Third World Quarterly

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China’s foreign aid system: structure, agencies,

and identities

Denghua Zhang & Graeme Smith

To cite this article: Denghua Zhang & Graeme Smith (2017) China’s foreign aid system:
structure, agencies, and identities, Third World Quarterly, 38:10, 2330-2346, DOI:
10.1080/01436597.2017.1333419

To link to this article: https://doi.org/10.1080/01436597.2017.1333419

Published online: 12 Jun 2017.

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Third World Quarterly, 2017
VOL. 38, NO. 10, 2330–2346
https://doi.org/10.1080/01436597.2017.1333419

China’s foreign aid system: structure, agencies, and identities

Denghua Zhang and Graeme Smith
Coral Bell School of Asia Pacific Affairs, The Australian National University, Canberra, Australia

ABSTRACT ARTICLE HISTORY

China’s rise as a (re)emerging donor has attracted attention over Received 7 February 2017
the last decade, with a focus on Chinese development assistance Accepted 18 May 2017
as a challenge to the Organisation for Economic Cooperation and
KEYWORDS
Development (OECD) aid norms. Knowledge of China’s domestic aid Chinese foreign aid
structure is needed to understand Chinese aid abroad. This paper Chinese aid system
addresses gaps in the literature and challenges the accepted nostrum MOFCOM
that China’s Ministry of Commerce (MOFCOM) dominates China’s MFA
aid programme. Building on the authors’ experience as Chinese aid MoF
practitioners and scholars over more than a decade and drawing on
over 300 interviews, the paper explores China’s aid decision-making
processes by examining the main agencies, identities and informal
interactions. We argue that the Chinese aid system is characterised by
fierce and ongoing competition for influence among actors, especially
MOFCOM, the Ministry of Foreign Affairs (MFA) and the Ministry of
Finance (MoF), as well as the companies responsible for implementing
Chinese aid projects.

Introduction
Foreign aid is an important tool in China’s diplomacy, which serves its political, economic,
strategic and global image interests. The establishment of the Forum on China–Africa
Cooperation (FOCAC) in 2000 and five subsequent summits points to the dramatic growth
of Chinese overseas development assistance to the African continent. At the sixth FOCAC
meeting held in Johannesburg in December 2015, Chinese President Xi Jinping pledged
US$60 billion in financial support to Africa, including grants and interest-free loans worth
US$5 billion, and US$35 billion in concessional loans and export buyer’s credits.1 According
to official figures, typically understated to address domestic concerns,2 Chinese aid reached
RMB 89.34 billion (US$13.8 billion)3 between 2010 and 2012, equivalent to more than one-
third of its total aid spend over the previous six decades.4 Aid tracking data sets point to the
volume and the rapid rise of China’s aid. China committed around US$15 billion aid to Africa
from 2000 to 2011, and its aid to Pacific Island countries amounted to US$1.47 billion from
2006 to 2013.5
To understand the decision-making processes that underpin China’s aid spending,
detailed knowledge of its domestic aid management structure is required. These concerns
are not unique to China. As Helen Milner observed in her overview of foreign policy

CONTACT  Denghua Zhang  denghua.zhang@anu.edu.au

© 2017 Southseries Inc., www.thirdworldquarterly.com
 THIRD WORLD QUARTERLY   2331

formation, ‘the key to understand policy making is to realize how the game between the
domestic actors is played’.6 Literature on Chinese aid is rapidly expanding, covering the
evolution of China’s aid system and its implementing agencies,7 the role of Chinese aid
agencies in releasing aid data,8 how Chinese aid agencies monitor Chinese state companies
in Africa,9 competition between the Ministry of Commerce (MOFCOM), China Export–Import
Bank (China Exim Bank) and the Ministry of Foreign Affairs (MFA) in Africa,10 the role of non-
state actors in shaping China’s aid,11 and MOFCOM’s evolving positions on development
cooperation.12 However, these analyses have mainly listed the portfolio of Chinese aid agen-
cies and failed to deeply analyse the subtle roles of these actors in China’s decision-making
and their complex interactions.
A significant recent contribution is from Merriden Varrall,13 whose posting with the United
Nations Development Programme (UNDP) China facilitated rare meetings with high-ranking
Chinese aid officials. However, that article fails to explore the relations between MOFCOM’s
Department of Foreign Aid (DFA) and the Department of International Trade and Economic
Affairs (DITEA), and the relations between MOFCOM and its main affiliates. It also misses the
centrality of ‘political significance’ to the Chinese aid programme. Previous studies have given
insufficient attention to the roles of the Communist Party of China and the Ministry of Finance
(MoF) in influencing the nature of Chinese aid. Relations between MFA and MOFCOM, the
two ministries that vie for control of China’s aid programme, also deserve a more detailed
analysis.
This article attempts to address these outstanding issues and enrich the debate on China’s
aid system. In particular, the analysis will challenge the view among many scholars that
MOFCOM dominates China’s foreign aid programme, in terms of MOFCOM’s influence both
in China and in the recipient countries. In their review of the field, Yanbing Zhang, Jing Gu
and Yunnan Chen argue that MOFCOM dominates the Chinese foreign aid system at the
ministerial level, noting their position at the apex of 24 ministries involved in aid work.14
Lucy Corkin argues that MFA is losing its foreign policy influence to MOFCOM on the ground
in African countries and points to growing inter-ministerial rivalry15 and a ‘distinctive mission
creep’.16 Merriden Varrall, writing in a special issue on the domestic politics of aid in the Asia
Pacific, mounts a convincing case that China’s aid policy is ‘contested and fragmented’, though
she incorrectly claims that the Economic and Commercial Counsellor’s office does not report
to MFA and does not readily exchange information with the embassy officials.17 Taking the
Myitsone Dam as a case study, Lee Jones and Yizheng Zou contrast the MFA’s ‘weak, reactive
nature’ with MOFCOM, ‘a much stronger agency’.18
Drawing upon archival research, the first author’s previous work as a Chinese aid practi-
tioner, and more than 300 interviews with aid officials and practitioners in China and the
recipient countries by both authors since 2008, the paper examines China’s aid institutions
through the agencies, identities and subtle interactions within China and the recipient coun-
tries. China’s three main agencies of MOFCOM, MFA and MoF, as well as line ministries and
aid contracting companies, will be analysed. The role of China Exim Bank will be touched on
briefly. Due to the diversity of actors, our analysis is not exhaustive. For instance, the roles
of provincial governments and nongovernmental organisations are beyond the scope of
this paper.
Before proceeding, the differences between Chinese foreign aid (duiwai yuanzhu) and
official development assistance (ODA), the term used by the Organisation for Economic
Cooperation and Development (OECD) Development Assistance Committee, merit attention.
2332   D. ZHANG AND G. SMITH

