Dan Banik and Axel Dreher discuss how China has transitioned from a benefactor to a banker and the impact of this shift in low-income and middle-income countries.
China plays a crucial role in the development policies of many countries around the world. It offers grants and loans, and builds major infrastructure projects such as roads, bridges, power plants, parliament buildings, hotels, and football stadiums. A new book claims that that much of the conventional wisdom about Chinese development finance rests on untested assumptions, individual case studies, and incomplete data sources. The authors argue that Beijing’s use of debt rather than aid to bankroll big-ticket infrastructure projects certainly creates new opportunities for developing countries to achieve rapid socioeconomic gains. However, such actions also introduce major risks, such as corruption, political capture, and conflict.
Axel Dreher is a Professor of International and Development Politics at Heidelberg University, Germany. Together with Andreas Fuchs, Bradley Parks, Austin Strange and Michael Tierney, Axel co-authored Banking on Beijing: The Aims and Impacts of China's Overseas Development Program (Cambridge University Press, 2022). Twitter: @DreherAxel
Key highlights:
Host:
Professor Dan Banik, University of Oslo, Twitter: @danbanik @GlobalDevPod
https://in-pursuit-of-development.simplecast.com/
Banik It's lovely to see you, Axel. Welcome to the show.
Dreher Thank you.
Banik For many years, both you and I have been studying China, and there's a puzzle in many ways that I think you and your co-authors in this wonderful book that you've just published identified. But I've also noticed that we don't really know very much in terms of information coming out from the Chinese side. A lot of us make claims about the so-called impacts, there are numerous criticisms from Western scholars and policymakers on what China is doing or not doing. Yet we also see quite a lot of evidence from African policymakers saying, this is really good, China is doing what many Western countries were neglecting, such as infrastructure investments. Yet there is this puzzle that Chinese aid in investments is shrouded in secrecy, and the same applies also for Beijing's signature foreign policy initiative, the Belt and Road Initiative. Let's start there, Axel, why do you think there's so little information coming out from China on aid, on investments on Belt and Road, it just seems to be very puzzling, why is that so?
Dreher Well, I can only speculate and given the results of the book it is even more surprising because when we started with this it was all this Chinese aid bashing, all white elephant projects, there's no responsibility, it's not developmental, it doesn't help and so on. If you look at the key results of the book compared to Western donors, it doesn't look so bad. They would then think that the Chinese Government would indeed have an incentive to make that available and to claim credit for what they do. We have a couple of explanations; one is that we think the Chinese government doesn't even have that type of information. In a couple of interviews, it turns out that occasionally the Chinese bureaucrats refer to our data are when they want to know how much foreign aid Chinese agencies are giving to a particular country or sector in a particular year. The reason is that first of all, they don't have this definition of official development assistance like Western donors much of what China gives, the bulk of it is not concessional and it would not be considered aid proper according to Western definitions. They themselves see more south-south cooperation and is given by multiple actors, so they simply don’t aggregate statistics that would cover all these different flows of very different types of very different actors. Another potential reason could be that of course parts of China are still poor up to this day, and it might simply look weird to many Chinese people if they learn that large amounts of aid are given, and in particular considering the term aid we had all these other countries, but who helps us? Would we really want to give parts of our income to help others? Of course, in reality, much of it isn't official development assistance it isn't really aid, it's rather like commercial flows, the share of concessionally is pretty low. Then when you look at Western Countries, much of this would be private flows, but when it comes from China, the government sector is involved and that would be considered so-called other official flows, and there's simply nothing comparable in that order of magnitude from Western governments.
Banik This reminds me of when we have studied the speeches of Chinese ambassadors in many parts of the world, by the way they contain quite a lot of useful information, that's how I've been able to track what China is doing by reading and analysing the speeches, what kind of projects, how much money, how many jobs have been created according to their official versions because it's so difficult to figure this out. But it reminds me of what they often say in these speeches Axel, they say China is the largest developing country in the world, and I've been arguing that it's actually a very useful and very diplomatic thing to do because in many ways it reduces the expectations from recipient countries, don't think we're the US or Scandinavia or something. If you have so much to give, whatever we give is because of solidarity, we're being nice, but we also have 200 million people who are poor, so I think they make this very good case. But to return to this puzzle about secrecy, do you think some of it is because of maybe not lack of capacity, I've been discussing on this show how wonderfully capable Chinese bureaucracy is. But there may be an unwillingness to share information there may be rivalry between the Ministry of Commerce, Ministry of Foreign Affairs maybe not enough information flow that could be one reason within China. There's also the feeling that it makes very good sense to not talk about this too openly when you have parts of Western China that are still relatively underdeveloped. It may seem quite odd, right? But what I think is fascinating and I'd like to hear your views on this is that if I'm looking at it from a Chinese foreign policy perspective, I would milk this issue as much as I can because this would be a great case of enhancing my soft power, by being more transparent, talking about it more openly, I would be competing with the United States, but that is not happening right?
