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covers the grants of MOFAT. However, in many cases, the MOFAT and the MOSF have more autonomy in making decisions than their counterpart agencies in China.
Diagram 2: Governance of Korean foreign aid
2.3 Comparisons between China and South Korea’s foreign aid systems
2.3.1 Structure of foreign aid
China and South Korea have common characteristics in that they are both regarded as new emerging donors in many cases. However, there are some distinctions in terms of
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origination, size, and governance because they have developed their own aid systems by adapting themselves to different political and economic context. The summary of comparison between the aid systems of China and South Korea is shown in Table 3.
Table 3: Comprehensive Comparison between China and South Korea
Country China South Korea
Starting time 195069 196370
Legal Basis Amount to Africa 1,380 million USD(2007) 70 million USD(2007)
Governance
-Coordination: State Council -Loans: MOFCOM, Exim bank -Grants: MOFCOM
-Multilateral aid: MOFA
-Coordination: OPM -Loans : MOSF, Exim bank -Grants: MOFAT, KOICA -Multilateral aid: MOSF, MOFAT
69 Source: http://yws.mofcom.gov.cn/aarticle/m/200801/20080105361773.html
70 It was a training program of workers of developing countries. I think that Korean government’s foreign aid substantially started from the establishment of Economic Development Cooperation Fund(EDCF) in 1987. Source: http://www.edcfkorea.go.kr/statistics/oda.jsp?st_code=6&nd_code=8
71 The name of the law in Chinese is “对外援助成套项目管理办法“. Source:
http://yws.mofcom.gov.cn/aarticle/o/a/200901/20090105998123.html
72 The name of the law in Chinese is “國際開發協力基本法”.
73 Brautigam(2009), op cit., 317.
74 Source: OECD DAC database, net disbursement criteria.
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2.3.2 Compositions of foreign aid
In this part, we will look into the compositions of China and South Korea’s foreign aid to Africa by type, sector, and income level of recipient countries. The official figures from the Korean foreign aid are relatively easy to acquire because official statistics are open to everyone at international organizations such as OECD DAC and the Korean government website.
The official figures of Chinese foreign aid are, however, not explicitly reported.
Furthermore, the different concepts of foreign aid that China and South Korea have adopted make it more difficult to draw comparisons. To overcome this difficulty, we will use academic research relating to Chinese foreign aid. Garne (2007)75 and Davies (2008)76 have collected data based on media reports that can reveal the hitherto undisclosed Chinese foreign aid statistics.77 Admittedly there are some limitations involved in the interpretations of the exact figure of Chinese statistics.
Nevertheless, these data sets can serve as an alternative in China’s case.
Under this consensus, we categorize the composition of foreign aid into three parts:
aid type (grants/loans), income level of recipient countries (Least Developed Countries (LICs) / Other Low Income Countries (Other LICs)/ Lower Middle Income
75 Garner, Matthew (2007), “Old Friends, New Partnerships: Chinese Foreign Aid to Africa and its Relation to Chinese Security Interests”, Natinal Chinese Flagship, the Ohio State University.
76 Davies (2008), op cit., 66-68.
77 If there is some lack of clarity in the classification by sector or type, we will categorize individual project based on its title for each Chinese case.
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Countries (LMICs) / Upper Middle Income Countries(UMICs))78, and sector (social / economic /production / multi-sector / humanitarian / others).
With regards to aid type, grants mean a transfer to developing countries without any obligation to return. Concessional loans are loans which consist of at least 25% grants element. Income level of partner countries can be classified into LDCs, Other LICs, LMICs, and UMICs. Aid sector consists of social infrastructure (e.g. education, health, and government/civil society), economic infrastructure (e.g. transport/storage, communications, energy and financial services), production (e.g. agriculture / forestry / fishing / industry / mining / construction, and trade policies), multi-sector (e.g. general environment protection), humanitarian aid (e.g. emergency response and reconstruction relief / rehabilitation), and others (e.g. action relating to debt, commodity aid, and administration costs of donors).
Table 4 below summarizes the composition of these two countries’ foreign aid from 2000 to 2006 to the 55 African territories for which data is available.79
78 According to the World Bank, countries are classified into four categories (2009 criteria); Low income countries had GNI per capita of US$995 or less. Lower middle income countries had GNI per capita between US$996 and US$3,945. Upper middle income countries had GNI per capita between US$3,946 and US$12,195. High income countries had GNI above US$12,196. Source:
http://data.worldbank.org/about/country-classifications (accessed on June 7, 2011)
79 In Alphabetical order, these territories are Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Rep., Chad, Comoros, Congo DR, Congo Rep., Cote d’Ivoire, Djibouti, Egypt, Equatorial Guinea, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Lesotho, Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mayotte, Morocco, Mozambique, Namibia, Niger, Nigeria, Kenya, Rwanda, Sao Tome & Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, St. Helena, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, and Zimbabwe.
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Table 4: China and Korea’s aid (Commitments) to Africa from 2000 to 2006
(Unit: USD million)
Source: OECD-DAC’s database, Garner (2007), Davies (2008).
* Due to lack of official China's foreign aid data in detail, we refer to some related articles which review various sources including newspapers. Here, the scope of Chinese foreign aid tend to be broader than that of Official Development Assistance (ODA).
** Discrepancy between Korea's total amount of sector and type results from incomplete Korean data by sector from 2000 to 2005.
