FOREIGN ASSISTANCE: OECD VISITOR ON CHINA'S LIMITED

UNCLAS SECTION 01 OF 02 BEIJING 001094

SIPDIS

STATE FOR EAP/CM AND EB/IFD/OMA
STATE FOR EAP/EP, AF/EPS, NEA/RA, WHA/EPSC
TREASURY FOR DEPUTY CHIEF OF STAFF TAIYA SMITH AND OASIA/ISA
DOHNER/YANG/KOEPKE
STATE PASS USAID FOR NICHOLSON
BANGKOK FOR USAID/RDMA WHELDEN
PARIS FOR USOECD
NSC FOR SHRIER, TONG

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EAID CH XA XB XC XD XE XF DAC
SUBJECT: FOREIGN ASSISTANCE: OECD VISITOR ON CHINA'S LIMITED
WILLINGNESS TO DISCUSS ITS DONOR ROLE

SUMMARY
--------------


1. (SBU) China has a growing but still limited willingness to
discuss its emerging role as a donor, to be transparent about its
programs, and to coordinate development assistance issues with other
countries, according to Richard Manning, Chair of the OECD's
Development Assistance Committee (DAC),who visited Beijing February
8-12. END SUMMARY.

FIRST OECD-DAC CHAIR VISIT TO CHINA
--------------


2. (SBU) Manning, the first OECD DAC Chair to visit China, met with
Ministry of Commerce (MOFCOM) Assistant Minister Chen Jian and
MOFCOM Department of Foreign Aid Director General (DG) Wang Shichun.
He also held DG-level meetings at the Ministry of Finance (MOF) and
Ministry of Foreign Affairs as well as additional discussions with
the China Development Bank and China Export Import Bank.

CHINA AS A DONOR: THE VIEW FROM BEIJING
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3. (SBU) Manning used a February 9 gathering of diplomats and
multilateral organization representatives to note a growing
willingness on China's part to discuss assistance. There remains,
however, a reluctance to discuss numbers and share more information
about specific aid projects. This likely reflects a centralized
bureaucracy that is very controlled and hierarchical in terms of
policy, yet fragmented in terms of information management, e.g.,
whether all involved Chinese Government players know how much
assistance is given to specific countries, speculated Manning.


4. (SBU) Manning also suggested that players in China's donor
assistance programs are "reeling" from the rapid expansion of
contacts with countries in Africa. The foreign diplomats and
international organization representatives present for these
comments widely agreed with both statements.

HOW CHINA CLASSIFIES ITS DONOR ASSISTANCE
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5. (SBU) Manning said that MOFCOM divides China's donor activities
into four categories (which were used to structure a formal
presentation given to him): technical assistance, grants,
interest-free loans, and preferential loans. The first three are
managed by MOFCOM itself, although MOF holds the purse strings.
Management of preferential loans is more complicated, with Chinese
companies often influencing the process by identifying project
opportunities and then lobbying for concessional financing.

VIEWS ON BILATERAL DONOR COORDINATION
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6. (SBU) There was much discussion in both meetings with Manning
about the terms under which China might engage with other countries
on donor assistance issues. Several participants in one meeting
focused on China's history as a developing country that has
emphasized solidarity with other countries working to move beyond
their colonial histories. One attendee commented that this makes
China generally unwilling to engage in a "donor-led context" but
still receptive to working with donors on specific issues such as
joint efforts to alleviate poverty. This participant observed that
when a specific country receiving assistance is keen for
coordination among donors, China is willing to send representatives
to local meetings held in that country.

CHINA AND THE OECD DEVELOPMENT ASSISTANCE COMMITTEE
-------------- --------------


7. (SBU) In a February 12 Beijing roundtable with diplomats and aid
agency representatives, Manning underscored that when engaging
emerging donors such as China on aid cooperation, it is important
for the OECD to distinguish between expansion of dialogue and
expansion of membership. Manning said that while China is not a
member of the OECD, it is imperative for the DAC to engage China on
foreign aid. It is increasingly nonsensical to talk about
development assistance without including China, he said.

BEIJING 00001094 002 OF 002




8. (SBU) Manning emphasized that government officials from China, as
well as other emerging donors such as India and Brazil, participate
in many of the DAC's committees. From the DAC's perspective, China
is a top priority for engaging on aid coordination because it has
the largest and most developed assistance program of any of the
Middle Income Countries. Contacts between China and other donor
countries on assistance issues, however, remain limited, as China
chooses to move independently in expanding its own aid program,
Manning said.

BACKGROUND ON CHINA'S ROLE IN DONOR ASSISTANCE
-------------- -


9. (SBU) Although China has over the years been thought of as a
developing country that receives foreign assistance, it has at the
same time had a continuous role as an aid provider. In the 1950s
and 1960s, for example, China often provided agricultural and
technical assistance to developing countries in Asia and Africa.
More recent activities reflect the context of China's own economic
opening to the world, with focus on the expansion of economic ties.
Chinese Government figures show that in 2004, China provided USD
731.2 million in "expenditure for external assistance," but the
accuracy of this figure is widely questioned, and our contacts in
Beijing uniformly assert a lack of transparency in China's
assistance that makes assessing the magnitude of its programs
difficult.


10. (U) MOFCOM is officially in charge of China's efforts to provide
aid to foreign countries and regions. Its responsibilities include
formulation and implementation of foreign aid policies and plans as
well as managing China's foreign aid fund, concessional loans,
special funds, and other funds. MOFCOM's Department of Foreign Aid
(DFA) has functions similar to that of USAID. MOF is responsible
for setting the central government budget and managing all external
development assistance from the multilateral development banks.


11. (U) The China Development Bank (CDB) is the largest of China's
three state-owned policy banks (the other two are China ExIm Bank
and the Agricultural Development Bank of China). It provides
long-term funding for medium- and large-sized projects in key
sectors of the Chinese economy. The policy banks are the only
financial institutions other than the People's Bank of China (PBOC)
that report directly to the State Council. The State Council,
through the National Development and Reform Commission (NDRC),
recommends projects, although CDB has some autonomy in its
operations. CDB's annual lending targets are set in consultation
with the PBOC and NDRC.


12. (U) China Exim is authorized by the Chinese Government as the
sole lender (and logistical coordinator) of concessional loans
(medium and long-term, low interest rate credit extended under the
designation of the Chinese Government to the Government of the
borrowing country as official assistance). The objective is to
promote economic development and improve living standards in
developing countries and boost their economic cooperation with
China.


13. (U) A useful paper on China's foreign aid history and
organizational structure, written by the National Committee on
U.S.-China Relations, is available at:
http://www.ncuscr.org/Publications/ China_Policy_series.htm

SEDNEY