Dreher I would do the same, I totally agree. You never know, when I started working in the aid effectiveness research, I tried to get data from Swiss non-governmental organisations they very much behaved like China with the main difference being they were sitting on this data. They had them all compiled, and it was just the question of whether they would share them with us. It was a back and forth, at one point in time they said they would do it and then they didn't and the reason, the way I read it was that they were afraid that we would find something with the data that counters their interest. Then the Swiss newspapers would have written aid bias with NGOs does effective studies by leading researchers have shown blah blah blah. That could have been a blowback in terms of donations for these NGOs, and there's always a risk. So, once you are transparent, you don't know what kind of results people produce with the data and then there's no way of pretending anymore when everything is out there, everything is transparent.
Banik But don't you also think it's because Chinese aid has historically, until recently, not had an aid agency? That the architecture has been more sort of informal or muddling through, it wasn't a very top down or a bottom up well organised system. You developed things as you went along, and it was only a few years ago that Sitka this aid agency was initiated.
Dreher Indeed and again, the bulk of what we observe when we say China is the largest donor that does not hold true in terms of official development assistance. It's really when we look at these financial flows combined that the bulk of which would simply, I assume not be considered as aid in China. Then you have all these different actors with all these different motives, and occasionally evidence from interviews indicated a certain interest from interview partners in having this information. Occasionally we heard they would now be building their own database, so I don't think it's a lack of capacity it's just a question of policy will, of course it involves the coordination of a very diverse set of actors, so it would need to come from somewhere further up.
Banik I also think because, at least in our parts of the world, there is so much talk about justifying aid or even investments to the taxpayer, there has to be an evaluation, an impact evaluation, is it working or not? One advantage of not having everything out there in the open is that these questions are not asked, and if it is asked, it is by outsiders, but not by the official actors themselves.
Dreher Then you can always tell the narrative you would like them to hear, we help our partners on an equal footing we do not interfere in domestic politics, it is all about partners on the same level, exchange, which is of mutual benefit is important. Again, if you consider what we had talked about previously that many people in China might not be so happy with donating to other countries but as long as you say it's not really a donation, it's not a grant that is something that's in our mutual interest and we as China, we benefit from it. Then there's no need to justify it, everything's alright.
Banik Axel, I want us to talk a little bit about the definition of aid because it has implications for the Chinese, how we understand what is aid, what is investments, what is a loan. This is what causes a lot of confusion in both academic and policy circles, some of these are just all lumped together. So let me ask you first, if you can kindly reflect on the OECD DAC definition of aid versus what China considers aid. Because I noticed that China often doesn't want to talk about aid, it says it is some sort of Chinese activity or solidarity or presence, various words and terms are used. So firstly, what are the differences? I'm asking you this particularly because throughout the book and in many of your work you actually find that even though they look very different, they're not that different in many ways there are actually some similarities. Can you just help my listeners better understand what is it that Western donors like the OECD DAC define as aid, and how does that potentially differ from what China does?
Dreher Well, there obviously is no correct or even objective definition, it's just a matter of agreeing on something to make it comparable both between different donors and overtime. The Western definition certainly isn't ideal there are many proposals on how to reform it, always have been, and there always will be and recently there was a change in the definition. When people think of aid, they typically mean grant but that's not what it is, for the majority it is a loan, which means that the recipients at some point in time, they have to pay it back. But it still qualifies as official development assistance if the so-called grant element is large enough which means that you take a standard interest rate, a reference interest rate for it, the market interest rate and then you calculate the net present value of a loan once with the interest rate that is actually paid and with this reference rate. The traditional until 2017 rate was 10% about which is of course extremely high in a in a world of interest rates have been much lower and that meant that even loans in a more or less market interest rate had counted as official development assistance in this period. So, the grant element had to be 25% for all countries equally calculated with this reference rate, and that meant basically it was loans, many of them at market rates that are also included in official development assistance if given to a particular set of low-income countries. Since 2018, the definition has just slightly changed, but the ground element needs to be larger for the poorest countries, it's now 45% makes it more concessional.
