Jul 24, 2018 02:16 PM

Opinion: China, U.S. to Reverse Roles in Aid Priorities

For the past decade, the world has gotten used to China lending a lot of money to poorer countries to build roads, bridges, and dams, and the United States giving a lot of money to these same countries to help eradicate disease, respond to natural disasters, or put kids in classrooms. But what happens when the world’s two major powers look at each other and say, “I should be doing more of that”? We’re about to find out.

With large-scale Chinese lending has come quite a few headaches for the Chinese government. Some countries are overly indebted and at risk of defaulting on Chinese loans. Many others are encountering political backlash at home over the terms and conditions of Chinese lending, whether in terms of the interest rates on the loans or the practice of using Chinese firms and labor to the exclusion of local businesses and workers. In response to this growing discontent, Chinese officials are now embracing the country’s role as an aid provider, rapidly ramping up grant support to low-income countries and overhauling the Chinese bureaucracy that delivers this aid.

At the same time, the Trump administration has sought to cut the U.S. foreign-aid budget dramatically under an “America First” agenda. As an alternative to grant-based aid, administration officials have put their focus on competing with the Chinese at their own game by scaling up U.S. government loans and investments in the developing world.

Whether these converging trends are good for U.S. and Chinese interests remains to be seen. But there is considerable risk that they will be bad for poor countries on the receiving end. The United States has distinguished itself as the largest, and often most effective, aid provider in key sectors. As a result, fewer U.S. aid dollars to combat Ebola or malaria can be measured in lives lost around the globe.

Unfortunately, what little we know about Chinese aid, including what Chinese officials themselves have said, suggests that it is has been rife with corruption and is ill-equipped to play a leading role among donors anytime soon. For the aid system as a whole, we’re on the verge of witnessing the exit of a lot of high-quality aid and the potential entrance of even more low-quality aid.

In the same way, with the anticipated expansion of the U.S. Overseas Private Investment Corp. (OPIC) under the Trump administration, there is risk that the United States will attempt to “go big” on the kind of lending that China has already demonstrated to be a mixed blessing for many low-income countries. To date, OPIC’s financing has certainly promoted worthy development projects around the world. But it has also tended to avoid the poorer markets where its money could do the most good, in favor of wealthier economies where the case for U.S. government money is much weaker.

By positioning the new OPIC largely as a competitor to Chinese finance, the Trump administration risks losing the very things that ought to distinguish U.S. financing — strong social and environmental protections, a high degree of transparency, and a willingness to reject deals that are not clearly in the interest of the poor country. Congressional efforts to write these standards into the new OPIC have largely been successful to date, but the action will soon turn to the executive branch. Under pressure to increase deal flow in the years ahead, administration actors will no doubt be tempted to view high standards not as virtues but impediments. If so, they will have learned the wrong lessons from the Chinese experience, and the developing world will be the worse for it.

Scott Morris is a senior fellow and director of the U.S. Development Policy Initiative at the Center for Global Development. He served as deputy assistant secretary for development finance and debt at the U.S. Treasury Department during the first term of the Obama administration.

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