For instance, China includes military assistance and construction of sports facilities as foreign
aid, which are excluded from ODA. There is considerable confusion between the amount of
development finance provided by China and what might strictly be termed ODA.19 While
many traditional donors only provide grant aid, concessional loans dominate Chinese aid.
Bearing this in mind, the next section examines China’s aid decision-making loop and anal-
yses how the main players compete for influence.

The Party commands

In China’s political system, the top decision-making organ is the Central Committee of the
Communist Party of China (CPC). Foreign policy and aid policy are no exception. Government
ministries are implementing agencies for the Party rather than independent policymakers.
Efforts to separate the Party from government, promoted in the 1980s by reformist officials,
were abandoned in the wake of Tian’anmen and have not been revisited. The trend under
Xi Jinping is towards tighter CPC control of the bureaucracy, particularly its external arms.20
The Foreign Affairs Leading Group directs China’s foreign policy, with President Xi and
Deputy President Li Yuanchao as leader and deputy leader, and former Foreign Minister Yang
Jiechi as secretary general. The fact that this group sits under the CPC Central Committee
rather than the State Council is evidence that China’s foreign policymaking is dominated by
the Party. There are a further 11 ministers as members of the group, of whom Foreign Minister
Wang Yi is but one. Other influential ministries are propaganda, international liaison, com-
merce, defence and state security, which compete to shape China’s foreign policy. Xi Jinping’s
move to establish of a new body in late 2013, the National Security Commission, points to
a party-led centralising trend.21
Writing in Qiu Shi, the official journal of the CPC Central Committee, then MOFCOM chief
Chen Deming affirmed the Party has always led Chinese foreign aid policy.22 While MOFCOM
is the main aid agency in China, it is an implementation agency with limited independence.
Aid policies are made by the central government representing the Party. As an example,
many observers wondered why MOFCOM delayed the release of its second White Paper on
Foreign Aid, to the point where many statistics in the original document were out of date.
It later emerged that the State Council instructed MOFCOM to halve the document because
‘it was too long and provided too much “concrete information”, rather than focusing on
principles’.23 Although China does not have a central aid agency, it established an inter-
agency liaison mechanism in 2008 and upgraded it to a coordination mechanism in 2011.
Members from 33 agencies meet regularly to coordinate aid policies and discuss policy
planning and institution building. MOFCOM (chair), MFA (deputy chair) and MoF (deputy
chair) are the core players; line ministries such as Agriculture and Health are also represented,
as are China Exim Bank and the Bank of China.

MOFCOM: business first

MOFCOM manages China’s aid and thus plays the most important role. The DFA is the organ-
isation tasked by MOFCOM to manage aid. Its responsibilities include drafting aid policies,
regulations24 and plans, including the annual plan and five-year country plans. It also
approves and manages aid projects. DFA has around 70 staff specialising in foreign aid,
grouped into 14 divisions and one general office.25 Among the 14 divisions, three focus on
 THIRD WORLD QUARTERLY   2333

Africa, two on Asia, one on western Asia, Northern Africa and Eastern Europe, one on Latin
America and one on the South Pacific, reflecting the geography of China’s largesse. Africa
(51.8%) and Asia (30.5%) are the main aid recipients.26 The Division of International
Cooperation, established in 2009, works with traditional donors who show interest in coop-
erating with China.27 Including DFA and the three affiliated aid agencies (outlined below),
MOFCOM has around 500 aid officials,28 or between 200 and 300 if support staff are
excluded.29 DFA has the largest concentration of aid technocrats in China.
MOFCOM, through a division within DITEA, manages inbound grant aid from traditional
donors and United Nations (UN) agencies. Whether providing bilateral aid to China or under-
taking trilateral aid cooperation with China in a third country, traditional donors and UN
agencies must approach DITEA first, not line ministries. There is also a revenue imperative
for a division accustomed to a high-profile gatekeeping role within MOFCOM. DITEA is keen
to explore new areas of business such as managing trilateral aid cooperation at a time when
its old business of managing foreign aid to China is diminishing rapidly.30 The director of
DITEA’s division of international cooperation is known to be more open to new ideas than
his counterparts elsewhere in MOFCOM, and the division can draw upon three decades of
experience in working with foreign donors.31
Unlike China’s other aid agencies, MOFCOM has an in-country presence to monitor its
aid. MOFCOM sends staff to run Economic and Commercial Counsellors’ offices in almost all
Chinese diplomatic missions overseas. Due to the shortage of staff – a common feature in
Chinese central government agencies32 – it is not unusual for MOFCOM to select officials
from the provinces and cities, particularly for remote posts. One duty of these offices is to
manage foreign aid, though aid is not a high priority. They have the advantage of obtaining
first-hand information on Chinese aid projects on the ground. These offices represent
MOFCOM and the Chinese government in liaising with recipient governments and locally
based Chinese companies. They get involved in the negotiations between China and recip-
ient governments and, in theory, supervise the progress of aid projects. However, staffing
limitations – and often lack of interest – hamper their ability to monitor and evaluate aid
projects, let alone to develop coherent in-country aid programmes. Compared with their
western counterparts, the Economic and Commercial Counsellors’ offices have little auton-
omy. As a Chinese aid official said, ‘they have to report almost all the aid related issues back
to MOFCOM and MFA for approval’.33 That said, MOFCOM officials have more autonomy than
their MFA counterparts do, due to a more flexible organisational culture and the smaller
number of MOFCOM officials overseas. By contrast, China’s diplomatic corps ‘come across
as silent, passive, isolated, and boring, except when they are coming across as aggressive
(often without meaning to)’.34
As they lack aid expertise, staff from the Economic and Commercial Counsellors’ offices
are mainly involved from the political perspective and are not expected to contribute tech-
nical knowledge. Technical experts employed by Chinese contractors look after these issues,
while China Exim Bank monitors the finances for concessional loan projects that make up
the bulk of China’s aid programme. While these offices can offer advice, they are constrained
by MOFCOM’s policy instructions, the control of the contracting companies over technical
details and – in the case of Chinese companies with a long history of operating in a country
– local commercial and political ties. The priority of staff in these offices is pleasing their
superiors in Beijing through promoting China’s trade and investment links, with the hope
of securing a better posting in the next round, rather than getting involved in aid work. Trade
2334   D. ZHANG AND G. SMITH