Banik You're talking about the OACD DAC definition now?
Dreher Indeed. Then there's also a debate about how to count certain things. So, for example, military aid is not included, many expenditures that are in the donor country, they are indeed included. For example, the quote unquote refugee crisis in Europe and Germany in particular German foreign aid increased substantially and those of many other Western donors as well, and the reason was that the in-country payments for these refugees, they count towards official development assistance. The same holds for scholarships, so if students from eligible countries study in Germany, say, or the United States, then that could be counted against official development assistance, and it would count towards the target of giving 0.7% of your GNI across national income as official development assistance. There's many other peculiarities like this and China makes it comparably easy, simply they do not have a definition and you don't need to argue about these technicalities.
Banik Before we talk about Chinese understandings of the definition, let's just go back to the OECD DAC definition Axel, it was good of you to give us that overview on how things are changing. But I've been reading a bit about some of the pushback even in OECD DAC countries they are not always comfortable, as you rightly pointed out, it was the Syrian refugee crisis I think it was in 2013, 2014 that led to this growing tendency in Norway, in Sweden, in many parts of Europe where refugee costs, the costs related to settling refugees were suddenly counted as part of aid and suddenly we became the largest beneficiaries of our own aid. Now that tendency is returning because of the war in the Ukraine so that's one aspect. The other one has to do with trying to pass off anything related to weapon exports or defence as part of aid. So, even in rich countries, even in Western countries, the debate hasn't settled as I see it, there's this constant back and forth, and countries are always trying to push whatever they think is important for their foreign policy objectives to be part of aid. In the end, you end up giving lesser amounts to countries that were the original intenders or beneficiaries. How do you see this debate panning out in Europe or in the OECD at the moment on aid, is that definition sort of set in stone or is it being constantly challenged?
Dreher Well, among academics, there's always a debate. But first of all, military grants would not be included so if it's officially military equipment or has a military purpose, it would not count. But the criteria are very soft in a way because one of the elements we have discussed is the grant element, but the other is the key motive for giving the aid, and it needs to be mainly developmental. But what you claim to be the motive and what the real reasons are, are quite different, you could support the government and in the fight against an insurgent, the rebel group against terror. There was this famous quote from President Bush, hope is an answer to terror, something like we give aid because hope is an answer to terror or something like this. If you look how aid evolves, then it is pretty high until 1989, the end of the Cold War 1990, 1991 that was the last peak. The aid from Western donors had been given for political reasons to support friendly governments and the primary motive certainly was not developmental in many cases, it has claimed to be developmental and then it counted as development assistance. The many observers they expected that after the year, the fall of the Iron Curtain, the motives would now turn more developmental, but instead the volume simply went down, and the turning point came after the terror attacks 9/11 in 2001, when many governments, not only the United States, France as well other countries, the G7 on average started increasing their foreign aid to fight terrorists around the world.
Banik At another level, you could say perhaps that the Western donors tend to want recipient countries to do a lot of things, they want countries to say yes, those who receive money. Whereas China has the no doctrine or Xi Jinping’s five no doctrine, so while the West says you have to democratise you have to be liberal, in terms of liberalisation governance and anti-corruption and all of this. China has historically, but even more so now insists on non-interference, it's this conditionality interference actively trying to change countries versus bit of a relaxed, let's agree on this and then we'll go forward.
Dreher With one with one exception.
Banik Yeah. What is that?
Dreher The sixth no, you must not recognise Taiwan.
Banik Obviously respect for the one China policy is definitely implicit. But what is, I think, common for both the West and China is that there are certain implicit assumption and that is where in some of the work that my team and I do Axel, we find that there is actually more convergence than divergences. For example, support for the private sector even in the West you provide aid, but you have to open up certain things so there's there is this feeling that the government is actually opening doors, creating new avenues for its own private sector in these countries. It could be political support in the UN, the West needs it from many countries that receive aid, and so does China, just like support for Taiwan. So, we have all of these criteria, but in the end some of the motives are not so dissimilar. Would you agree?
