Written By: Nicolas Baden
“Foreign aid” is a term that elicits images of workers handing out food to the needy or installing a water pump, all done from a spirit of goodwill and a desire to see humanity prosper. While there are truths in these images, realistically, foreign aid can be an economic and political tool wielded by countries around the world to advance their own agendas and look good doing it. In this article, we will explore the case of China, a country that increased its foreign aid spending tenfold over the past 25 years, to understand the motives for providing foreign aid, the economic mechanisms that carry it out, and the global impact it creates. In a time of shifting attitudes toward foreign aid and heightening international tensions, it is more important than ever to understand the what, how, and why of foreign aid spending.
To understand why a country like China spends on foreign aid, it is important to first grasp the mechanisms that carry out this spending. Today, China’s foreign aid is mainly carried out through the efforts of two agencies: the Ministry of Commerce (MOFCOM) and the Chinese International Development Cooperation Agency (CIDCA). MOFCOM is the older of these two institutions, and is responsible for managing the foreign aid budget. This means that MOFCOM is responsible for the design and implementation of foreign aid policy. The second organization, CIDCA, is a product of China’s expanding role as a global provider of development aid (Tjønneland, 2020). Founded in 2018, CIDCA is an organization with the mandate to coordinate the distribution of China’s foreign aid. While CIDCA’s purview overlaps significantly with that of MOFCOM, CIDCA has expanded functions in strategic planning of foreign aid, ensuring alignment with Chinese priorities, and monitoring and evaluating the execution of development aid. Together, these two agencies account for nearly all of China’s foreign aid spending. In 2024, MOFCOM’s foreign aid budget accounted for roughly $2.82 billion, while CIDCA’s smaller budget provided about $262.0 million (Yun, 2025). This amounts to roughly $2.85 billion in foreign spending.
This $2.85 billion is not created equal, as it takes the form of three different foreign aid mechanisms: grants, zero-interest loans, and concessional loans. The breakdown of spending into these three categories differentiates Chinese spending from that of Western counterparts and reveals the key priorities of the Chinese foreign spending agenda. The first category is grants, which take the form of infrastructure projects, welfare programs, and humanitarian aid; for the United States and other Western countries, grants are the primary form of foreign aid, but for China, grants made up just under half of their foreign aid budget from 2013-2018 (Yun, 2025). The second category is zero-interest loans. From 2013-2018, this form of spending only accounted for 4.18% of China’s foreign aid budget, and is mostly used for industrial and infrastructure projects, along with agricultural production (Yun, 2025). With the majority of this loan type going to heavily indebted and poor countries, China has historically forgiven zero-interest loans (Kanyi, 2020). Finally, there are concessional loans. These loans offer lower interest rates than commercial loans by subsidizing the difference with foreign aid. They are used for large infrastructure projects, mostly in developing countries. Since 2009, concessional loans have increased from just 28.7% of the budget to 48.52% in 2018, illustrating a large shift toward this type of foreign aid (Yun, 2025). We observe this large shift due to China’s shifting priority towards infrastructure development under the Belt and Road Initiative (BRI).
China’s foreign aid approach has greatly evolved in the past 25 years. This evolution can be broken into two eras: 2000-2012, and 2012-Present. The first of these is characterized by a massive increase in spending, fueled by economic growth before the turn of the century. China’s foreign spending increased by an average of 29% per year from 2004 to 2009 (Yuan et al., 2022). Nearly half of this spending was in the form of grants, which supported welfare programs, human resources development, and medical assistance. At the beginning of this period, zero-interest loans and concessional loans each made up 30% of China’s foreign aid budget, but by 2012, spending on concessional loans had far surpassed that of zero-interest loans (Yuan et al., 2022). This shift marked a change in priorities as China sought to expand its medium- and large-sized infrastructure projects, known to generate large economic and social benefits, and away from the construction of public facilities designed for the improvement of local livelihood. This increase in foreign spending was also critical in China’s competition with Taiwan. In Africa, all countries that wished to participate in China’s development programs were required to sever diplomatic relations with Taiwan, a policy which resulted in only one African state recognizing Taiwan by 2021 (Yuan et al., 2022).
Since 2012, however, China has been steadily reeling in its foreign aid spending, choosing to place greater importance on the quality of the aid, rather than the quantity. With new leadership under Xi Jinping, this quality has taken form through a revitalized consideration of China’s global image. As China has increasingly been seen as a global competitor to the United States, China has decided to provide greater aid to climate initiatives and social responsibility programs, resulting in an increase in the proportion of aid dedicated to grants and concessional loans. The latter of these is focused on Africa, where China has become the largest funding provider to African infrastructure in recent years (Tjønneland, 2020), with holdings in transportation, energy, and telecommunications throughout the continent. The most significant portion of this infrastructure aid has come in the form of concessional loans, which are typically aimed at promoting Chinese exports, as Chinese companies often supply the industrial materials and services required to complete construction (Yun, 2025).
Today is a critical time for foreign aid. The dismantling of the U.S. Agency for International Development (USAID) has opened a void in global aid spending, but it is unclear whether one or several countries will step in to fill it. America’s withdrawal leaves much of China’s current aid efforts uncontested, and it is uncertain whether China will deem it wise to expand its operations. What is certain is that the landscape of foreign aid is shifting, and with this shift comes a change in the tide of global power; only time will tell if it is a ripple or a wave.
References
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Kanyi, L. (2025, November 17). Chinese financing: How will China restructure zero-interest loans?. Pinsent Masons. https://www.pinsentmasons.com/out-law/analysis/chinese-financing-how-will-china-restructure-zero-interest-loans
Tjønneland, E. (2020). The changing role of Chinese development aid. CMI. https://www.cmi.no/publications/7173-the-changing-role-of-chinese-development-aid
Yuan, J., Su, F., & Ouyang, X. (2022). Evolving Chinese perspectives on foreign aid. In China’s Evolving Approach to Foreign Aid (pp. 2–15). Stockholm International Peace Research Institute. http://www.jstor.org/stable/resrep41264.8
Yun, S. (2025, March 11). Can China fill the void in foreign aid? Brookings. https://www.brookings.edu/articles/can-china-fill-the-void-in-foreign-aid/