and investment promotion have greater weight than aid does in the annual assessments
(kaohe) of MOFCOM staff. These assessments influence their chances of promotion. Postings
(three to five years) are too short to allow them to develop in-country expertise, and typically
their workload is too heavy for them to engage in commercial activities that might give
them skin in the aid game. These offices are executing agents rather than policymakers.
While DFA and DITEA oversee aid projects at a policy level, MOFCOM has three affiliated
aid agencies to share the workload: ‘the three legs of MOFCOM in aid management’.35 Once
DFA has completed internal procedures to approve a project, it is handed over to the
Executive Bureau of International Economic Cooperation. This bureau, established in 2003,
is responsible for project design, signing implementation contracts with recipient countries,
contractor pre-qualification, bidding, agreeing the internal contract with the successful con-
tractor(s), project management, formal project acceptance, and handover to the recipient
country.36 The China International Centre for Economic and Technical Exchanges (CICETE)
and the Academy for International Business Officials (AIBO), established in 1983 and 1980,
respectively, were designated by MOFCOM in 2008 as foreign aid management agencies.
CICETE manages in-kind donations, while AIBO manages the training of foreign officials and
students.
MOFCOM is the statutory body on economic development and the caretaker of Chinese
companies overseas, so economic interests are prominent when it makes decisions on foreign
aid. After the ‘Go Global Strategy’ (zouchuqu zhanlue) was adopted in October 2000, Chinese
companies – many of which had gone global long before – were encouraged to explore
opportunities overseas including in trade, investment and resource development. In foreign
aid, the principle of mutual benefit underpins MOFCOM’s assistance for Chinese aid con-
tractors to explore overseas markets for Chinese goods, and to satisfy China’s resource
needs.37 Unlike MFA or MoF, MOFCOM readily forms alliances with Chinese companies when
a conflict among economics, diplomacy and China’s global image arises. China Exim Bank
is an important partner of MOFCOM and Chinese companies in this process. Its concessional
loans, an increasingly important vehicle to implement the ‘Go Global Strategy’, made up
more than half of China’s aid in the period of 2010–2012.38 This trend is expected to
continue.
The close relationship between MOFCOM and Chinese aid contractors creates room for
corruption. The CPC Central Disciplinary Committee scrutinised MOFCOM as part of Xi
Jinping’s anti-corruption campaign, and the first problem identified involved foreign aid.39
Aid officials from MOFCOM were charged with corruption, including incumbent DITEA
Director-General Wang Shenyang, former Director-General Wu Xilin and three Deputy
Division-Directors from DFA between 2013 and 2015. A deputy director who supervised aid
project bids was expelled from the Party for dining out and enjoying ‘leisure activities at a
nightclub’ (a euphemism for prostitution) courtesy of two contracting companies in 2013.40

MFA: politics in command

MFA is the statutory body of China’s foreign relations, tasked with building positive external
relations and supporting domestic development and stability. MFA is an important partici-
pant in Chinese foreign aid decision-making, though its influence is often downplayed. We
argue that MFA plays an indispensable role in Chinese aid policymaking. Central to under-
standing MFA’s role is the place of politics (zhengzhi) in China’s foreign policy. Chinese leaders’
 THIRD WORLD QUARTERLY   2335

