China now world's No. 2 economy but still gets foreign aid

BEIJING -- China spent tens of billions of dollars on a dazzling 2008 Olympics. It has sent astronauts into space. It recently became the world's second-largest economy. Yet it gets more than $2.5 billion a year in foreign government aid -- and taxpayers and lawmakers in donor countries are increasingly asking why.

With the global economic slowdown crimping government budgets, many countries are finding such generosity politically and economically untenable. China says it's still a developing country in need of aid, while some critics argue that the money should go to poorer countries in Africa and elsewhere.

Germany and Britain have moved in recent months to reduce or phase out aid. Japan, long China's biggest donor, halted new low-interest loans in 2008.

"People in the U.K. or people in the West see the kind of flawless expenditure on the Olympics and the [Shanghai] Expo, and it's really difficult to get them to think the U.K. should still be giving aid to China," said Adrian Davis, head of the British government aid agency in Beijing, which plans to wrap up its projects in China by March.

"I don't think you will have conventional aid to China from anybody, really, after about the next three to five years," he said.

Aid to China from individual donor countries averaged $2.6 billion a year in 2007-2008, according to the latest figures available from the Organization for Economic Cooperation and Development.

Ethiopia, where average incomes are 10 times smaller, got $1.6 billion, although measured against a population of 1.3 billion, China's share of foreign aid is still smaller than most. Iraq got $9.462 billion and Afghanistan $3.475 billion.

The aid to China is a marker of how much has changed since 1979, when the communist country was breaking out in earnest from 30 years of isolation from the West. In that year, foreign aid was a $4.31 million, according to the OECD.

Today's aid adds up to $1.2 billion a year from Japan, followed by Germany at about half that amount, then France and Britain.

The U.S. gave $65 million in 2008, mainly for programs promoting safe nuclear energy, health, human rights and disaster relief. Washington still maintains the sanctions imposed following the 1989 military crackdown on pro-democracy demonstrators at Tiananmen Square, said Drew Thompson, a China expert at the Nixon Center in Washington, D.C.

China is also one of the biggest borrowers from the World Bank, taking out about $1.5 billion a year.

Asked why China still needed foreign aid after making so much economic progress, the Commerce Ministry said that China remains a developing country with 200 million poor and big environmental and energy challenges.

The current debate spotlights the challenges of addressing poverty in middle-income countries such as China, India and Brazil, where economic growth is strong but wealth is unequally spread. After the U.S., China has the world's most billionaires, yet incomes averaged just $3,600 last year.

Roughly three-quarters of the world's 1.3 billion poor people now live in middle-income countries, according to Andy Sumner, a fellow at the Institute of Development Studies at the University of Sussex in the U.K.

That's a major shift since 1990, when 93 percent of the poor lived in low-income countries, Sumner said. It raises the question of who should help the poor in such places: their own governments or foreign donors?

Experts say it's hard to justify giving aid to China when it spent an estimated $100 billion last year equipping and training the world's largest army and also holds $2.5 trillion in foreign reserves.

"China's made a strategic choice to invest in building its military and acquiring these massive reserves, but at the same time it's underfunding social services, so I think it's going to be harder and harder for donor nations to continue to fund projects in China," said Thompson.

Japan's generosity has historically been driven at least in part by a desire to make amends for its invasion of China in the 1930s. But in recent years Japanese lawmakers and officials have repeatedly questioned whether the money flow should continue, pointing to China's emergence as a donor to African countries.

China provided around $1.4 billion in aid to Africa last year, according to Professor Deborah Brautigam, an expert on China-Africa relations at the American University in Washington, D.C.

Japan has cut its aid down to grants and technical help for environmental and medical projects. Germany's current projects are due to be completed by 2014.

China is cautious about its new status. It is proud of having lifted half a billion people out of poverty and is beginning to flex the muscle that comes with being an economic power. Yet when, for instance, it is called on to agree to binding reductions in carbon emissions, it replies that it can't because it's still a developing country.

At this week's U.N. global summit on fighting poverty, Premier Wen Jiabao pledged to expand Chinese foreign aid and announced an additional $200 million in aid to flood-hit Pakistan.

But he also stressed that China still had to help its own tens of millions of poor. And when Europe's top diplomat, Catherine Ashton, visited China this month, her hosts made sure to take her to a poor village in the remote southern province of Guizhou.

Development aid is not always solely based on need either. Aid groups say China is an ideal place to try out projects, because the authoritarian government can expand successful ones rapidly on a large scale.

But China is effectively robbing the poor by competing for grants, said Dr. Jack C. Chow, who was the lead U.S. negotiator in talks that set up the Geneva-based Global Fund to Fight AIDS, Tuberculosis and Malaria, a major funder of health programs.

The $1 billion China has been awarded in grants from the fund could have paid for 67 million anti-malarial bed nets, 4.5 million tuberculosis treatments, or nearly 2 million courses of AIDS therapy in poorer countries, Chow said.

"I think the milestone that China is now the second largest economy, arguably, I would say that it's no longer a developing country with the likes of sub-Saharan Africa," Chow said in an interview. "Having money from the Global Fund going to China really detracts and depletes that mission of helping people in the poorest of countries."

Global Fund spokesman Jon Liden said China has not taken any money away from other countries so far, because the organization has had sufficient funds to approve all applications "of quality" that it has received. But China could help by contributing more to the fund, he said.

The World Bank defends its assistance to China, saying it enables the bank to work with Beijing on climate change and projects in sub-Saharan Africa.

"Sometimes there's a simplistic view that there should just be the developed countries and the very poorest countries," the bank's president, Robert Zoellick, said recently in Beijing. "But that would run exactly against ... the changes in the world economy, where the role of the emerging economies are to support demand, to take on responsibilities as stakeholders with the environment, to help support other poor countries."