Tying hands for what? Standard setting and China’s new White Paper on international development financing

Recently, the Chinese government released the White Paper on China’s International Development Cooperation, considered as a response to the international pushbacks resulting from the Chinese aggressive Belt and Road Initiative (BRI). The White Paper clearly aims to address international concerns such as transparency, project ownership, and financing efficiency. Based on the above, this paper aims to address the question: why did China modify its international development cooperation, and to what extent will this modification make a difference? The paper argues that, by reshaping the narratives of the BRI as a public good for development, China aspires to achieve two major goals: continuing international integration to serve both domestic and international markets and setting international standards. It further argues that China’s modifications in improving transparency, returning project ownership to local governments, and financing efficiency of its overseas financing show that the international pressure works. Nonetheless, this is not to suggest that extreme pressure would fundamentally change China’s behaviour. Modifications of China’s international development cooperation show China’s gradual recognition of international norms and standards, especially through the engagement with multilateral mechanisms. In a context where geopolitical rivalry prevails on state-to-state relations, perhaps, development cooperation and engagement through multilateral mechanisms is a good start to depoliticize the tension.

 

Introduction

On 10 January 2021, the Chinese government released the White Paper on China’s International Development Cooperation.[1] In general, the 2021 White Paper is a response to increasing international criticisms, doubts, and pushbacks resulting from the aggressive economic diplomacy pursued by China through the Belt and Road Initiative (BRI). In the past decade, the expansion of Beijing’s economic influence has generated tremendous geopolitical repercussions in Asia and beyond. Narratives of China’s “predatory economics”, “corrupt project” and “debt trap”[2] led a few countries who participate in the BRI, such as Malaysia and Myanmar, to modify their infrastructure cooperation with China.[3] Perhaps the most significant geopolitical response has been the formation of the Free and Open Indo-Pacific (FOIP) strategy, actively promoted by the United States with the support of its allies and partners, in the hope of shaping Chinese behaviours and constraining China’s expanding ambitions.[4]

Because of these pushbacks, Chinese President Xi’s “key judgment” (referring to “Our world is experiencing profound changes unseen in a century”[5]), coupled with his assessment of China’s position (i.e., “still in the significant strategic opportunity”[6]), implies that China is rising while the United States is declining, making economic statecraft even more attractive in the competition for power. As China perceives itself as “a defender of globalization and multilateralism”,[7] to what extent can China’s international development cooperation make a difference?

What is different now?

The White Paper demonstrates how China’s thinking on foreign aid and development assistance has undergone significant evolution. First, China changed the terminology from “foreign aid” to “International Development Cooperation”. The use of internationally familiar wordings helps to shape international narratives about China’s overseas development cooperation practices. This change also shows that more importance will be given to two- way cooperation between the host country and China rather than unidirectional funds from China. The change in terminology also reflects the wide range of thematic issues for cooperation. Examples of such issues include poverty reduction, environmental protection, and the global health crisis due to Covid-19.

Second, the White Paper highlights upholding justice and pursuing shared interests, something unprecedented in previous papers. The White Paper adopts a moral concept to underpin the gist of China’s international development cooperation: the correct perceptions on justice (义) and interests (利) to downplay China’s previous mercenary image. While calling for shared interests is not uncommon in China’s diplomacy, upholding justice implies that China, as a developing country, has a strong sense of obligation to reform the global governance architecture. With non-interference, mutual respect, and equal treatment, China seeks to be a responsible player that pursues justice. Therefore, China considers development cooperation as its duty as a responsible member of the global community. By emphasizing the morality of its development cooperation, China seeks to prove that it can promote a “moral high ground”.

Third, China reaffirms its commitment to transparency and accountability measures, including feasibility studies, tendering rules, performance appraisals, and statistical indices to ensure the quality, reputation, and credibility of China-funded projects. In response to criticisms of opaque processes and ad hoc aid management, China has also committed to more clearly defined rules and regulations for project management. To guard against corruption, China has committed to strengthening the mechanism to evaluate performances. However, the information disclosure is made on the premise that deems it “suitable to China’s national conditions”, implying that China will not apply OECD’s practices even though transparency is expected to improve.