speeches and official documents consistently highlight three terms: jiang zhengzhi (talk
politics), zhengjing jiehe (combine politics and economics), and yijing cuzheng (use economics
to promote politics). As then premier Wen Jiabao said at the 2004 National Conference for
Central Economic and Diplomatic Work towards Developing Countries, ‘China has good
relations with developing countries and needs to be good at combining economic and
political work, and using economic work to promote political relations between China and
other countries’.41 For MFA, political relations trump short-term economic gains, because it
is not possible to develop good economic relations without excellent political relations. This
explains why China sends large high-level delegations to small Pacific nations such as
Tonga.42 The economic gain to China is almost non-existent; the political and strategic gains
are valued.
The Chinese government keeps ‘talking politics’, instructing Chinese aid agencies to imple-
ment aid projects ‘from the height of talking about politics’, ‘combining the strengths of
political relations and economic benefits’ and ‘using economic benefits to promote better
political relations’ between China and recipient countries.43 It underpins the role played by
MFA in foreign aid. As a practical example, the Chinese Follow-up Committee of FOCAC is
co-chaired by the Foreign Minister and his MOFCOM counterpart. The secretariat is housed
in MFA’s Department of African Affairs, with its Director General also wearing the hat of
FOCAC Secretary-General. As a prominent Chinese expert on aid to Africa noted,
It is inappropriate to say that MOFCOM dominates China’s foreign aid delivery. The approval of a
foreign aid project is the result of coordination among MOFCOM, MFA and other line ministries.
MFA has to make sure the projects serve the national interest.44
MFA was recently designated the coordinator for China’s negotiation and implementation
of the Post-2015 Sustainable Development Goals (SDGs), successor to the Millennium
Development Goals.45 As China has pledged to support SDG implementation throughout
the developing world, MFA will play a significant role.
MFA has ‘veto power’ over whether aid serves China’s foreign policy interests, particularly
relating to Taiwan, a major factor behind the size and direction of Chinese aid flows. Although
China claims it attaches no political strings, all recipient countries must recognise Mainland
China, rather than Taiwan. Prior to a diplomatic truce with the Nationalist Party (KMT) in
2008, rivalry between Taiwan and China over the ‘One China Policy’ had been tense, with 22
countries still recognising Taiwan.46 Victory in Taiwan’s January 2016 presidential election
for the Democratic Progressive Party, known for its pro-independence stance, complicates
cross-straits relations. In March 2016, China resumed diplomatic relations with Taiwan’s for-
mer diplomatic ally Gambia, and in December Sao Tome and Principe followed suit, leaving
Taiwan with only two African allies. In a new step, China is using aid to pressure recipient
countries to shut down or restrict Taiwan’s unofficial representatives, with Nigeria forcing
Taiwan’s trade office out of the capital city, a gesture that MFA spokesman Lu Kang noted
would ‘remove the stumbling blocks obstructing the sound development of bilateral rela-
tions’.47 With the end of the diplomatic truce, the role of politics, and thus the role of the
MFA, in Chinese aid provision will grow.
Foreign aid has also been used by MFA to engage with nations that still recognise Taiwan,
paving the way for future breakthroughs. According to MOFCOM’s Measures for the
Administration of Foreign Aid (2014), whilst China’s foreign aid programme targets developing
countries that recognise China, ‘under urgent or special circumstances such as humanitarian
relief, developing countries that do not have diplomatic relations with China can also become
2336   D. ZHANG AND G. SMITH

recipients of Chinese aid’.48 After the devastating 2010 Haiti earthquake, China dispatched
medical and rescue teams and gave US$15.9 million to the Caribbean nation, despite its
allegiance to Taiwan.49 African countries that then had diplomatic relations with Taiwan were
also invited to the 2000 and 2006 FOCAC Summits.50
MFA supports high levels of foreign aid because it enhances China’s relations with other
countries, making it easier for MFA to achieve its political mandate. A good example is MFA’s
crucial role in facilitating China’s trilateral aid cooperation with the US in Timor-Leste.51 China’s
foreign relations are increasingly multifaceted, meaning the MFA needs to negotiate with
other ministries on technical issues. Because of the growing workload and complexity of
aid, responsibilities are shared between MFA and line ministries.52 However, it does not follow
that MFA’s role in foreign policymaking is reduced; greater engagement with higher ranked
ministries can expand their influence. MFA remains the main channel for China’s external
engagement.53

Power competition
As aid is closely linked to China’s foreign policy, and the Taiwan issue is central, why has MFA
not taken over foreign aid? This issue has long been debated inside China. China’s foreign
aid began in the 1950s when China gave assistance, mostly as in-kind donations, to socialist
countries (particularly North Korea) and potential communist bloc members, such as Viet
Nam. China’s Ministry of Foreign Trade, the predecessor of MOFCOM, was tasked in 1952
with managing China’s foreign aid. Its subordinate export and import companies would
procure materials for recipient nations. Since then, its successors have overseen foreign aid.
Some officials (unsurprisingly those from MFA) and scholars have pushed for MFA to take
over China’s aid programme. They argue that MOFCOM’s focus on economic gain and the
interests of Chinese companies can negatively impact the management of foreign aid, which
is meant to support China’s strategic and diplomatic interests.54 The State Council has delib-
erated on this question. To date, they have decided in MOFCOM’s favour.55
Relations between Chinese ambassadors and the Economic and Commercial Counsellors’
offices are at the centre of competition between MOFCOM and MFA. Chinese ambassadors
can influence China’s foreign aid in various ways. In regions such as the Pacific where the
Taiwan issue is still in play, each ambassador is provided with discretionary funds (around
US$50,000) for small aid projects.56 Except in Papua New Guinea and the Federated States
of Micronesia, in Pacific nations the Economic and Commercial Counsellor’s office is housed
inside the embassy. It is not the case, as Corkin claims, that these offices are ‘always physically
separate from the embassy itself’.57 When the office is housed within the embassy, the ambas-
sador can exert influence over aid work, especially as it is unlikely to be the primary interest
of MOFCOM staff. Moreover, foreign aid reports drafted by the office need to be signed by
the ambassador and sent to both MOFCOM and MFA through the embassy. The ambassador
may suggest new aid projects directly to MOFCOM. How much influence the ambassador
has over in-country aid projects to an extent comes down to the personalities of the ambas-
sador and staff in these offices. However, the final say lies with MOFCOM, and in extreme
cases ambassadors may learn of new aid projects for the first time in the local
newspaper.58
With OECD nations integrating aid agencies into Foreign Affairs ministries to align aid
work with the national interest, many aid officials and analysts in China have also
 THIRD WORLD QUARTERLY   2337

