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What you need to know about China’s ODA policy

"Fears of the Philippines' falling prey to "debt trap diplomacy," in so far as Beijing is concerned, are misplaced, misinformed and perhaps even malicious."

 

With enhanced relations between the Philippines and China in the past two and a half years, Beijing has offered assistance in the form of grants and loans for infrastructure development, apart from investments in various joint venture programs. While some observers have raised concerns over possible “debt trap diplomacy” where high interest rates could make it difficult for the Philippines to pay on time and thereby incur more loans to cover its debt obligations, others believe that aid is a two-way street. Thus, recipient countries like the Philippines should do their homework and conduct the requisite feasibility studies and due diligence when contracting loans.

So how do we deal with China’s offer of loans? A document titled “China’s Foreign Aid” released by the Information Office of the State Council in July 2014 clarifies the nature and scope of its foreign aid package: “When providing foreign assistance, China adheres to the principles of not imposing any political conditions, not interfering in the internal affairs of the recipient countries and fully respecting their right to independently choose their own paths and models of development. The basic principles China upholds in providing foreign assistance are mutual respect, equality, keeping promise, mutual benefits and win-win.”

China’s foreign assistance consists of three types: grants (aid gratis), interest-free loans and concessional loans. Grants are offered to help recipient countries build small or medium-sized social welfare projects, and to fund human resources development cooperation, technical cooperation, material assistance and emergency humanitarian aid.

Interest-free loans are extended to help recipient countries construct public facilities and launch projects to improve people’s livelihood, while concessional loans are provided to help recipient countries undertake manufacturing projects and large and medium-sized infrastructure projects with economic and social benefits, or for the supply of complete plants, machinery and electronic products.

China provides foreign assistance mainly in the form of complete projects, goods and materials, technical cooperation and human resources development, medical teams and volunteers, emergency humanitarian aid, and debt reduction.

One of the important objectives of China’s foreign assistance is to support other developing countries to reduce poverty and improve the livelihood of their peoples. It also does this by helping develop agriculture, enhance education levels, improve medical and health services and build public welfare facilities, and provide emergency humanitarian aid in the event of severe disasters.

Another key objective of China’s foreign assistance is to promote economic and social development by actively helping other developing countries in infrastructure construction, and strengthening capacity building and trade development. Beijing has also increased the amount of foreign assistance in environmental protection.

China’s foreign aid program is administered by the China International Development Cooperation Agency (CIDCA).

In August 2018, the Department of Finance submitted a list of 12 big-ticket infrastructure projects to CIDCA for possible grants for feasibility studies. The projects proposed for CIDCA financing are the future phases of the Mindanao Railway Project; Ipo Dam No. 3 in Norzagaray, Bulacan; Port Irene Development-Navigational Channel in Cagayan; development of the Luzon Eastern Seaboard; the River Basin and Watershed Management Project in Camarines Sur; Cabadbaran Small Reservoir Irrigation Project in Agusan del Norte; and six bridge projects between Luzon-Samar (Matnog-Allen); Dinagat (Leyte)-Surigao; Camarines Sur-Catanduanes; Bohol-Leyte; Cebu-Bohol and Negros-Cebu.

These projects were selected based on geographic spread, the size of the investment requirement and the Philippine government’s focus on connectivity, rural development and disaster prevention, among others.

At the same time, the national government is seeking funding from the China-led Asian Infrastructure Investment Bank (AIIB) for two major road projects under the “Build, Build, Build” program. These are the Camarines Sur Expressway (San Fernando-Pili Section) and the Pasacao-Balatan Tourism Coastal Highway, both in Camarines Sur province.

In September last year, AIIB said it was cofinancing the $500-million Metro Manila Flood Management Project, its first deal for the Philippines. The AIIB board has already approved its $207.63-million share in financing the project aimed at improving flood management in the National Capital Region. This project will focus on about 56 potentially critical drainage areas with an approximate land area of 11,100 hectares, or over 17 percent of the total area of Metro Manila.

The National Economic and Development Authority (NEDA) reported last month that Japan remains the top provider of ODA to the Philippines, followed by the World Bank, Asian Development Bank, U.S. and South Korea. Together they account for nearly 90 percent of ODA to the country.

Other providers of ODA to the country are Australia, United Nations, France, EU, China, Germany, Italy, Canada, Spain and New Zealand.

What does this tell us? That fears of the Philippines’ falling prey to “debt trap diplomacy,” in so far as Beijing is concerned, are misplaced, misinformed and perhaps even malicious.

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Topics: Philippines , China , National Economic and Development Authority , Department of Finance , China International Development Cooperation Agency
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