Chinese Aid, Horizontal Inequality, and Attitudes towards Donor

• In Event: Foreign Aid and Financing: New forms and New Uses

Abstract

With a growing economy and steady accumulation of wealth, China has rapidly increased foreign aid to developing countries since the early 1990s. Inflows of Chinese aid is known to promote economic development in the recipient countries (Dreher et al. 2017). However, limited attention has been paid to how inflows of Chinese money affect African citizens' attitudes towards China. While existing studies suggest Chinese aids have been effective in promoting growth in recipient countries, few has examined if the public opinion in these recipient countries towards China exhibits the same benevolent pattern. Moreover, since the aid from China allows for more freedom in allocating resources by the recipient government than that from the Western donors, citizen attitudes toward the donor may also be connected to the distributional consequences of Chinese Aid.

Relatedly, concerns are raised about the adverse impact of China’s aid on local governance in the recipients such as political patronage, corruption, and unsustainable government debt. It was also found that Chinese aid tends to disproportionally benefit political elites in the recipient countries (Isakson and Kotsadam 2018). Recent developments in China’s aid implementation have also shown growing public dissatisfaction and pushback against projects funded by aid or other governmental finances from China. Given these consequences, it is questionable whether citizens of the recipient countries view China’s aid-giving activities as favorably as their government do.

Motivated by these questions and building on the 'relative deprivation theory', this paper examines the public approval of China’s aid-giving activities since 2000 in Africa. We claim that the distributional winners and losers evaluate the inflows of Chinese money differently. In contrast to aids from Western countries and international organization, Chinese aids are known to impose less aid conditionality. This induces African leaders to have greater leeway controlling those aids, how to use and distribute. In this context, it is likely that increasing aids may only enhance the welfare of distributional winners, mostly incumbent leaders' supporters and their co-ethnics. In other words, increasing aids could worsen existing distributional conflicts between distributional winners and losers. If so, economic situation of underprivileged citizens may get worse by inflows of Chinese aids. Thus, the underprivileged would be less likely to form more favorable views on donor countries. Rather, it is likely that these citizens blame the aid donors since their presence exacerbates the existing economic disparity between winners and losers

We find the support for our arguments from analyzing an original dataset combining Chinese aid flows data, satellite image-based regional development data, and Afrobarometer. Specifically, in African region with greater Chinese aid flows, attitudes toward Chinese aids between the privileged and the under-privileged are more distinctive. While the attitudes toward Chinese aids among the rich do not vary in terms of Chinese aid flows, the poor's attitudes are significantly moderated by the inflows of China money. This empirical result supports our contention that the poor are less likely to support Chinese aid if they sense the economic distribution is getting worse. We attribute this mainly stems from the relative deprivation of the poor when they experience great aid flows from China. It is because the under-privileged tend to blame the donor country, China, as a funding source for incumbent governments, for worsening horizontal inequality. Our empirical finding is robust to using an alternative dependent variable, different model specifications, and testing the possibility of alternative causal mechanism.

The contribution of our paper is twofold. To the best of our knowledge, this paper is the first to examine the determinants of approvals of Chinese aid in the recipient countries. This paper shows that the poor in regions with greater Chinese aid-giving are more negatively evaluate Chinese aid. More importantly, this paper suggests that distributional outcome is an important factor to understand how citizens in developing countries evaluate international money flows. Since the poor in African countries are more keen to whether aid-giving exacerbates or enhances extant level of distribution, they feel greater relative deprivation if greater aid flows lead to worse distributional consequences.

Authors

• Jia Chen, Shanghai University of Finance & Economics

• Sung Min Han, Shanghai University of Finance and Economics