Vindicating China, the "Rogue Donor"

Abstract

China has shifted from a recipient to donor of foreign aid, emerging as one of the major sources of development finance. Due to its non-interference policy of recipient countries’ domestic politics, combined with lack of standard definition and dataset of its foreign aid, China is often criticized as being a “rouge donor”. However, claims of China being a “rogue donor” are often without empirical evidence, and some studies suggest more conditional conclusions. Hence, this paper tries to show if such criticism is empirically valid using alternative dataset of China’s foreign aid collected by the Tracking Underreported Financial Flows methodology which tracks project-level investment by China in approximately 200 countries from 2000 to 2014. Analysis suggests that China’s foreign aid improves rather than undermines recipient countries’ governance quality when ODA- and OOF-like flows are combined. Each flow category, however, yields diverging conclusion with the ODA-like flow having positive impact at statistically significant level, while the OOF-like flow having the opposite result. Also, ODA from the Development Association Committee (DAC) member states have found to have a higher, positive impact on improving recipient countries’ governance. Thus, conventional criticism of China being the “rogue donor” is found to be partly attributable to failure to distinguish ODA- and OOF-like flow. Considering diverging conclusions of the impact of China’s finance, analysis of the mechanism of the impact of China’s financing to governance is needed rather than accusing China of being the “rogue donor”.