South-Western College Publishing - Economics  
Chinese Aid Gladly Accepted
Topic International Trade
Key Words Foreign Aid, Infrastructure, and Trade
Full Article

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Reference ID: A151532587

News Story China's foreign aid to poor Asian countries has taken on a new face. The Chinese have been willing to take on difficult construction projects in remote places that benefit not only the recipient countries, but China's future trade prospects as well.

"It is the favor of our government to the Cambodian people," said Ge Zhen, 26, one of the more than 50 engineers and 250 other Chinese workers building a bridge over the Mekong River that will tie together a 1,200 mile route from the southern Chinese city of Kunming through Laos to the Cambodian port of Sihanoukville on the Gulf of Thailand.

China will benefit from the new infrastructure--roads, ports and bridges--in the underdeveloped but growing region around it. The new roads, ports and bridges will allow increased trade and will encourage natural resources from China's surrounding neighbors to move towards China's increasingly industrialized heartland.

China has carefully considered how to use its increasing wealth earned from soaring exports of manufactured goods to other countries. "China is attracting external capital, and as a balance China wants to help developing countries in the region by financing infrastructure project[s]," said Liqun Jin, vice president of the Asian Development Bank. "Helping your neighbors to have a good life is no sin." He added, "China makes no bones that we want a peaceful neighborhood to develop our own economy."

For poor countries like Cambodia, Laos and Myanmar China's loans seem simpler and thus more attractive than complicated loans form the West. The Chinese money usually comes unencumbered without environmental standards or community resettlement conditions that can hold up major projects. Chinese aid does not carry penalties for corruption--practices that the West, including the World Bank, abhor and, increasingly, punish. Cultural differences between East and West bring about disagreements about the definition of and appropriate penalties for corruption.

Officially, the World Bank says it is not concerned about competition from China's increasingly energetic aid program. "The more important impact of China on these countries' development is trade rather than aid," said Homi Kharas, the bank's chief economist for East Asia and the Pacific. Even though the aid is being focused on infrastructure that will benefit Chinese trade in the future, Mr. Kharas said it would be a useful result for the poor countries as well.

Discussion Questions:
1. Why does the World Bank not mind the competition from China's aid program? Why might the aid recipients prefer to deal with China?
2. What can China expect to gain from aid to its poorer neighbors?
Multiple Choice/True False Questions:
1. To obtain aid from China, poor countries would have to meet certain environmental standards.
  1. True
  2. False
2. China's foreign aid program is aimed more at infrastructure programs than health and human services projects.
  1. True
  2. False
Source Jane Perlez, "China Competes With West in Aid to Its Neighbors", The New York Times Online, September 18, 2006.
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