By Cameron Hill

The primary impetus for much of the contemporary focus on the relationship between Australia’s aid and its wider geopolitical goals has been the perceived increase in the use of various forms of development finance by China as a key part of Beijing’s own influence efforts, particularly those directed toward Australia’s Pacific Island Country neighbours. Indeed, in a justification of the Australian government’s own approach, Foreign Minister Penny Wong has explicitly cited the example of China’s statecraft, including in relation to aid:

China understands national interest as being advanced by favourable outcomes, by reducing the possibility of unfavourable outcomes — and by reducing the space for disagreement or dissent.

This understanding is coordinated through its persistent statecraft. A great power like China uses every tool at its disposal to maximise its own resilience and influence — its domestic industry policy; its massive international investment in infrastructure, diplomacy, and military capability; access to its markets.

This statecraft illustrates the challenge for middle powers, like us and our partners in Southeast Asia and the Pacific. Yet we need not waste energy with shock or outrage at China seeking to maximise its advantage. Instead, we channel our energy in pressing for our own advantage.

According to AidData, the most comprehensive global aid database, over the last decade Beijing has emerged as the world’s single largest source of development finance, with over 21,000 individual projects in 165 low- and middle-income countries valued at an estimated US$1.34 trillion. Since 2013, this finance has mainly come in the form of concessional loans and export credits for infrastructure projects.

For many experts and commentators, these investments represent a key component of China’s integrated statecraft, “backed by a comprehensive, well resourced, and disciplined operational strategy” focused on building Beijing’s “influence and leverage” in the global South. Others have highlighted the infrastructure and other aid investments associated with programs like the Belt and Road Initiative (BRI) as a key element of China’s “developmentalist” foreign policy which aims to “present the country as a leader of economic development on the global stage”. Critics of the US and its Western allies have welcomed China’s disruption of so-called “neo-liberal” development models, arguing that Beijing’s aid provides the global South with more choice and more leverage.

According to other assessments, analyses that ascribe uniform motivations, whether malign or benign, to China’s aid have tended to overstate the degree of coordination in Beijing’s version of economic statecraft. This is due the variety of bureaucratic agencies, state-owned companies and banks, and semi-commercial entities involved in the delivery of China’s foreign aid. These actors have sometimes pursued agendas independent of, and sometimes contrary to, Beijing’s priorities and preferences. Empirical studies have highlighted domestic imperatives such as preserving internal political stability and absorbing excess economic capacity, rather than geopolitical goals, as the primary drivers of the allocation of China’s foreign aid. The core challenge remains ascribing intentions to a country “whose government agencies and firms often lack transparency and whose development strategy prescribes the co-presence of a complex set of state and non-state actors abroad”.

To the extent that China’s development finance can be said to reflect a deliberate and coherent strategy aimed at advancing its “influence” in the global South, the results appear to have been mixed. A 2022 assessment published by the influential US think tank the RAND Corporation concludes that notwithstanding Beijing’s substantial investment in infrastructure and technology projects in the global South, “the short-term appeal of China’s approach to developing countries does not necessarily generate longer-term positive [public] perceptions of China …”.  Instead, “many governments have begun to reassess the terms of their arrangements with China and, in some cases, to express new ill-will toward China”. A 2023 multi-region study of sentiment toward the BRI among 148 countries found that although average sentiment was positive, attitudes towards the BRI had deteriorated between 2017 and 2021/22. Among 27 surveyed countries in Central, South and Southeast Asia, public sentiment towards the BRI improved in only three: Brunei, Mongolia, and Cambodia.

Exploring these kinds of results through several case studies in a working paper, Audrye Wong has argued that the influence effects of China’s “subversive carrots” — forms of economic inducement designed to avoid political processes and expectations about appropriate political behaviour in recipient states — is mediated by domestic political institutions in these states. Comparing recipient elites’ responses to China’s economic statecraft in a low public accountability state (Cambodia), a higher public accountability state (the Philippines) and a “transition state” (pre-coup Myanmar), she argues that how responsive these elites are to their citizenry and how constrained they are by domestic institutions ultimately determines the effectiveness of Beijing’s external economic inducements in terms of their influence on behaviour.

Where public accountability is higher, this impedes the utility of such methods as it is harder for leaders to avoid domestic scrutiny and/or public backlash over the terms of inducements. Audrye Wong concludes that, “despite the apparent ease and rapidity at which China has attempted to buy over political leaders with large-scale investment and infrastructure projects … its strategy of subversive carrots is not as uniformly successful as commonly assumed … [and] the level of public accountability in target countries can facilitate or constrain the effectiveness of subversive carrots”. Similarly, Courtney Fung et al. draw from another set of country case studies to argue that “variations across domestic institutions can help explain differences in receptivity or resistance toward Chinese influence”.

Such findings pose something of a paradox for Western aid donors. This is because they suggest a trade-off between aid goals like democracy promotion and improved governance — whether pursued as objectives in their own right, or as part of broader efforts to constrain China’s influence — and their own influence goals, which are also likely to be constrained by more accountable institutions in recipient countries.