Fourth, China reframed its international development cooperation within the South-South cooperation (SSC) narrative. With this positioning, Beijing hopes that the global community can see China as operating under a different rule from North-South cooperation (NSC). The White Paper stresses that China will not “do things beyond its stage of development” and will only “meet international obligations in line with national capacity”.[8] This signals that China will not accept standards set by traditional donors such as the OECD. Within such a framework, China can apply its standard to provide aid, assistance, or financing. The White Paper also makes it clear that the SSC should be always complementary to, and second to the NSC, which shifts the duties and obligations to developed countries.

Fifth, to tackle the narratives that China dominates the cooperation projects, the White Paper highlights the principle of ownership of development priorities by host/developing countries. In the past, the Chinese government dominated the projects, leaving recipient governments with little say. Now, China allows recipient governments to retain a bigger role in the development of the projects, such as tendering. China’s role is to share development experiences and industrial technology and, if necessary, to work with a third party to facilitate the adoption of Chinese policy and management experiences. The purpose of the role shift is to ensure that local economies become self-sustaining.

Sixth, the concept of third-party/tripartite cooperation appears in the White Paper more frequently. Third-party cooperation is generally considered as a benign foreign economic policy, even though powers can still exert influence through agenda-setting projects. The third-party cooperation concept is not new. For instance, China increased its earmarked aids to international organizations such as South-South Cooperation Assistance Fund (SSCAF) to United Nations Development Programme (UNDP) or donations to World Bank International Development Association (IDA). China also commenced third-party cooperation discussions with countries such as Japan and the European Union (EU). The EU for example has blended initiatives with loans from international financial institutions in China or collaborated with China on green financing to mitigate climate change. The EU is also engaged with China via thematic and regional programmes focused on areas of sustainable and inclusive development in the broader Asian region.

Lastly, the Chinese government reframes the BRI discourse as a development public good. For the first time, the BRI is clearly defined as a “major platform” for China’s international development cooperation. This marks a change from the past: the Chinese government claimed that the BRI is not about foreign aids; but rather a win-win commerce-based vision of economic cooperation. This distinction was made in case the countries participating in the BRI were perceived to become financially reliant on China, and now the modification explicitly shows that China hopes to counter the prevailing narrative according to which the BRI is an instrument of China’s geostrategic ambitions.

The White Paper in the regional-global link

In the past few years, the Trump’s administration increased the efforts to promote narratives about the need to securitize China’s infrastructure financing. From the trade war to the “China virus” narrative of the Covid-19 pandemic, Sino-American relations witnessed a large-scale downturn. The hostility between China and the United States is an unintended consequence of China’s economic strategy. However, the tensions have put pressure on the Chinese government to modify its foreign policy, including its overseas development financing practices. This change originated from the idea that China has entered a new paradigm, one that combines rising global uncertainty and an increasingly hostile international environment with new opportunities afforded by a declining United States.

The outbreak of Covid-19 and ensuing disruptions of the global supply chain seem to suggest that the decoupling of global supply chains could be an enduring trend. In response, President Xi declared in April 2020 that China must “take the initiative to seek change, and successfully capture and create opportunities during crises and difficulties”.[9] Later on, he announced the “dual circulation” strategy of internationalization and self-sufficiency at the Politburo meeting in May 2020.[10] The aim of this strategy is to access capital and technology in international markets, while simultaneously augmenting self- capabilities in critical technology to address national security concerns.[11] As pointed out by President Xi, China needs “independent, controllable, safe, and reliable” supply chains, with “at least one alternative source for key products and supply channels, to create a necessary industrial backup system”.[12]

China’s international development cooperation plays a role in the dual circulation as Beijing envisages it as “the mutual promotion” of dual circulation itself. The White Paper expresses China’s intent to continue to focus on overseas engagement through the BRI. This essentially means that China’s great ambition in pushing for the BRI will not be dampened, particularly when a post-pandemic world may need more infrastructure financing to promote economic growth. Such efforts include a wide range of activities concerning the commercial utility of the BRI, such as physical connectivity, foreign direct investment, financial investment, technology transfer, special economic zones, and aid. All these pillars of the BRI are seen as contributing to China’s domestic and international development objectives.

