P 200625Z JAN 06
FM AMEMBASSY BEIJING
TO SECSTATE WASHDC PRIORITY 6116
INFO CHINA POSTS COLLECTIVE PRIORITY
AMEMBASSY TEGUCIGALPA PRIORITY 
DEPT OF TREASURY WASHINGTON DC PRIORITY

S E C R E T  BEIJING 001238 
 
 
TREASURY FOR OFFICE OF TRADE FINANCE TVARDEK 
ULAANBAATAR PASS TO USAID WASKIN 
BANGKOK PASS TO USAID RDM/A BEANS 
 
E.O. 12958: DECL: 01/20/2016 
TAGS: CH EAID ECON PREL
SUBJECT: (S) RESTRUCTURING CHINESE FOREIGN AID--NEXT STEPS 
 
REF: 05 BEIJING 16254 
 
Classified By: (S) CLASSIFIED BY MINISTER COUNSELOR FOR ECONOMIC AFFAIR 
S ROBERT S. LUKE; REASON 1.5 (B) AND (D). 
 
¶1. (S) Summary: A senior advisor on Chinese development 
assistance told Econoff on December 20 that he has submitted 
his recommendations to the Ministry of Commerce (MOFCOM) on 
how China should restructure its foreign aid program.  The 
advisor stated that China's aid program should continue to 
focus on the same geographic regions (Asia and Africa) and 
have the same trade-promotion orientation, but that it also 
should be a more transparent policy geared towards 
cooperation with international agencies.  He acknowledged a 
significant amount of infighting over the future of China's 
foreign aid program, and said one faction within the 
bureaucracy is promoting a strategy that will continue to 
emphasize natural resource acquisition, diplomatic support 
vis-a-vis Taiwan, and promoting Chinese brand recognition. 
The advisor said that China's transition to donor country 
would be a gradual shift, not only because of these 
philosophical differences within the Central Government but 
also because China's economic assistance infrastructure 
overseas remains weak.  Illustrating China's transition from 
recipient to donor, the World Food Program announced on 
December 15 that it would no longer provide food aid to 
China.  End Summary. 
 
¶2. (S) Dr. Zha Daojiong, Chair of the Department of 
International Political Economy at the School of 
International Studies at the People's University of China 
(Renmin Daxue), told Econoff on December 20, 2005 that he has 
submitted his final recommendations to MOFCOM on how China 
should restructure its foreign aid program.  Zha stated that 
his report is the first study on external assistance 
commissioned by the Central Government to an outside 
consultant.  Throughout the process, Zha claims to have 
received high-level access to information and contacts at 
MOFCOM and the MFA.  Zha previously met with visiting USAID 
officials in Beijing on September 19 to explain China's 
transition from recipient nation to donor country (see 
reftel).  According to Zha, China currently is restructuring 
its aid apparatus with a view towards playing a more 
significant role in the international development community. 
 
Future of Foreign Aid: 5 Recommendations and 4 Reforms 
--------------------------------------------- --------- 
 
¶3. (S) Zha told Econoff that his report to MOFCOM made five 
major recommendations and suggested four reforms on the 
future of China's foreign aid program.  The recommendations 
are as follows: 
 
--China's economic assistance should maintain the status quo 
in terms of geographical distribution with most of China's 
aid going to its Asian neighbors with Africa as the second 
priority destination; 
 
--Aid should continue to be tied to trade and investment 
projects, specifically in Asia; 
 
--Economic assistance in Asia also should take cross-border 
economic problems into account, including drug trafficking, 
trafficking in persons, etc., and aid should be leveraged to 
help resolve these pressing issues; 
 
--China should work through international agencies, including 
the UN and World Bank to disperse aid and design programs; and 
 
--China should cooperate closely with the G-7 and other 
developed countries to design aid programs that meet the 
standards of the Millennium Development Goals. 
 
¶4. (S) The advisor stated that his suggested reforms are 
intended to create a more transparent foreign aid apparatus. 
The reforms are as follows: 
 
--China should follow OECD guidelines for aid; 
 
--China should publish an annual white paper on its foreign 
aid program that would include statistics on the amounts of 
aid as well as the location of projects; 
 
--The Central Government should launch programs to educate 
the public on why foreign aid is important; and 
 
--China should reform its training and exchange programs to 
facilitate more representatves from the developing world 
having access to training in China or in their own countries. 
 
Bureaucratic Dogfight: Confusion over China's Role 
--------------------------------------------- ----- 
 
¶5. (S) Zha told Econoff that while his study was commissioned 
by MOFCOM, he attempted to work with both MOFCOM and MFA, and 
the friction between the two agencies is obvious.  MFA is a 
relatively open organization, Zha said, but MOFCOM controls 
the money for aid programs, and the agency does not see the 
need to be more transparent.  (Comment: Clearly, however, the 
fact that MOFCOM commissioned this study indicates there is 
support for reform within that ministry as well.  End 
Comment.)  Zha complained that a proposed conference on 
international cooperation in development that he originally 
had scheduled for September 2005 had been cancelled by MOFCOM 
and was not likely to be rescheduled.  MOFCOM's reluctance to 
engage with foreigners on China's aid program, Zha said, is 
largely because China's aid program is so small.  He 
estimated that Chinese donations amount to only 15 percent of 
what China receives.  (Note: Zha also spoke in reftel about 
China's actual aid outflows not matching publicly stated 
amounts due to perceived competition with Japan in developing 
countries.  End Note.) 
 