Dreher Well, certainly as an economist I always thought it's quite funny when I started working on this, there was no data for Chinese aid, and you had all these accusations it was pretty widely cited foreign policy article by Moises Naim labelling these new types of donors, as rogue donors, rogue aid, China and others claiming them to do exactly the things that you have just mentioned. The literature from Western donors’ aid allocation at this time, which was of course already pretty developed, there's a paper from 2001 by Alesina and Dollar in the Journal of Economic Growth and then having been a former colony is a key determinant, voting in line with the donor and the General Assembly is a key determinant. When we collected our data, we then started comparing how important these motives are for China, and a couple of other new donors, not really new actually just the label – the non-DAC donors, and then it turned out it's all the same. What one tends to forget is that of course, developmental motives also matter, it's not only politics, it's not only democracy or good policies, and not only trade it is also development. So Western donors on average and most of them individually they give more aid to poorer countries, more aid to countries that have been hit by disaster but so does China, in total, it's really not so different.
Banik How did you develop the methodology to track these Chinese investments? Because we started the conversation by saying there's so much secrecy and some of the data that is there is often not comparable, we don't know whether this is just at a one country level, it's not disaggregated according to sector recipients, it's just a nightmare to pull all of this together. I have done studies at the national and local level that is relatively easy as I said, you know, I could talk to embassies, try to track newspaper reports, that kind of stuff. But when you're doing this kind of meta study it is surely a huge challenge, so how did you go about that in terms of the methodology?
Dreher Basically, we did the same, we just scaled it up. We started simple, just using everything that's available in newspapers, but we don't go back very much in times so that availability years of the year 2000 in English speaking newspapers mainly we just focus on Africa and just for the period 2000 to 2012 to start with then we scaled up over time. The second large project we geocoded the projects so that we had the latitude, and the longitude and would try to be as precise as we could. Sometimes we really have the specific coordinates inside the country sometimes it's a city, sometimes it's just a state, a district, or the province, then we got additional money, additional grants. We first scaled up to the world level, then more money came in and we geocoded the whole world and so on. More recently we revamped the whole thing, added additional years, added many, many other sources to this data 2.0 version now includes a very, very wide array of sources, so the web is crawled with machine learning techniques, web scraping everything that's out there in different languages, that sort of seems to relate to Chinese age is being identified and then coded. So, the number of sources has increased tremendously from the first attempt when we started and much of the criticisms, we did receive indeed came from what I always considered and my fellow economist on the team, Andreas Fuchs we always considered to be too early.
Banik What were the main criticisms at that stage?
Dreher Well, there were simply mistakes in the coding and it's obvious that you have mistakes when you code so many projects with so many details based on publicly available information. It's a trade-off, when do you go public and how long do you work on it and make sure that whatever you can do to minimises the number of mistakes. The economists in the team, we thought we should wait longer but on the other hand, we had promised the donors that we would make everything public, so there was some pressure and of course, the interest from AidData – it's a bit less academic, it's still academic, but maybe a bit less than these pure university-based researchers, of course they're interested in the publicity I mean, so are we it's a trade-off of course.
Banik But you are happy with what you in the end worked with, I assume because there's always this trade off that we academics face, that our work is never perfect we never want to submit it, there's always something we could do to improve this, but I wanted to ask you about the data. Was it relatively OK to do this distinction between what was a grant and what was not a grant? I mean that would be one way to look at it. Is there something that is typical aid in the Western sense, is the grant? In my own work, I find it could be a grant to build a building, it could be a parliament, it's a gift from the people of China to the people of a particular country. That would be one way of isolating the noise I would say and then to work on everything else that is not a grant is that how you went about it?
Dreher Grant and loan is one of the categories we try to code, but many of these subcategories are not so useful because they have many missing information. Even when you start with the loan amount or the grant amount, it's still enough information there so that you can use it, but you already lose many observations, and you might lose them non-random, so most analysts using the data for quantitative analysis, statistical analysis it would simply look at the number of projects or a binary indicator once is there a project in a certain region in a certain year then they would do supplementary analysis with the reduced sample with the year, the aid amounts. We tried to get aid agencies the grant element in itself, how concessional is it? But the number of missings is simply too low. But indeed, these were catch words so if the information would provide it is a grant, then it would be clear it would be coded to be concessional, if it is a loan, we needed further information to be able to quote if is it concessional or non-concessional. I don't recall the exact percentages, but we do have even a substantial share for which we could not determine as concessional or non-concessional. We had then this overall category official finance, but we don't know is it in one category or the other?