acknowledged the complexity and inadequacies of the Chinese aid system, and called for
the establishment of a ‘China Aid Agency’.59 This is unlikely to occur in the near future, as
MOFCOM does not want to relinquish control over the business of foreign aid while it is
booming, and the longstanding trend in China’s domestic institutional reform is to reduce
the number of agencies.60 Public opinion is also a factor. The provision of aid to foreign
countries, while China is launching its own ‘war on poverty’, is sensitive. Creating a new body
would raise the profile of an activity that the Chinese government takes a low-key approach
to. While the literature focuses on competition between MFA and MOFCOM,61 the ministries
cooperate when interests converge. They jointly pushed the MoF to increase the grant for
the African Union headquarters by more than sixfold, resulting in a US$200 million structure
that is the largest building in Addis Ababa by a comfortable margin.62

Ministry of Finance (MoF): keeping aid in check

The MoF drafts and manages China’s national budget. The aid plan drafted by MOFCOM
needs to be accepted by MoF and integrated into the budget. After approval, MoF allocates
aid funding to be disbursed by China’s ministries. As MoF is the keeper of the purse strings,
foreign aid project proposals need to be circulated to MoF for approval. In terms of direct
funding for Chinese aid, MoF covers the gap between the commercial and concessional
interest rate for China Exim Bank’s concessional loans.
The MoF is also in charge of China’s multilateral aid, including contributions to the World
Bank and UN agencies.63 Domestically, the MoF looks after loans to China from traditional
donors and multilateral agencies. In terms of bureaucratic interests, MoF’s stake in China’s
foreign aid is less than that of MOFCOM and MFA. Their main concern is keeping aid spending
in check, similar to their efforts to limit the funds disbursed for domestic schemes such as
the Western Development strategy. The MoF’s purview also extends to 204 grants worth
US$1.7 billion from the Global Environmental Facility.64
MoF’s influence on the size and direction of China’s aid should not be discounted. A simple
anecdote illustrates how MoF is not a rubber stamp. China’s first aid white paper did not
include any details on China’s multilateral aid, as the MoF simply refused to release its data
to MOFCOM. MoF eventually gave the green light to provide aid data for the second white
paper.65

Think tanks: influence by default

The formal role played by think tanks in China’s foreign aid is limited, but there is informal
influence, because the aid bureaucracy is small. Unlike in the US or French bureaucracies,
movement of staff between government and academe is limited, so influence through the
secondment of personnel is negligible. However, many ministries, particularly the three
discussed above, have affiliated research institutes that conduct research and gather data
on aid-related topics for their paymasters.
The most influential is the Chinese Academy of International Trade and Economic
Cooperation (CAITEC), which has over 140 staff and carries out research on behalf of
MOFCOM.66 The DFA only has about 70 staff to manage China’s entire aid programme,67 so
they are overwhelmed by their rapidly growing workload and tend to take a passive and
conservative approach to the development of foreign aid policy. To compensate, CAITEC
2338   D. ZHANG AND G. SMITH

has been tasked with numerous projects on behalf of MOFCOM, such as drafting the white
papers on foreign aid, investigating trilateral aid cooperation and even writing five-year aid
plans for recipient countries. Some CAITEC officials have been promoted to senior MOFCOM
posts. Shen Danyang, former Deputy Director of CAITEC, is now the Director General of the
Department of Policy Research and one of MOFCOM’s most prominent spokesmen. Through
such channels, CAITEC influences China’s foreign aid policy.
China Foreign Affairs University and China Institute of International Studies are think
tanks affiliated with MFA. However, as their research is focused on broad, global issues,
research and recommendations on China’s foreign aid are limited. The situation at the MoF’s
Research Institute for Fiscal Science is similar, where research on China’s foreign aid is sparse.

Line ministries
China’s line ministries also provide aid. They compete for aid funding in an extension of
domestic competition for scarce budgetary resources. As an example, the Ministry of
Agriculture sends agricultural technicians to almost every developing country that recog-
nises the PRC.68 These teams are often on the ground in unstable regions where aid contrac-
tors from developed nations are reluctant to tread.69 The mechanism for China’s emergency
aid overseas, established in 2004, is led by MOFCOM and involves MFA and the People’s
Liberation Army. Emergency aid is largely in the form of in-kind donations.70 Compared with
MOFCOM, MFA and MoF, line ministries focus on technical issues rather than politics; how-
ever, there is scope for commercial benefit. Many projects are encouraged by their parent
ministries to become profitable, or at least self-sustaining. In the case of agricultural teams,
this may be through the sale of produce in local markets or exporting produce back to China.
Not all aid projects are run by line agencies. The Ministry of Agriculture (MoA) is not
responsible for all agricultural aid projects, because nearly all of China’s aid projects go to
MOFCOM, which has the option to take up any project. If MOFCOM does not want a project,
it asks other line ministries to do it and the budget will be assigned to the ministry.
Complicating matters, some ministries are authorised by the State Council to deal directly
with some donors. MoA can deal directly with the Food and Agriculture Organization of the
United Nations (FAO) and the World Food Programme and approve aid from these multilat-
erals for projects inside China, or with them in third countries. In addition, many line minis-
tries have an annual budget for promoting international cooperation, of which about half
to two-thirds is used for aid. The line ministries only need notify MOFCOM about the existence
of these projects. In practice, even this may not happen.
Like MOFCOM, line ministries have departments of international cooperation that liaise
with other countries to assess project feasibility. Once approved, this department tasks an
affiliated technical centre or contractor to undertake the project. The Foreign Economic
Cooperation Center is affiliated to MoA and is responsible for implementing agricultural aid
projects and selecting Chinese agricultural experts. Though equal in rank to MoA’s
Department of International Cooperation, the Center must obey instructions from the
Department. Likewise, China’s Ministry of Science and Technology has a Department of
International Cooperation and an Administrative Center for China’s Agenda for the 21st
Century. China’s renewable energy trilateral aid projects with the UNDP in Ghana and Zambia
are run by this Center, partly because of the portfolio, but also because the Department of
International Cooperation lacks staff.71
 THIRD WORLD QUARTERLY   2339