Although the White Paper does not highlight standard-setting, the sections on technology, cooperation and assistance, as well as that on the BRI, can be treated as part of the standard- setting of Chinese products and technology. As the Chinese government declared its intent to use “the whole-of-nation” system (举国体制[13]) to promote Chinese standards, its involvement in development cooperation is expected to influence the standard-setting of the recipient countries. For instance, China has been considerably successful in assisting Cambodia with national road grid planning and modern agricultural development planning through governance capacity building and regulation. China has also promoted its technology in many Southeast Asian countries through bilateral and multilateral development cooperation programmes. For instance, China has been promoting its Beidou satellite system in various programmes associated with infrastructure, agriculture, logistics, tourism, and poverty reduction in a few Mekong countries within the framework of the Lancang Mekong Cooperation (LMC).[14] As Asia’s economic development and poverty reduction rely heavily on the introduction of new infrastructures in power grid, submarine cables, digitalization, and the Internet of Things (IoT), Chinese standard-setting is expected to be promoted concomitantly through these areas of international development cooperation, bilaterally or multilaterally.

China’s capacity to adapt to changing circumstances has been proven in the Covid-19 pandemic. The issuance of the White Paper is one of the adaptation approaches in response to doubts and criticisms. In fact, the success of controlling the domestic pandemic outbreak through technology (such as facial recognition and QR code) has provided an opportunity for Beijing to subtly shape a new rhetoric surrounding its role in international development as illustrated by the White Paper. Feeling the pressure from China’s increasing economic and technological influence, other major actors also factor China’s activism into their own plans. For instance, the new American President Biden pledged to establish a working group to focus on standard-setting for emerging technologies, including 5G and artificial intelligence in the Quad summit on 12 March 2021.[15]

Implications for global governance

What is promising in the White Paper is the expected improvement on the governance of China’s money flows, ownership of the development projects, and third-party cooperation. First, the institutional reforms can lead to a gradual improvement in Chinese overseas sustainability performance, among others in clean energy, biodiversity protection, and climate change mitigation. Second, the return of project ownership to host countries will promote fairer competition for local procurement and supplies. For instance, China provides special funds to support local small and medium-sized projects of Mekong countries to support local procurement. Third, third-party cooperation can depoliticize development issues, allowing the EU and other OECD countries to “socialize” China into rules and norms by influencing Chinese international development cooperation practices. It is also an ideal tool for China to solve the dilemma of balancing between control over the use of the fund and the liability of undesired outcomes.

Despite the progresses outlined above, a fundamental change in Chinese international development cooperation reform is not likely to take place. First, the inclusion of a multi-dimensional BRI (from agriculture to digital economy, and from infrastructure to culture) will intensify the confusion over the blurry boundary between development/commercial financing, foreign aids, and assistance. Eventually, it will be left to the implementers on the ground to interpret how to balance justice (义) and interest (利).

Second, China struggles to accept some international standards, for instance, those set by the International Finance Cooperation on the “free, prior, informed, consent” principle of infrastructure financing[16] or the Equator Principles (EPs) that require public engagement and consultation with the community. In fact, the White Paper does not give much attention to cooperation with non-state actors. Partially influenced by China’s foreign policy principle of non-interference in other countries’ domestic affairs, Chinese policy banks and state-owned enterprises (SOEs) in charge of the major cooperation projects rarely take the initiative to engage with the civil society in host countries or the international non-profit organizations. In fact, Chinese banks and companies are aware of the repercussions of being too active in interacting with local civil society groups or with NGOs.

Third, the White Paper indicates that China’s international development cooperation serves the country’s domestic economy and its foreign policy equally. In particular, the White Paper indicates that China, as a developing country, will not overstretch its capacity. In this context, the emphasis on self- reliance is expected to increase policies to support SOEs’ strategies to promote the Made in China 2025 and China Standards 2035. These strategies are said to be supported by a “new national system” to ensure technology development[17] amid the potential decoupling from the West. It also implies that, in the short term, China will have to choose between public spending on domestic economic recovery and on financial subsidies to the BRI and other international development cooperation projects.

Conclusion

The emphasis on improving transparency, returning project ownership to the recipient government, and financing efficiency of China’s overseas financing clearly shows that the international pressure on China’s past few years’ controversial economic activities works. Nonetheless, this is not to suggest that pressure without engagement would change China’s behaviour fundamentally. On the contrary, extreme pressure on China may only push Beijing to overthrow the existing standards and norms while restating its own. With the rising rivalry and tensions between China and the United States, it is expected that international development cooperation will witness more ideational, material, and narrative competitions. If uncontrolled, Sino-American tensions could change all international development cooperation, including the plans of the BRI in facilitating development and forcing developing countries into taking sides.

