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Exploring the Northeast Asian rivalry for power, influence via official development assistance

by Jeff Kingston

Japan used to be the world’s leading foreign aid donor in the 1990s, spreading most of its largesse around Asia. But since 2001, Japan has slipped to fifth in donor rankings as budget deficits and the absence of strong political support lead to cuts in development assistance.

FOREIGN AID COMPETITION IN NORTHEAST ASIA, edited by Hyo-sook Kim and David M. Potter. Kumarian Press, 2012, 245 pp., $27.50 (paperback)

Meanwhile, other northeast Asian donors are increasing their aid budgets in Asia and increasingly Africa. Donors seek to cultivate friendly relations with recipient governments, secure resources and promote development as a means to nurture political stability and prosperity, although often not achieving these goals. They also vie for influence.

This collection sheds light on the varying approaches to development assistance by Japan, South Korea, China and Taiwan and how these donor programs have evolved. While official development assistance (ODA) is ostensibly about doing good (promoting development), it is strongly motivated by doing well (promoting the donor’s national interest). There is also an element of competition among donors as they seek diplomatic and economic advantage. The chapters on Africa and the Mekong River region highlight the limits of cooperation between donors, especially Japan and China, as rivalries play out in the development arena.

Taiwan is the outlier among the Northeast Asian donors, as diplomatic considerations trump economic objectives. Aid is a tool for cultivating recognition of its independent national status among needy nations, sparking fierce competition and “bidding auctions” with China. Here, “the rental of recognition is analyzed as a type of ‘sovereignty business,’ ” one that has been quite lucrative for recipient nations.

Japan is a founding member of the Development Assistance Committee (DAC) of the Organization of Cooperation and Development (OECD). This is the institutional mechanism for establishing ODA criteria, guidelines and priorities. For many years Japan was the only non-Western member, but the Republic of Korea joined the club in 2010. Membership means generally conforming to DAC guidelines and using ODA to support the so-called Washington Consensus on market liberalization and macroeconomic stability.

The rapid rise of China has facilitated its emergence as a significant non-DAC donor. China’s previous focus on supporting ideological comrades has increasingly shifted toward securing resources and promoting strategic interests. Rather than coordinating with other donors and abiding by DAC protocols, China donates according to its own criteria. But this is not unusual, as the editors note that Japan “has also remained aloof from aspects of aid policy coordination and calls for policy harmonization at the DAC.”

Ironically, Shino Watanabe is very critical of China’s recent foreign aid in ways reminiscent of criticism frequently leveled against Japan’s economic assistance programs in the 1990s. Watanabe laments the lack of transparency, poor coordination with aid institutions and what the editors describe as the “problematic behavior of Chinese companies engaging in China’s aid-related projects.” She suggests that Beijing’s emphasis on mutual benefit is out of sync with international norms and that it has not used aid to foster good governance. Furthermore, China apparently uses aid to promote its national interests and overseas business expansion. Shocking stuff!

Japan’s emergence as the world’s leading donor coincided with the end of the Cold War and, according to David Potter, “it was primarily driven by commercial motives and bureaucratic interests.” Since 2001, he asserts that security and humanitarian considerations have become more important and aid has been deployed as “a hedging strategy against a rising China.” This helps explain why India is now the top recipient. Another significant shift is Japan’s increasing willingness to forgive debt, something it previously resisted because of the moral hazard involved. Demonstrating this rethink, Japan in 2013 forgave $3.6 billion in bilateral loans to Myanmar and played a leading role in cajoling other donors to follow suit.

Potter criticizes Japan’s lukewarm support for the United Nation’s Millennium Development Goals, which are not even mentioned in Japan’s 2003 ODA Charter. In his view, Japanese ODA still emphasizes hardware over social development and relegates poverty reduction to an afterthought. He also argues that the official figures don’t reveal how much of Japan’s aid remains tied, favoring Japanese contractors.

In 2007 Japan ceded its leading donor to Asia status to the U.S. and Potter calculates that net ODA volume overall has dropped 40 percent from its 1998 peak. But Bert Edstrom at the Institute for Development and Security Policy in Sweden questions whether Japan’s foreign aid has really declined so much, pointing to the restrictive DAC definition of ODA that requires loans to have a 25 percent grant element.

As Potter acknowledges, Japan draws on its own experience to encourage developing nations to rely on “self-help” and thus favors loans rather than grants as a way of promoting fiscal responsibility. This means that Japan’s concessionary long-term development loans are excluded from ODA tallies. Such soft loans have been prominent in Japan’s bilateral economic cooperation programs and now, Edstrom notes, recipients are repaying. Since these repayments are deducted in calculating net ODA flows, increases in gross ODA volume (8.3 percent in 2008) are obscured; in 2008, for example, Japan issued $6.2 billion in new loans, but was repaid $7 billion.

Edstrom emphasizes that gross ODA has remained consistently high in the 2000s and above the 1997-2001 average of $14.5 billion per annum, belying prevailing perceptions that Japan suffers from donor fatigue.

Jeff Kingston is the director of Asian Studies at Temple University, Japan Campus.

  • David M. Potter

    One small comment as the co-editor of the reviewed work. One might conclude from Professor Kingston’s last paragraph that Bert Edstrom contributed a chapter to the book. Alas, this was not the case. He was certainly on my reading list when I was working on the relationship between Japan’s aid and security.

    David Potter
    Nanzan University