Banik Let's dive into the central argument of the book, and that is that there's been this transition from being the benefactor to a banker, from giving money, which was much more aid or grant related, like constructing a railway in Tanzania to being a banker, that is bankrolling major port projects, it could be highways, it could be major infrastructure projects which many of these are part of the Belt and Road initiative. What did you find? How did China actually make that transition, and why was this transition made from being a benefactor to a banker?
Dreher Well, it's basically that when the outward orientation increased and the attempt to invest large amounts of money that then in relative shares, it's not that what we label as official development assistance has decreased over time it is just that the share got so much smaller because most of it now is in terms of making money with commercial motives to start with and then not being concessional, and that makes sense. As China itself grows becomes more developed and quote unquote that also the way money abroad is spent would change. Again, the key difference to Western countries in my view is that for most Western countries similar activities are done by private companies and that would mean they would simply not be in this definition. In other words, what China does is basically what every other country as it had become more developed also did do with the key difference that in many of these activities in China the government is involved and then by definition it is called official aid not official development assistance but it is official aid because it is given by an official government, by a donor to a government in the recipient country, and that's the definition of aid. That's not what Germany does, there are some export credits in the United States there are some export credits and export guarantees that would fall in the same category, but you wouldn't have a U.S. government branch building a road in Tanzania, say, because this is what the private sector would do but if it is state owned company in China, then it is part of our data set.
Banik When I think about the reasons it is of course the going out policy that there's so much surplus capital, you've developed certain parts of the country now you need to go out you're telling the state-owned companies there's not much work for you here go out actively and seek investments abroad, that is one thing. Then sending tens of thousands of Chinese workers abroad to do the construction, there were political motives, I would suppose also to try and cultivate a more positive image of China, as it was, the economy was growing China stop being just a rule taker, wanted to be a rule maker in international settings, in multilateral settings. Then there was also the search I would say for natural resources was also exploring, you know, oil or whatever could be meat, it could be soya, pork.
Dreher Export markets.
Banik Export markets indeed. So, it was just like a natural thing I supposed to do for China. But as you pointed out earlier in the conversation, it wasn't new as such, China was there just like India they were doing it for many decades on the African continent. But because in the early 2000s this exploded, this led to this kind of criticism from the New York Times and many Western actors saying, what's going on? We're losing the plot, and China has ulterior motives.
Dreher It's all true. My key point just was that while all those you mentioned other reasons for going out similar reasons exist in other Western countries, but then it is the private companies who do it while in China it is the state-owned companies and that means that you are comparing apples and oranges in a way. Because it's these private commercial activities that would have happened if they would have a more market-oriented system like the United States have but it is an increase in what we call aid when a stated owned company is involved.
Banik Exactly. Then their role of policy banks here become very crucial.
Dreher Indeed. What you said the ulterior motives, you have a government that steers all these flows which gives us an enormous instrument of power which Western governments do not have because they cannot simply command the private companies to go to a certain country in exchange for that country doing it a political favour. The Chinese Government can steal all this money, even those with more commercial terms and that indeed gives it much more leverage compared to a Western government.
Banik What China does is actually somewhat different from India because China and I've been studying India also in Africa, just like China and Africa. What China does is that everything that comes from China is packaged and is steered by official sources, whether it is policy banks, state owned enterprises. There are some middle, medium scale and small-scale family-owned businesses that are also on the African continent, for example but mainly it is those big actors the state owned. So, whatever is coming from China is actually shaped and determined by Chinese official actors unlike India, which does not necessarily have control. The Indian Government does not necessarily steer and control the private sector, which is also going out on its own. The policy banks are not as endowed as the Chinese policy banks are in terms of giving loans, so India is also doing similar things, but it doesn't have that control and then of course, you have all the Western actors you were saying it is more private. But what I do notice Axel, is that say even in Norway we have a fund called Norfund, we are providing guarantees we're reducing the risks for private actors to actively invest in some of the least developed countries, and helping them, motivating encouraging them to invest by providing them with a guarantee. That could also be a nice way of getting some of our foreign policy priorities in order, you could shape it, but not to the same extent as in China.
Dreher Indeed, most countries do that, the US do it, Germany does it, but it's a completely different order of magnitude. But on the one hand, you decide whether the flows go up and the other, you subsidise, you incentivize, you provide an insurance. It's a disadvantage for the West, no way to deny it.
