru, Chile, and Iraq received their first Chinese aid commitments, a total of some $170 million in economic credits. Ceylon received a $25 million hard currency credit, the largest single Communist foreign exchange aid to a Third World country.

Peking not only increased its aid sharply during the past two years but it also moderated its tactics in Third World countries in an effort to remove the subversive taint many countries associated with Chinese aid. Ideological rhetoric gave way to the pragmatic consideration of expanding Chinese influence. The Chinese have come to realize that the tactics of the early 1960's undermine their efforts to establish a long-term presence and that it is difficult to have normal state-tostate relations while rendering aid to dissident groups seeking to overthrow the host government. In this sense, they are where the Soviets were when they launched their aid program in the mid-1950s. Thus, Peking is making compromises with monarchies and military juntas and is courting such non-revolutionary regimes as those in

This is not to imply that aid ceased. The close relations with Pakistan and Tanzania developed during these years and ongoing programs continued. Peking, however, did not initiate any major policy initiatives in the Third World, but merely attempted to maintain existing footholds.

Iran, Kuwait, Turkey, and Ethiopia. Peking even has warmed to the Numayri regime in Sudan, which decimated the Sudanese Communists in mid-1971.

China's renewed efforts to gain respectability through its aid programs again have elicited a sharp response from Moscow. The Soviets again have attacked Chinese aid with claims that "the effectiveness of this aid is, in practice, very low" and that its technical level is poor because the "present technical level of China's own industry is such it is hardly in a position to render highly qualified assistance. ***" In a new twist, Moscow claims that "the main purpose of Chinese credits is to ensure widening of exports of Chinese goods to the Asian and African markets." One Soviet journal states that "Peking has been trying to make its policy look respectable. Interference in domestic affairs has been less crude, it has been covered up carefully with smiling Yuan diplomacy.'

B. Character of Aid

The overwhelming share of Chinese aid has been extended for the construction of transportation facilities or has been provided as commodities and foreign exchange. About 40% of total aid has been allocated for the construction of railroads and roads using laborintensive techniques. The Chinese extended more than $400 million for the Tan-Zam Railroad, the largest single Communist financial commitment for an LDC aid project. The project involves the construction of an 1,100-mile railway from the Zambian copperfields to the port of Dar-es-Salaam in Tanzania. The Chinese also have built roads in Nepal, Pakistan, Yemen (Aden), and Yemen (San'a) and are to build roads in Somalia and Sudan.

About one-third of total Chinese aid has been in the form of commodities and foreign exchange. This contrasts with less than 5% of Soviet aid allocations for this category. Twenty-four countries have received such Chinese aid, which goes mainly to finance deficits in their budgets, to fund their trade deficits, and to cover some of the local costs of Chinese aid projects.

Of the balance of Chinese aid, some 15% has been obligated for light industrial projects, featuring textile mills, plywood and paper factories, food processing plants, agricultural implement plants, and other small enterprises requiring a minimum of imported raw materials. The only heavy industrial project undertaken by the Chinese is a heavy machine building complex in Pakistan. About 7% has been committed for agricultural and multipurpose projects, with the balance channeled into such miscellaneous projects as sports stadiums, conference halls, schools, hospitals, theaters, and hotels.

C. Terms of Repayment

The repayment terms of Chinese aid are almost unbeatable. All Chinese credits are extended without interest and are repayable in goods over 10-30 years after grace periods of 5-10 years. The Tan-Zam Railroad agreement, for example, calls for repayment over 30 years beginning in 1983. Repayment of the hard currency credit to Ceylon

1 Radio Moscow, June 26, 1971.

Novaye V remya, No. 30, July 23, 1971, pp. 18-19.