A Debt Sustainability Analysis of China’s Foreign Aid: is china increasing debt among the poorest countries?

Abstract

Since the conception of the Marshall Plan, the world has been fed a metanarrative. Central to this narrative is the designation of the United States and other traditional donors as the world leaders of foreign aid. The traditional donors have in the past faced some scrutiny; however, their methodology was accepted as the norm. In recent years, a number of developing countries, with China leading the charge, have increased the capacity of their foreign aid programs. The methodology of these emerging programs differs greatly from that of traditional donors. Much criticism has been raised with regard to the alleged negative effect of Chinese aid on recipient countries and in particular to the debt sustainability implications: it has been argued that Chinese foreign aid is putting developing countries in a debt burden that they will be unable to overcome. The aim of this work is to investigate such claims, by posing the questions: how do the effects of China’s and the United States’ foreign aid programs differ in relation to debt sustainability? How does Chinese foreign aid impact its recipients on the basis of debt sustainability? In answering these questions, this paper will reach the conclusion that the claims surrounding Chinese foreign aid as an inferior program are unfounded. In arguing his case, the author will provide a historical outline, draw on case studies, Chinese loan data, data from OECD countries as well as scholarly articles.