Banik But you are right, it is a question of not comparing like with like sometimes and that is what makes your book very interesting because you are trying to offer a more systematic approach. The typical reaction Axel to all of what China does in the West is often very critical, China is not promoting human rights or good governance, is not providing any of this pressure that we are for women's empowerment or for gay rights, it is undermining western approaches. That is the typical sort of media headline that hat we've been quite accustomed to reading. What is it that you find on the ground in many of these countries, it could be Sri Lanka could be in Tanzania, it could be elsewhere. Does the rhetoric, this kind of rhetoric from the West match the reality?
Dreher There is a couple of studies by others, not by us who use our data who indeed find that Western donors reacts to China's presence. One of my former PhD students, looked at conditionality in the World Bank country programs attached to World Bank projects and did find that in the presence of China conditions were fewer so did it seem that there's some competition going on. What we do is to go one step further and investigate whether the effectiveness of Western donor's aid is affected by China's presence, because that's the ultimate question of interest, right? Even if competition is going on, and even if the one or other project would not include human rights conditions because of China's presence, or even if one project is funded by China and not by the World Bank as a consequence of that competition, the question of real importance would be how does that affect the developmental outcomes? Here we do not find anything that's systematic and robust. It's very difficult to do so, admittedly, because it could be due to methodical problems but for what it's worth, we don't find that the effectiveness of Western aid is tempered by the presence of Chinese aid.
Banik That is really interesting because almost 10 years ago I was studying China in Malawi and when I spoke with and we did qualitative interviews, we spoke with donors from the West, their representatives and also several Chinese companies. One of the things Axel we realised there was that on the ground even the Western actors said, this is really no competition it's not either or we have different systems, but they somehow peacefully coexist because of the simple reason that the West had stopped for many decades, they'd not funded infrastructure China was doing the infrastructure, the emphasis was on building. They were doing the so-called as Branco Milanovic,which would say the hard stuff, whereas the West was doing the soft stuff, it was health, education, governance, etc. So, it was almost like this was coexistence and then when I was speaking with policymakers, which I've done over the years in many parts of Africa, they would say this is great because this has given us greater policy space. You could ask different things from different actors so what is the problem? It's almost like China was filling in the gap that the West had created by withdrawing from infrastructure and the West never got back. The EU has come up with a program, the US has come up with a program, but it isn't very convincing I have to say Axel, it's almost like the way these two blocks have been formulating their infrastructure programs on the African continent is explicitly to counteract China and not to not because they really want to do something. I think that destroyed Western credibility.
Dreher Well, the main reason for withdrawal from this type of projects was that they were perceived to be ineffective and so we will see whether in 10-20 years China will not have moved into very similar sectors as Western donors are engaged in. To be clear there is a huge infrastructure gap in African countries, so this type of aid is very useful. It connects to this very old debate about fungibility, whether what you label as being funded is really what you fund. But if you think of these old macro paradox situations where many bilateral and multilateral donors evaluate the individual projects, if you look at German development cooperation, if you look at the World Bank, typically you find numbers, the success rate of individual projects is in the order of magnitude of say, 3/4 or even more. It's often you have 85% of the projects would be coded to be successful and still if you look at the country level at the macro level, they simply wouldn't be any effect, this is kind of why Western donors shifted. Even if you have this road or whatever physical project, and it would be a labelled a success, it did not make these countries grow. But when you think way back to when the World Bank started with a structural adjustment lending, the sectoral adjustment loans and structural adjustment lending in the early 80s, the very naive idea with hindsight was you go to these countries for a couple of years, change the policies and remedy those structural inefficiencies, and then after those couple of years, policies will be on track and then you can go back to project funding because then you will have created an environment where these projects can be successful. Of course, this never worked out, and the IMF is in this business today the World Bank and it is also what many, many Western bilateral donors do they want to change the environment to make a bigger impact because for two reasons, focusing on individual projects hasn't been very successful. One is that in certain policy environments and the second is that because you build something that's not maintained, you build a school say, but if then the incentive structures in the country do not work that way, that teachers go there and teach and teach something of high quality to gain from that school. The second is this fungibility idea that oftentimes recipients simply offer projects to donor us that they would have funded anyway, and it's what we know from the university we do that all the time, we have all these different ports that allow us to fund different things and then we have one research agency willing to fund a certain thing and you say, oh, yeah, this great project that goes to you but of course that releases money in your own budget that you can use to fund something else. So, in the end what this additional donor financed is entirely unclear.