China* South Korea** DAC
Amount Portion(%) Amount Portion(%) Amount Portion(%) By Type
-Grants 3,318.31 15.81 92.68 35.49 122,299.89 89.91 -Loans 17,626.39 84.18 168.49 64.51 13,729.10 10.09 By Income level
-LDCs 12,792.36 60.99 125.16 48.00 73,207.76 53.82 -Other LICs 6,254.67 29.82 71.64 27.47 31,161.67 22.91 -LMICs 1,820.58 8.68 60.36 23.15 25,638.30 18.85 -UMICs 107.09 0.51 3.61 1.38 6,02139 4.43 By Sector
-Social 2,033.43 9.72 53.86 84.49 41,254.44 31.31 -Economic 16,363.49 78.19 4.99 7.82 9,604.09 729 -Production 266.31 1.27 2.92 4.59 7,147.84 5.42 -Multi-sector 0.00 0.00 1.14 1.79 6,687.48 5.08 -Humanitarian 22.01 0.11 0.76 1.19 11,809.16 8.96 -Others 2,243.46 10.72 0.07 0.11 55,254.38 41.94
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As shown in Table 4, Chinese aid is very different from that of advanced countries in terms of type. China’s loans account for 84.18% of the total aid, while that of DAC member countries makes up only 10.09% of the total. The portion of loans of South Korea (64.51%) is in between China and DAC countries.
Our interpretation is that this phenomenon shows a transitional stage of foreign aid type. In the past, developed countries also relied more heavily on concessional loans80, but their aid type transformed from loans to grants as their economies and civil societies became mature. However, China does not seem to be ready to follow in the footsteps of the rich countries for now because they are concerned about the potential for domestic backlash that could result from pouring huge amounts of money in foreign countries without resolving internal economic inequalities.81 With regards to South Korea’s case, it is an undeniable trend that the proportion of loans has been decreasing, with grants filling in the gap.82 We think that this change reflects the transition of Korea’s foreign aid as the Korean economy and society have matured.
2.3.2.2 On Different Income levels of recipient countries
Regarding income level of partner countries, the table indicates that China supports less developed countries than does South Korea. The portion of China’s aid to LDCs
80 For example, Japan’s portion of loans of the total aid between 1985-1986 was 63% and it decreased to 47% between 2002 and 2006. Sung et al. (2010), op cit., 9.
81 Li, Anshan (2008), China’s New Policy toward Africa, in Rotberg, Robert I. (ed.), China into Africa: Trade, Aid , and Influence, Massachusetts: World Peace Foundation, 39.
82 In the case of Korea, portion of grants (net disbursements) has increased from 36% of the total in 2000 to 68% in 2008. Source: database of Korea Exim bank
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is up to 60.99% of total, while those of Korea and DAC make up 48.00% and 53.82 % of total aid respectively. This signals mixed information because at first glance, China’s aid puts more emphasis on countries in need, while sometimes these recipients overlap with countries which have abundant natural resources.83 In this sense, it is a little bit hasty to conclude that China’s aid pays more attention to the income level of its partner countries.
In the case of South Korea, they tend to focus on other LICs and LMICs rather than LDCs. Considering Korea’s relatively small ODA volume and risk-avert tendency,84 we believe that Seoul tries to provide their funds to African countries which have more predictable environments unlike in China’s case.
2.3.2.3 On Sectoral Differences
China’s aid shows that they focus more on economic sectors. Of China’s total aid to Africa, 78.19% can be categorized into the economic sector. After Deng Xiaoping’s economic reform, the Chinese foreign aid policy has also started to emphasize mutual
83 It is not difficult to find African countries which is still very poor even though they have abundant natural resourses. Source: http://www.economist.com/node/5323394 (accessed on Mar 14, 2011)
84 According to the website of MOSF, the International Development Cooperation Committee subordinate to OPM was held on March 9, 2011 and publicized that the Korean government is to provide a total aid amount of 1.7 trillion Korean Won (equivalant to 1.6 billion USD) in 2011. This fund will consist of grants (60 million Korean Won), EDCF (60million Korean Won), and funds provided to multilateral organizations (50 million Korean Won).
Regarding EDCF, Seoul emphasizes the need to carefully review the capabilitiy of recipient countries’
(especially LDCs) repayments before launching new projects.
Source:
http://www.mosf.go.kr/_policy/policy06/policy06.jsp?boardType=general&hdnBulletRunno=76&cvbn Path=&sub_category=131&hdnFlag=1&cat=&hdnDiv=&select=dept&keyword=%EA%B0%9C%EB
%B0%9C%ED%98%91%EB%A0%A5%EA%B3%BC&hdnDept=개발협력과&&actionType=view&
runno=4008901&hdnTopicDate=2011-03-07&hdnPage=1 (accessed on Mar 14, 2011)
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benefits based on efficient foreign aid projects.85 This proportion of economic sector implies that China is more interested in constructing its partner’s economic infrastructure such as railways, communications, and energy.
As for South Korea, the social sector makes up 84.49% of the total. We assume that Korean government tries to maximize their efficiency of foreign aid by investing their resources into small but influential social projects such as building hospitals, schools, and training African government officials. Compared with China’s foreign aid size, Korea’s competence is very restricted. Despite this limitation, Korea should show its presence even in Africa. In this sense, the most practical measure is to implement small-sized social projects which can also boost Korea’s reputation.
85 Brautigam (2008), op cit., 203-204.
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Chapter 3
Panel Data Analysis (I) : Foreign Aid
Reflecting on our understanding of China and South Korea’s foreign aid systems described in the above chapters, we are going to examine our “question” with regards to the relationships between the two countries’ foreign aid policies and other economic factors possibly affecting them.