Although we cannot expect China to adopt standards like OECD’s, modifications of China’s international development cooperation show China’s gradual recognition of international norms and standards, especially through multilateral mechanisms. Perhaps, multilateral development cooperation as advocated by China can be a good start to depoliticize geopolitical tensions while restarting engagement through multilateral mechanisms.

Indeed, there are some good lessons we can draw from China. Beijing is not only extending its development practice onto others but also working through local actors and institutions by adapting and sometimes assimilating local norms and practices, something that developed countries may have overlooked. This is why Chinese overseas financing has been getting popular among developing countries in the past decade. But for China, claiming to be a supporter of multilateralism should also translate into the adaptation of the BRI practices to a more multilateral-based setting to uphold its responsibility to the world – a tendency already signalled by the establishment of the China-led Asian Infrastructure Investment Bank.


References

[1] The State Council Information Office of the People’s Republic of China (2021) China’s international development cooperation in the new era, 10 January, available online

[2] Panda, A. (2018) “Tillerson slams Chinese financial practices in Africa”, The Diplomat, 8 March, available online

[3] The Straits Times (2018a) “Chinese port project could land Myanmar in debt trap”, 13 May, available online; The Straits Times (2018b) “Malaysia suspends construction of East Coast Railway Link”, 4 July, available online

[4] Department of State, United States of America (2019) A Free and Open Indo- Pacific: Advancing a shared vision, 4 November, available online

[5] Ministry of Foreign Affairs, PRC (2018) “Speech by H.E. Wang Yi at the opening of symposium on the International Situation and China’s Foreign Relations in 2018”, 11 December, available online

[6] Qin, X. (2021) “Shenke lijie woguo fazhan reng chuyu zhongyao zhanlve jiyuqi” [Deeply understand that our country’s development is still in a period of important strategic opportunities], QSTheory.cn., 8 February, available online

[7] Yang, J. (2021) “Jianding weihu he jianxing duobianzhuyi jianchi tuidong goujian renlei mingyun gongtongti” [Firmly uphold and practice multilateralism and persist in promoting the building of a community with a shared future for mankind], Ministry of Foreign Affairs, PRC, 21 February, available online

[8] The State Council Information Office of the People’s Republic of China (2021) China’s international development cooperation in the new era

[9] Yan, S. (2020) “Zai huaweiji zhong yingde fazhan zhudongquan” [Win the initiative in development: Turn crises into opportunities], People’s Daily, 16 April, available online

[10] People’s Daily (2020) “Zhonggong Zhongyang Zhengzhiju Changwu Weiyuanhui Zhaokai Huiyi” [The Standing Committee of the Political Bureau of the CPC Central Committee held a meeting, Xi Jinping, General Secretary of the CPC Central Committee, presided over the meeting], 15 May, available online

[11] Xinhua Net (2020) “Qiushi Zazhi Fabiao Xi Jinping Zongshuji Zhongyao Wenzhang” [“Qiushi” published an article by General Secretary Xi “major issues in the national medium and long-term economic and social development strategy”], 31 October, available online

[12] Xue’ershixi (2020) “General Xi Jinping Zongshuju: Chanyelian,gongyinglian zai guanjian shike buneng diao lianzi” [Secretary Xi Jinping: The industrial chain and supply chain cannot be dropped at critical moments], QSTheory.cn, 3 November, available online

[13] “The whole-of-nation” system emphasizes a much stronger state role in the technological development through mobilizing various forces and intervening in the economy to reach efficiency optimization. See for instance, CPCNews.com (2020) “Wanshan Guanjian Hexin Jishu Gongguan De Xinxing Juguo Tizhi” [Improve the new whole-of-nation system for key core technology research], 20 March, available online

[14] Xinhua Agency (2018) “Lancangjiang-Meigonghe Hezuo Wunian Xingdong Jihua (2018-2022)” [Lancang-Mekong cooperation Five- Year Action Plan (2018-2022)], 11 January, available online

[15] Delaney, R. and Fromer, J. (2021) “‘Quad’ Summit backs ‘Democratic’ Indo-Pacific Region cites Chinese ‘aggression’”, South Morning China Post, 13 March, available online

[16] Feng, H. (2017) “Interview: EU & China to raise global climate ambitions”, China Dialogue, 7 November, available online

[17] CPCNews.com (2020) “Wanshan guanjian hexin jishu gongguande xinxing juguo tizhi” [Improve the new national system for core technology research] (2020), 20 March, available online

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