The Effects of Chinese Aid on Political Institutions and Governance

• In Event: Authoritarian Survival and Governance in China

Abstract

Over the last two decades, China has emerged as one of the major donors of development finance, especially with the launch of the Belt and Road Initiative (BRI) and the Asian Infrastructure Investment Bank (AIIB). As the amount of China’s development financing has exceeded that of other traditional Western donors, a growing body of research suggests that China has been promoting and supporting authoritarian countries as part of its grand strategy. Yet little is known about the relationship between Chinese aid and governance in recipient countries, although increasing anecdotal and qualitative evidence on China’s collaboration with authoritarian countries. The present study seeks to fill this gap by identifying the mechanisms under which Chinese aid allocation affects political institutions and government performance in recipient countries. Drawing on the literature on foreign aid (Bueno de Mesquita and Smith 2009; Smith 2008; Ahmed 2012; Dreher et al. 2021), the paper considers two competing theories. On the one hand, Chinese aid might improve institutional quality and governance by offering resources and technical support or by improving per capita income and human development. Given its lack of conditionality and principle of non-interference, however, Chinese development finance might undermine institutional quality and good governance in recipient countries. A cross-national analysis of 120 countries during the 2000-2021 period shows that Chinese aid tends to reduce the quality of governance in recipient countries and that such effects are conditioned by sectoral characteristics of Chinese development projects and the presence of the Chinese government’s strategic benefits.

Author

• Su-Hyun Lee, Nanyang Technological University, Singapore