Banik But in terms of infrastructure, particularly in certain parts of the world, Axel, particularly on the African continent, there's a huge need. So, what happened was, of course, in the 1950s and 1960s, a lot of Western donors created infrastructure projects that turned out to be so-called white elephants and they were not used, or they decayed or were not maintained. I suppose it's a bit like what's going to happen with the stadiums in Qatar, who knows? All of these stadiums that were used for two weeks and then left idle. Obviously, that didn't stop the need from these countries for having infrastructure projects and here comes China, with a proven track record in China for creating, you know, roads and bridges and beautiful buildings and high rises and I have to mention you, Axel and you mentioned this also in the book in record time. One of the signature things about China is they keep saying we deliver what we promise, and we will build it even before the schedule, it's this completion, making sure that things are on track.
Dreher It's a dilemma, you have this straight off if you don't do an environmental damage report, if you don't do stakeholder consultations and so on, if you don't properly have a competition for who provides materials, if you bring your own workers rather than trying on the open market, have companies bid for making the best offer, then you can be much quicker. Then it is of course, the Western donor's interest and the recipient interests where the Western rich donors often have a very higher emphasis on reducing inequality, on reducing environmental damages, or not doing anything that might be human rights related. That could then be associated with the World Bank or have these big headlines the World Bank builds a dam and certain parts of the population need to be relocated and, in the process, human rights get et violated, that's a big scandal for the World Bank, and so they have to avoid that. A donor like China simply doesn't care. This has advantages as well as disadvantages, you can say in particular, if governments are more or less elected democratically then it's up to these governments to decide the fate and the development projects and the way these projects are built in their country. If you then find a donor who's willing to fund it, the way the recipients would like to have it, that's good. On the other hand, the exchange of gifts should also take account of the donor’s preferences, and so it's very hard to imagine that the World Bank funds the project if it is clear that this violates the human rights of populations, who have to be relocated in order to build a dam, then you can't compete. It’s just very difficult to resolve that dilemma, but of course to the extent that competition becomes more important, if China is seen as a threat to Western interests, you might be more willing to ignore environmental damage or a human rights violation because other things might get more important. Thinking back at the systemic competition between the US and the Soviet Union, and if you look back or the US government did in certain countries, getting rid of the one or the other, democratically leaning government, supporting right wing dictators instead, it's easy to be on the moral high ground when there is no competition and you can afford it and with China being there, things become more tricky.
Banik I see your point about the environmental aspect, but I do see a shift Axel in the last, say, 10-15 years in terms of less Chinese migrant workers coming from China to many of these countries, there's much more of a focus on hiring locals, even though the middle and especially the top level leadership in most of these projects are Chinese. I've just come back from several weeks of studying this in Kenya and I see there's a positive shift there, but also there is a noticeable shift in undertaking environmental assessments, maybe not as thorough as maybe the World Bank or many Western donors would do, but there is or has been historically among Chinese companies this understanding that we do things that comply with local and national regulations. We don't do more, or we don't do less, but it's whatever is required. There you can argue that a country that has strong regulations will benefit if it has weak regulation, that is a problem. But now there's been a new directive, at least in the Belt and Road from Beijing saying you should aim for higher level things. I see a subtle shift there to what has been going on. I want to ask your final set of issues related to the Belt and Road initiative because this is of course the one that is very visible you have mega projects. Some have got a very bad reputation or have been criticised, Hambantota port in Sri Lanka is one of those projects that the West considers a white elephant project and there are similar projects here and there where and this is my explanation, I'd like to hear yours. I feel that sometimes the Chinese and I've been making this argument, people are tired of hearing me, they don't do the homework properly in the sense that maybe the needs assessment is not done. The President of a country says I need this project and China says OK, we'll bankroll it and Hambantota was perhaps one of those cases where the then President said build a port in my district and China did so. Whether this is going to be beneficial or not, whether it's going to, you know, create a profit or what, whatever that was not, not necessarily the case. The same thing I noticed in relation to a university in Malawi, it was built in the president's land and there were lots of legal issues later on. It's almost like they were not doing the homework, and this resulted in many, many problems, particularly when the President or the Prime Minister is removed from office and a new government comes and a lot of worms come out suddenly. How do you see the Belt and Road evolving now in the next decade or so? Do you see a certain change in the way in which financing for Belt and Road projects will somehow materialise in the near future?