Contracting companies: the tail wags the dog

China’s companies – especially large state-owned enterprises (SOEs) – are powerful players
in China’s domestic politics. A similar state of affairs prevails beyond China’s borders. In
China’s political system, the directors of large SOEs are interchangeable with commonly
rotated into high-ranking political positions such as provincial governors and ministers.
Aside from personnel connections to the Party-state, large SOEs are favoured to implement
China’s foreign aid projects because they are state companies and generate revenue for the
government, and because they have the resources to implement the projects. Private com-
panies that win aid contracts, such as Huawei, are large enterprises with strong state links.
Being the implementers of China’s economic diplomacy and the Go Global Strategy, China’s
contractors receive significant political and financial support. During visits to Africa, Chinese
leaders often hold meetings with China’s firms and seek their views on economic
matters.72
Another way contractors influence China’s aid is to propose projects to the Economic and
Commercial Counsellor’s office in country, or by lobbying MOFCOM and China Exim Bank.
As companies become established in recipient countries, they build close relations with
Chinese government agencies, host government ministries, local politicians and companies.
They are familiar with China’s aid policies, often tailoring their commercial strategies to work
around policies designed to limit their influence on China’s aid programme. One example
is the restriction on the number of concessional loan projects that can be undertaken by a
single Chinese contractor in a given country. While the limit is set at three, companies subvert
this by subcontracting the projects among themselves, typically charging a 10% fee for
projects that they outsource to other firms, with the side benefit of avoiding host country
duty on the importation of construction materials.73
Due to their close relations with local politicians,74 China’s firms can access information
on recipient countries’ demands for aid projects. They will often shape that demand into
projects that are larger than the country needs. In one case, a consultant charged with put-
ting together part of the Tongan bid for aid projects at the second China–Pacific Island
Countries Economic Development and Cooperation Forum (held in Guangzhou in November
2013) found that a Chinese company was requesting facilities that were larger than the small
island nation required. In the case of a shipyard, they recalled an exchange with Tongan
officials before they left for the Forum:
You want a slipway. For local ships? ‘What do you mean?’ How big do you want it? 2000 tonnes?
‘No, no, no’. How big do you want it? ‘I don’t know’. We ended up with a PowerPoint presentation
for a 20,000-ton slipway. A shipbuilding yard to build 20,000-ton ships. A home base for the
Russian fishing fleet. A home base for the Chinese fishing fleet. Tonga is at the end of the supply
chain. It doesn’t have steel. It doesn’t have shipbuilding expertise. I said, where are you going to
put it? ‘We’re going to put it down at x’. That’s where the wetlands are. ‘That’s right’. You’re going
to convert the Tongan wetlands into a shipbuilding facility? There’s half a mile of reef between
the wetlands and the ocean. ‘That’s all right, the Chinese can fix that. They’ve got a cutter suction
dredge that’ll cut a channel x metres wide, 29 metres deep straight through the wetland…’. I
spoke to the principal marine officer, and asked what is it that they [the Chinese] want? He
said they want a slipway for 20,000 tons. I said you’re joking. I tried to bring it back down. But
eventually it went back up again. So obviously, there had been discussions behind the scenes.75
To date, the proposal has not been approved, most likely because Tonga is deemed a credit
risk by MOFCOM and China Exim Bank. In the same year as the forum, the Economic and
2340   D. ZHANG AND G. SMITH

Commercial Counsellor’s Office in Tonga posted online a report entitled The Economic
Situation in Tonga is Grim.76
Firms are willing to lobby Chinese ministries, China Exim Bank and the recipient countries
for new projects because once both countries agree on a project, the company which initi-
ated it will typically win the contract. In some circumstances, Chinese firms and host gov-
ernments enter into an informal alliance in which China’s companies persuade host
governments to raise new aid projects with China while the contractors promise to help
behind the scenes to secure financing. The projects are reverse-engineered to suit the polit-
ical needs of local politicians and the commercial strategies of Chinese contractors.77
Recipient governments propose to the Chinese government that they want these companies
to do the aid projects, in line with the principle of local ownership. One PNG government
official explained:
All of these projects look like well-thought-out technical solutions, but each of them arise from
contractors knocking on politicians’ doors, giving them bright ideas, and then they become the
owners of those ideas. ICT [information and communication technology] in our country is all
over the place as a result of the proliferation of these ‘bright ideas’.78
While this may lead to an incoherent domestic strategy in recipient countries, it is a win–win
situation for China’s companies and their local political partners. In many cases, the idea that
eventually becomes a Chinese-funded aid project originates with a third party, who may
not even be a Chinese national.
Despite their state links, China’s companies are largely apolitical, focussing more on com-
mercial gain. The principal-agent dilemma is obvious in many cases.79 The Chinese govern-
ment hopes to deliver good-quality aid projects that benefit China’s long-term political and
economic interests, while building good relations with recipient countries. In contrast, China’s
companies conduct aid projects mainly for economic benefit. They want to finish the projects
as soon as possible, sometimes at the expense of project quality. This leads to negligence
of the environmental impact, social responsibilities to local communities, and relations
between Chinese management teams and local workforces.80
As contractors become established in a country, their behaviour is likely to improve or at
least adapt, particularly in countries with stronger governance settings.81 Even when over-
sight is weak, in order to secure future aid and commercial contracts Chinese companies
may consider reputational issues. In one example, a Chinese aid contractor in PNG,
Guangdong Foreign Construction (GDFC), won its first contract to build student dormitories
at Vudal University in Rabaul. The quality of the work was so poor that the dormitories were
disintegrating within a year.82 Several years later, the second author of the paper discovered
that the company sacked the entire team involved in the project, although this was never
publicised. Subsequent projects by GDFC were of a higher standard and involved greater
use of local labour. They have secured the contract for the largest single aid project in the
Pacific to date – the K478 million (US$159.6 million) Enga Provincial Hospital.83 The success
of companies such as GDFC in shaping China’s aid programme in PNG, or the success of
Shanghai Construction Group in Samoa, comes down to them having skin in the game. They
back-channel China Exim Bank and the ministries, because that is what their competitors
are doing, and that is how they stay in business. They also face pressing commercial imper-
atives: excess infrastructure capacity and falling capital productivity within China mean that
the domestic arms of these companies are often struggling.84
 THIRD WORLD QUARTERLY   2341