¶6. (S) Zha hopes, however, that a Foreign Aid Policy 
Workshop, recently held in Beijing and attended by members of 
the National Committee on United States-China Relations, had 
helped sensitize some recalcitrant government officials on 
the importance of improving coordination with other donors. 
China needs to cooperate with the G-7 on foreign aid, Zha 
said, in order to both learn lessons and build confidence 
with developed countries that China is a responsible 
stakeholder. 
 
¶7. (S) In the meantime, however, Zha told Econoff he is less 
concerned about MOFCOM-MFA friction as he is about a faction 
within the government that wants to continue to promote an 
aid policy that emphasizes natural resource acquisition, 
diplomatic support vis-a-vis Taiwan, and promoting Chinese 
brand recognition.  Zha said he was disappointed with the 
outcome of a conference of China's Ambassadors on the margins 
of the G-20 Summit in Beijing in October 2005.  Although the 
goal of the conference purportedly was to address new 
strategies for China's foreign aid program, the primary focus 
of the meeting, including the keynote speech by Premier Wen 
Jiabao, instead centered on China's historical aid objectives 
such as resources and Taiwan. 
 
¶8. (S) Zha stated that he hopes, however, that the Central 
Government's views on providing aid to developing countries 
so that they will switch their diplomatic recognition from 
Taiwan to the PRC are changing.  He noted a recent example 
when Honduras reportedly asked Beijing for a USD 40 billion 
aid package spread over five years (USD 8 billion per year) 
to switch its recognition to the PRC.  According to Zha, the 
MFA called an emergency meeting on the matter, and those 
opposing providing the aid (including Zha) ultimately won the 
debate.  He referred to aid-for-recognition as "blackmail" 
that China no longer should be willing to pay. 
 
New Foreign Aid Program A Gradual Shift 
--------------------------------------- 
 
¶9. (S) Due to philosophical differences and bureaucratic 
infighting within the government, Zha theorized that China's 
foreign aid policy would undergo a gradual transformation 
rather than a dramatic change.  He does not believe there 
will be major new initiatives in 2006, but he does believe 
there will be considerable pressure on China to transition 
from recipient to donor before the 2008 Olympics in order to 
prove Beijing is not a "free-loader." 
 
¶10. (S) Any change will be a gradual one, Zha added, because 
China's overseas aid infrastructure is not sufficient to 
carry out new development projects in developing countries. 
Zha said he believes China will continue to focus on 
government-to-government aid, but he also hopes Beijing will 
be more willing to cooperate with international agencies.  He 
said China has no plans to work through either Chinese or 
international overseas NGOs, but MOFCOM will continue to 
engage provincial governments to identify Chinese state-owned 
and private sector contractors for projects overseas. 
Working with these contractors, he said, gives the companies 
international experience and also lessens the Central 
Government's burden to implement projects. 
 
World Food Program Departing China After 26 Years 
--------------------------------------------- ---- 
 
¶11. (C) Even as the study on China's transition from 
recipient to donor was submitted to MOFCOM, another aid 
agency announced it is downsizing its program in Beijing.  As 
expected, the World Food Program (WFP) formally announced 
during a December 15, 2005 visit by WFP Executive Director 
James Morris that it would end its food aid program in China 
after 26 years.  Since 1979, WFP has provided China food aid 
valued at more than USD 1 billion, feeding more than 30 
million people in central and western China. 
 
¶12. (C) Kate Milliken, WFP Program Officer told Econoff that 
WFP's office in Beijing would remain open with a small staff 
to accept donations, conduct emergency operations if 
neessary, increase WFP's visibility, and negotiat stand-by 
agreements to use China's emergencyresponse capacity to deal 
with food crises.  Aother important objective for WFP is to 
encourage China to further increase its donor support to WFP, 
which recently increased from USD 1.25 million to USD 1.75 
million.  Morris approached the Chinese about increasing its 
donations to WFP during his visit to Beijing. 
 
Transition Gradual But Appears to be Picking up Steam 
--------------------------------------------- -------- 
 
¶13. (S) Comment: Although China's transition from aid 
recipient to donor may be a gradual shift, it appears to be 
picking up steam.  It is significant that MOFCOM commissioned 
a non-government entity to submit recommendations on how to 
reform China's foreign aid program.  Taken together with 
reports on multilateral donors either closing down aid 
programs in China, as in the case of WFP food aid, or 
limiting their aid to technical assistance (World Bank, Asian 
Development Bank), as well as bilateral donors pulling out, 
the transition away from aid recipient is obvious. 
 
¶14. (S) Equally obvious, however, is that China's future 
strategy for outgoing economic assistance remains unclear. 
Zha's recommendations focus on China becoming a responsible 
stakeholder in the international donor community and working 
to promote the Millennium Development Goals, as well as 
increasing the transparency of its aid program.  There are 
others within the government, however, who will continue to 
attempt to use China's aid apparatus to secure resources, 
compete with Taiwan, and promote Chinese brands. 
High-profile aid projects in places like Sudan and Cuba 
continue to call into question whether recommendations to 
cooperate with other donors and to become more transparent 
will find a receptive audience among decision-makers at 
MOFCOM and other government agencies.  End Comment. 
 
 
Randt