Dreher Interesting that you mentioned the birth regions or the President's lands because that's one of the main issues of the book where we observe that indeed the leaders birth regions at the time they are in power receive more funding and we call that part of the book initially aid on demand, which stressed this idea that it's really the recipients deciding on where the money goes to, which is in line with what you said, it's recipient country regulations that are here too but nothing is stricter and China would simply do what would ask for if it is also seen as beneficial for China. As you would expect with rising development GDP per capita in China are preferences also change it's like in any other country preferences for cleaner air and stronger environmental regulations or labour regulations demand for those is higher, with rising per capita income. That's what you also observe in China, you see domestically that more people and politicians now react to complaints about environmental problems, which they didn't react to 10 years ago or 15 years ago it becomes more of an issue. At the same time, it becomes more important for reputational reasons, but also because we are truly more concerned in the countries, they give aid to. In a way, how do we expect this to continue? One thing is competition, you mentioned that Western governments try to react, and I expect there will be more to it in a way that there needs to be more to it. They cannot simply step aside and watch being pushed to the side lines and it's entirely unclear how that would then make China react in in terms of going back to lower standards, say because they want to compete for being the, the first, the most important lender in a certain area or whether it's rising living standards in China, make them also expect more environmental and developmental and labour related protection for the projects they invest in. So, it’s only speculation in the end.
Banik In 10 years or 15 years, 20 years after the start of the BRI that's how you end your book, how would this look like? Because one of the things you discuss is a leader without followers is not a leader, and so in a way you could say that despite this increased presence of China, particularly on the African continent, less so in Latin America has not really decreased the role and influence of Western donors either. It's almost like they're both there and in this day and age Axel with the post pandemic troubles with all the development achievements that have either stalled or been reversed because of the pandemic because of many other things sustainable development is not on the agenda it seems to me there's a greater role for Western actors to continue providing assistance and unfortunately in our parts of the world, there's less willingness.
Dreher Well, one of the main determinants is always economic growth and recession in the donor country. Whenever people are more afraid and there's a recession or fear of recession, then the aid budget is one of the first to go down and support for aid is a very robust determinant across studies, indeed.
Banik The final thing Axel I just wanted to ask you is the use of multilateral institutions by China. We are currently studying this we have a project called MultiChina and we notice how it is important for Beijing to use the UN to use as many international organisations as possible to garner support for the BRI, the Belt and Road Initiative, to say that to promote sustainable development is like promoting BRI and to promote BRI is promoting sustainable development. Do you see China using multilateral mechanisms even more actively? If you can speculate in the decades ahead and if so, will some of these institutions be moulded more according to Chinese priorities than Western ones?
Dreher Well, I think that's the idea. If you think it of it in broad terms, if the goal would be to simply do what's in the recipient’s interests and to help develop a country is hardly any role for bilateral aid at all, why would you need bilateral aid? It would only make sense if you could say one donor can do one specific thing and then only they can do it but with the open markets and widely spread education that doesn't make sense at all, so you can always hire private expertise they could compete for implementing the development projects, but in an ideal world of development aid, the development of the recipient is the outcome, the goal it would mainly be multilateral of course it should not be only one multilateral aid organisation, because that would be too powerful. So having a little bit of competition is probably a good thing, but all this donor fragmentation, all the bureaucratic overhead, all the costs going to a French advisor writing a report in French and a German and a US one and so on it is shelved somewhere and never sees the light of day and is extremely expensive. From the recipient's side, in some sectors the health and education sectors there is thirty donors being present at the same time in some countries trampling on each other's feeds, taking up the time of their counterpart officials, this is all very ineffective. The key reason for giving bilateral is that you want to be seen giving, you want to influence the outcome you want to make friends, you want to increase your soft power. But for China this is a bit different because when they engage more via multilateral organisations, they gain more power in these organisations, so it's a power game in these organisations and as a consequence, it's less clear to predict for me how it will evolve if they really are able to expand their power via international organisations. They would certainly try to do so, but they would not simply give their money to an organisation like the World Bank, which is dominated by the United States, and that the World Bank then decide it on how to use it. But there's all this research that those governments give more to certain multilateral organisation that has an aid location that's in line with the preferences of that particular donor. So, you use them for efficiency gains but for China, the key thing in my view, is to expand the influence in these organisations.
Banik Axel, this was great fun to chat with you today. Thanks so much for coming on my program.
Dreher Thank you for the invitation. It's been great fun indeed. Thank you.