Early empirical research suggests that this kind of analytic lens is relevant to the Pacific. This is a region that comprises countries with largely open — albeit in some cases small and often fragile ­– domestic political institutions and one in which China has increased its aid effort over the last decade.

While China appears to have been successful in using aid and other economic inducements to help persuade several Pacific island countries (PICs) to shift their diplomatic recognition from Taiwan to the People’s Republic of China in recent years, its ability to extract more “expensive” policy concessions has been limited. In 2022, China failed in what was reported as a concerted and sustained attempt to secure a region-wide policing and security deal with the Pacific Islands Forum countries. The announcement of a non-public bilateral security and policing agreement between China and Solomon Islands earlier that year became the focus of a subsequent domestic political backlash against the government of former Prime Minister Manasseh Sogavare. The newly elected government of Fiji downgraded its own policing cooperation with China in the wake of the Solomon Islands agreement. These examples may reflect China’s inability to date to secure a wider “social licence” from local communities in PICs, despite the substantial aid effort it has directed at elites. Some Pacific elites have also proven adept at instrumentalising China’s aid narratives to suit their own domestic and foreign policy goals. The fact that Beijing’s aid effort in the Pacific peaked in monetary terms in the mid-2010s and has declined in recent years may reflect not only changing economic conditions within China. It may also indicate a reduced appetite on the part of Pacific elites to take on large Chinese-funded projects due to concerns about increased domestic backlash and unsustainable debt.

Even when it comes to more autocratic political settings, China has sometimes struggled to translate development and financial support into alignment with its foreign policy preferences. For example, China is one of the few providers of bilateral aid (primarily in form of food aid and energy supplies), as well as foreign direct investment and trade, to totalitarian North Korea. The contemporary relationship between Beijing and Pyongyang has been described, however, by one set of experts as one characterised by “growing investments and diminishing returns”. Despite the volume of Chinese aid provided to North Korea over the decades, these experts point specifically to Beijing’s inability to achieve one of its primary foreign goals – curbing Pyongyang’s nuclear weapons and ballistic missile programs.

In other cases, it is the weakness of potential client states that poses the biggest constraint to China’s influence. In the case of Pakistan — a country which has accepted a large amount of Chinese infrastructure finance under the framework of the China-Pakistan Economic Corridor (CPEC) — successive economic crises and political violence in regions that are part of the CPEC have “tied China irrevocably into Pakistan’s complicated, and sometimes hostile, political landscape”. As a result, “[China’s] centralising visions could not be simply imposed on a receptive (or captive) periphery but [has] required difficult negotiations with local interests”. This has, in turn, “exert[ed] a transformative pressure back on China itself” when it comes to the costs, threats and risks generated by the unintended effects of its economic statecraft. This suggests that attempts to link aid with policy change are not unidirectional and can affect donors as well as recipients. Following Myanmar’s reversion to military rule in 2021, China — one of the dictatorship’s few remaining external benefactors — has also struggled to exert influence over the fledging State Administration Council junta as lawlessness and conflict threaten key Chinese infrastructure investments and criminal gangs further embed themselves in the sensitive China-Myanmar border regions.

China’s use of various types of debt instruments as a primary modality through which it delivers its development finance has been a particular source of contention with some Belt and Road Initiative (BRI) recipients. While charges from the West of “debt trap diplomacy” have been largely discredited as overstated, the opacity of China’s BRI lending has generated backlash from recipient elites and publics in several high-profile cases, including in Sri Lanka and Malaysia. In the case of Africa, “the indebtedness generated by BRI loans coupled with their emphasis on facilitating infrastructural changes for outflow of primary commodities has raised memories of colonialism for many African observers”. In these and other cases, the use of debt instruments has generated new sources of conflict between China and potential client states. Along with the growing risks to China’s economy and state-owned banks from the moral hazard associated with unsustainable BRI loans, this has resulted in Beijing significantly reducing its global infrastructure lending and re-orienting its focus toward so-called “small and beautiful” projects and multilateral aid.

These examples suggest that, as well as domestic institutions, the type of finance provided may itself have an independent effect on the extent to which bilateral donors are able to use aid to achieve wider foreign policy goals, including as a result of unintended effects. That is, the mere coercive potential of debt, whether realised or perceived, may itself invite a backlash on the part of recipient elites and/or publics against donors, regardless of the latter’s motives.

This is relevant to Australia given its newfound position as a leading source of infrastructure lending to the Pacific — a position that could generate unintended effects in terms of Canberra’s own regional relationships, particularly given the increased level of indebtedness of several PICs and the risk of a lack of attention to project quality and fiscal sustainability relative to geopolitical objectives. This highlights the potential perils of unsophisticated narratives regarding the causes and consequences of China’s “economic statecraft” and the need to engage with the kinds of research canvassed here.

Disclosure: This research was undertaken with the support of the Gates Foundation. The views are those of the author only.

This article was first published in the Australian National University’s DevpolicyBlog and has been republished here with the kind permission of the editor(s). The Blog is run out of the Development Policy Centre housed in the Crawford School of Public Policy in the ANU College of Asia and the Pacific at The Australian National University.

Contributing Author: Cameron Hill is Senior Research Officer at the Development Policy Centre. He has previously worked with DFAT, the Parliamentary Library and ACFID.

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