Conclusion
Players in China’s aid game try to maximise their impact on decision-making in a fluid
and disaggregated system. The Party, not MOFCOM, is the final decision-maker on Chinese
foreign policy and aid. Being designated by the Party as the custodian of aid, MOFCOM
has an important role in managing Chinese aid, though its influence is often overstated.
Aid work within MOFCOM is divided up between two departments (DFA and DITEA), three
affiliates and a think tank (CAITEC), an arrangement that hard-bakes aid policy competition
and fragmentation. MFA influences aid as the caretaker of Chinese foreign policy. Its
advice on whether aid should be provided to benefit China’s bilateral relations with a
given country and whether the diplomatic environment is suitable for aid provision should
not be ignored. MFA has a significant say on aid provision in the context of renewed
diplomatic competition between China and Taiwan and the promotion of the post-2015
SDGs.
As the keeper of the purse strings, MoF also plays an important role in Chinese aid deci-
sion-making. In addition to MOFCOM and MFA, the proposals of Chinese aid projects need
to be endorsed by MoF. A number of line ministries actively compete for a slice of China’s
aid budget, but they are limited to their areas of technical expertise. The role of contractors
in shaping China’s aid programme has been greatly understated, largely because they have
no interest in advertising their role to outsiders. Chinese contractors have real skin in the
aid game: securing aid projects means jobs for their workers, and profits and prestige for
their directors. The tail of China’s aid system often wags the dog, leading to an aid programme
dominated by infrastructure projects backed by China Exim Bank’s concessional loan pro-
gramme. The Chinese aid system under Xi Jinping is in a state of flux and will continue to be
shaped by internal competition among a wide array of actors.

Notes on Contributors
Denghua Zhang was a diplomat before he resigned to join the Australian National University.
He submitted his PhD thesis on China’s foreign aid, especially trilateral aid cooperation, at
the Australian National University in March 2017. His research focuses on international rela-
tions, development studies, Chinese foreign policy, Chinese foreign aid and Asian powers
in the Pacific. He has published more than 20 papers on Chinese foreign policy and foreign
aid including recently with The Pacific Review, The Round Table and Asia & the Pacific Policy
Studies.
Graeme Smith is a Research Fellow at the Australian National University. His main research
interests are Chinese state and non-state actors in the Pacific and Southeast Asia, and
the political economy of local government in rural China. His articles appear in The China
Journal, Pacific Affairs, Asian Studies Review and the Journal of Peasant Studies. He is the
2011 winner of the Gordon White Prize for ‘The Hollow State: Rural Governance in China’,
published in the China Quarterly, and is the 2013 winner of the best article prize for ‘Chinese
Reactions to Anti-Asian Riots in the Pacific’, published in the Journal of Pacific History. He
is also the host of The Little Red Podcast, which focuses on China studies research beyond
the Beijing beltway.
2342   D. ZHANG AND G. SMITH

