Wen Jiabao

China's wealth gap not a case for foreign aid

PUBLISHED : Tuesday, 12 October, 2010, 12:00am
UPDATED : Tuesday, 12 October, 2010, 12:00am

Foreign aid is, by its nature, political. While it is targeted at other countries' needs, it also reflects the donor country's interests. Humanitarian donations aside, donors assist development where it promotes political ties and serves their economic interests. China, for example, has emerged as a major donor to African nations with whom it does resources deals. It has ambitious - and expensive - plans for spreading Chinese cultural values around the world through setting up Confucian institutes and expanding the international reach of state media. In that respect it's no different to many other wealthy countries.

Where it is different is that, despite having overtaken Japan as the world's second-largest economy, the mainland is still a recipient of foreign aid. It's certainly not because the nation is short of funds. After all, it managed to spend hundreds of millions of dollars on projects such as the 2008 Olympic Games, the World Expo and the Asian Games. And it equips and trains the world's biggest armed forces - at an estimated annual cost of US$100 billion - maintains an active space programme, and has US$2.5 trillion in foreign reserves.

So why are taxpayers elsewhere in the world reaching into their pockets to aid the mainland?

Granted, the US$2.6 billion a year donated to China - a meaningful sum to many developing nations - amounts only to about US$2 a head. Japan, still the largest donor with US$1.2 billion, ahead of Germany with about US$600 million, recently halted low-interest loans. Britain's aid representative in Beijing, who is winding up his country's projects, predicts conventional aid will dry up in a few years. Still, it seems odd that as the nation rises and takes a leading role on the world stage, it should also be taking aid from the rest of the world. The Commerce Ministry says that while China has lifted hundreds of millions out of abject poverty, it remains a developing country with 200 million poor that faces daunting energy and environmental challenges.

This reflects the changing face of global poverty and under-privilege as developing nations, led by China, India and Brazil, emerge as economic powers. Twenty years ago more than 90 per cent of the poor lived in low-income countries that had yet to begin their ascent of the economic ladder. Now about three quarters of the world's 1.3 billion poor are in 'middle income' countries, including these giant emerging nations; they are on the wrong side of a growing wealth gap and are yet to share the benefits of economic growth. That raises the question whether their own governments or foreign donors should be helping them. Premier Wen Jiabao implicitly answered it recently when announcing US$200 million of humanitarian aid to flood-ravaged Pakistan, by stressing that China still had to help its own tens of millions of poor.

Still, a wealth gap in itself is not a case for foreign aid - especially in a nation that has much wealth. Rather, there remains an urgent need to better distribute the fruits of China's economic development. That will be harder to achieve so long as China remains in an export mindset instead of stimulating consumer demand and domestic economic activity. In this respect Wen struck the right note in recent remarks about the need to encourage domestic demand in order to address a lack of balance, co-ordination and sustainability in the mainland's economy, and for political development to protect and further economic achievements. Hopefully this kind of thinking will prevail sooner rather than later.