Notes
1.  Xi, “President Xi Jinping.”
2.  Even reliably pro-regime media ventured criticism of the Chinese government’s donation of 23
school buses to Macedonia (a wealthier country in per-capita terms than China) two weeks after
a fatal crash of an overcrowded school bus in impoverished Gansu province. See, for example,
Huang, “Foreign Aid Triggers Controversy.” This incident fueled domestic debate about the size
and direction of China’s aid programme.
3.  One US dollar bought 6.478 RMB on 31 December 2015. This exchange rate is used in the paper.
4.  State Council, “Zhongguo de duiwai yuanzhu”; State Council, “Zhongguo de duiwai yuanzhu
(2014).”
5.  Strange et al., “Tracking Underreported Financial Flows”; Lowy Institute, “Map of Chinese Aid.”
6.  Milner, “Interests, Institutions and Information,” 14.
7.  Lancaster, “Chinese Aid System”; Bräutigam, “China’s African Aid”; Huang and Hu, “Zhongguo
duiwai.”
8.  Davies et al., “How China Delivers”; Grimm et al., "Transparency of Chinese Aid.”
9.  Gill and Reilly, “Tenuous Hold of China Inc.”; Tan-Mullins et al., “Redefining ‘Aid’.”
10. Corkin, “Redefining Foreign Policy.”
11. Shen and Power, “Africa and the Export.”
12. Zhang, “Why Cooperate with Others?”
13. Varrall, “Domestic Actors.”
14. Zhang, Gu and Chen, “China’s Engagement,” 17.
15. Corkin, “Redefining Foreign Policy.”
16. Corkin, “Uncovering African Agencies,” 73.
17. Varrall, “Domestic Actors,” 27.
18. Jones and Zou, “Rethinking the Role.”
19. These differences have been outlined by many scholars, notably Bräutigam, “Aid ‘with Chinese
Characteristics’”; and Strange et al., “Tracking Underreported Financial Flows.”
20. Chinese aid officials and scholars emphasised this point in interviews. See also Naughton,
“Inside and Outside.”
21. Lampton, “Xi Jinping.”
22. Chen, “Nuli kaichuang,” 42.
23. Varrall, “Domestic Actors,” 32.
24. China does not have a comprehensive foreign aid law. Its aid is mainly governed by a small
number of regulations drafted by MOFCOM.
25. MOFCOM, “Neishe jigou”; Zhou and Xiong, “Zhongguo yuanwai,” 29; Zhang, Gu and Chen,
“China’s Engagement,” 17; first author’s interview with MOFCOM aid official, Beijing, August
2015.
26. State Council, “Zhongguo de duiwai yuanzhu (2014).”
27. Zhang, Gu and Chen, “China’s Engagement,” 17.
28. Figures from agency websites: http://www.mofcom.gov.cn/fangtan/zssh/110510.shtml;
http://www.mofcom.gov.cn/fangtan/zssh/110706.shtml; http://www.mofcom.gov.cn/fangtan/
zssh/110831.shtml.
29. First author’s interview with MOFCOM aid official, Beijing, August 2015; Song, “Zhongguo
duiwai,” 83.
30. First author’s interview with Chinese aid official, Beijing, August 2015.
31. Second author’s interview with Chinese official, Port Moresby, Papua New Guinea (PNG),
February 2014.
32. Ang, “Counting Cadres.”
33. First author’s interview with MOFCOM aid official, Beijing, August 2015.
34. Qiu, “China’s Outdated Foreign Service.”
35. First author’s interview, Beijing, September 2015.
36. EBIEC, “Zhuyao zhineng.”
37. Davies et al., “How China Delivers”; Alden, “China and Africa.”
 THIRD WORLD QUARTERLY   2343

38. State Council, “Zhongguo de duiwai yuanzhu (2014).”

39. MOFCOM, “Zhongguo shangwubu.”
40. MOFCOM, “Shangwubu yuanwaisi”; Liu, “Shangwubu hezuosi.”
41. Gong, “Quanguo dui,” 2.
42. PIR Editor, “Delegation from China.”
43. Gong, “Quanguo dui,” 2.
44. First author's interview, Beijing, August 2015.
45. First author's interview with Chinese aid official, Canberra, July 2016.
46. Stringer, “Pacific Island Microstates”; Atkinson, “China–Taiwan Diplomatic Competition.”
47. MFA, “Foreign Ministry Spokesperson.”
48. MOFCOM, “Duiwai yuanzhu.”
49. Xu, “Yu weijianjiaguo,” 47.
50. Pretoria News, “Zuma Wary of Europe”; King, “Beijing China–Africa Summit,” 339.
51. Zhang, “Why Cooperate with Others?”
52. Wang, “Dangjin Zhongguo,” 7.
53. Wang, “Zhongguo waijiao,” 15.
54. First author's interview with Chinese aid official and expert, Beijing, August–September 2015.
55. First author's interview with Chinese former official, Beijing, September 2015.
56. Smith et al., “Development Needs,” 10.
57. Corkin, “Redefining Foreign Policy,” 67.
58. Second author's interview, Apia, Samoa, November 2013.
59. Xu and Wang, “Guanyua jiaqiang”; first author's interview with Chinese aid scholars, Beijing,
August 2015.
60. First author’s interview with Chinese aid officials, Beijing, September 2015.
61. Corkin, “Redefining Foreign Policy”; Sun, “Africa in China’s Foreign Policy.”
62. Varrall, “Domestic Actors,” 31–2.
63. The People’s Bank of China is the liaison for the International Monetary Fund.
64. GEF, “Country-At-a-Glance.”
65. First author’s interview with Chinese aid official, Beijing, August 2015.
66. http://www.mofcom.gov.cn/fangtan/zssh/110706.shtml, 5 July 2011.
67. First author's interviews, Beijing, August–September 2015; Zhou and Xiong, “Zhongguo
yuanwai,” 29.
68. Bräutigam and Zhang, “Green Dreams.”
69. Second author’s interviews with contractors, Port Moresby, February 2014.
70. First author's interview with Chinese aid official, Canberra, April 2017.
71. First author’s interview with Chinese aid official, Beijing, August 2015. See also Ang, “Counting
Cadres.”
72. First author's interview with Xu Weizhong, China Institutes of Contemporary International
Relations, Beijing, August 2015.
73. Second author’s interviews in Samoa (November 2013) and PNG (February 2014).
74. Research has shown that more Chinese aid flows to regions that are the birthplace of African
political leaders. Dreher et al., “Aid on Demand.”
75. Second author’s interview, Nuku’alofa, Tonga, December 2013.
76. http://to.mofcom.gov.cn/article/sqfb/201305/20130500108912.shtml, 2 May 2013.
77. For an example of this practice from PNG, which played into the outcome of national elections,
see Smith, “Six Billion Kina Answer.”
78. Second author’s interview with PNG government official, February 2014.
79. Gill and Reilly, “Tenuous Hold of China Inc.”
80. Gill and Reilly , “Tenuous Hold of China Inc.”; Smith, “Beijing’s Orphans”; Smith, “Nupela Masta.”
81. Dornan and Brant, “Chinese Assistance in the Pacific.”
82. For more details on this project, see Smith, “Chinese Soft Loans.”
83. Patjole, “Exim Bank.”
84. Dollar, “China’s Rise.”
2344   D. ZHANG AND G. SMITH

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