How the biggest winner from UK and US foreign aid cuts will be China

Yahoo

27-02-2025

Sir Keir Starmer's decision to slash foreign aid in order to bolster his defence budget has sent shockwaves around the world.
The UK's aid expenditure will drop from 0.5 per cent of gross national income (GNI) to 0.3 per cent in 2027 - less than half the 0.7 per cent spent on aid between 2014 and 2020.
In its election manifesto, Labour pledged to restore aid spending to its peak, but is now cutting it to the lowest rate since 1999.
In doing so, the UK joins the US in scaling back the amount of global aid to dozens of countries across the world, particularly in Africa where funding supports critical humanitarian infrastructure.
Waiting in the wings is China.
Some Chinese officials see the new vacuum in foreign aid as an opportunity to gain further influence across the world, according to reports in Hong Kong-based newspaper the South China Morning Post.
'The retreat of USAID will benefit Beijing in promoting its image and building up its footprint in the developing world,' one anonymous Chinese official told the newspaper.
As the richest country in the world with a gross domestic product (GPD) of $27.7 trillion, the United States has been a cornerstone of global aid, by far the largest donor.
China is the only country with a GDP large enough ($17.8 trillion) to go close to filling the void that the United States has occupied for decades.
Even as a whole bloc, the EU's wealth is smaller than China's, representing 14.5 per cent of the world's GDP compared to 16.7 per cent.
For the past 20 years China has been increasing its reach into developing countries – particularly in Africa – through traditional aid, investment, and loans.
'The Trump administration has just put America last, while handing a gift to our biggest adversaries, notably China,' wrote former USAID administrator Michael Schiffer in an article published by the Council on Foreign Relations last month.
China has ramped up its global foreign aid expenditure over the course of the 21st century, from just $0.5 billion a year to at least $3.1 billion in direct aid in 2023, according to the China Africa Research Initiative (CARI) at John's Hopkins University.
The largest concentration of UK and US aid is in Africa, with both governments committing over $15 billion in aid to the region in 2023 alone.
The billions that countries will lose as a result of aid rollbacks span across the health sector, education, democracy and governance, and more.
USAID partners across Africa have already expressed panic and seen devastating shutdowns to operations.
'If you don't get involved in the world and you don't have programs in Africa where China's trying to buy the whole continent, we're making a mistake,' Republican Senator Lindsey Graham warned at a confirmation hearing in January.
In countries like Nigeria, US-funded programs provide an essential backbone of the medical system, with $600 million for healthcare in 2023 alone.
Now, many governments will be scrambling to find vital funding for infrastructure, whether that takes the form of global aid, or alternatively, loans and investment.
Meanwhile, Africa has already been the top destination of Chinese aid expenditure, according to the CARI. But aid is just one small part of the wider world's financial dependence on China.
'For China, aid is trade. It doesn't have an aid agency as such. It is mostly done through the Ministry of Trade, which gives an indication of how it takes shape,' Kerry Brown, head of the China Institute at King's College London and former official at the British embassy in Beijing.
From 2013, China launched the Belt and Road Initiative (BRI), a mass-scale commitment to invest in global infrastructure development, primarily in Africa and the developing world.
China is one of the world's top investors and the largest direct investor in African countries, providing loans worth around $182 billion according to Boston University, on par with the IMF and United States.
It has funded key infrastructure projects including dozens of hospitals in Ethiopia, Rwanda, Zimbabwe and neighbouring countries.
A 2021 report from the Aid Data research lab at William and Mary University found that majority of China's spending on overseas development takes the form of loans instead of aid.
'Beijing has used debt rather than aid to establish a dominant position in the international development finance market. Since the belt and road initiative was introduced in 2013, China has maintained a 31-to-1 ratio of loans to grants,' the report stated.
China's spending on overseas development was around $85 billion a year, according to the report, most of which was used for loans.
The terms of these deals can be murky, say experts; with information rarely published on whether they are loans to be paid back, or grants.
According to contracts compiled by Aid Data, China currently has issued $1.34 trillion dollars worth of loans, grants and aid commitments across nearly 18,000 global development projects since the year 2000.
Russia is the top single-country beneficiary of Chinese financial commitments, with $169 billion dollars in loans, grants, development assistance or other unclear financial support since the year 2000, according to the database.
Next are Venezuela ($113 billion), Pakistan ($70 billion), both countries which have experienced significant political and financial turmoil in the past decade, with full-scale currency crashes.
In 2023, reports in the Associated Press suggested that repayment of China's multi-billion loans was putting unsustainable financial pressure on countries who were most in debt, such as Pakistan, Kenya and Zambia.
These countries had over 50 per cent of their foreign debt owed to China, and were already using more than a third of government revenue to pay off debt.
And in that same year, research from the World Bank and others found that China had spent $240 billion on bailouts between 2008 and 2021; most of which were countries already borrowing money as part of the BRI.
China has faced difficulties in recouping its debts from BRI loans, as some developing countries struggle with their own unstable economies and project pipelines.
Professor Brown notes that while some of China's foreign investment might carry diplomatic weight, he is sceptical of whether China would benefit in this way from increasing global funding in the wake of UK and US aid cuts.
'China might use aid or investment for diplomatic capital. This carries a political price tag, in terms of China expecting support at the UN, and on Taiwan,' said Mr Brown.
'But it gets that anyway, from a lot of African countries. So, in China's mind, what's the point of giving them more money when you already get what you want?'
The long-term implications of China's loans and aid in Africa and other lower-income regions is unclear, but, just as for the UK and US, it is evident that this financial support plays a key role in developing soft power worldwide.
The Health Silk Road a diplomatic initiative which emerged from the BRI, focusing on Chinese medical aid for countries in need; for example, offering millions of free Covid-19 vaccines to 69 countries during the pandemic.
The free vaccine policy was credited as a diplomacy tool which 'helped improve[e] China's international image', according to 2022 paper from Dechun Zhang, as a part of its aim to increase soft power abroad.
'China will engage in the healthcare sector, perhaps, if it feels that there are other benefits. For instance, it might find contracts for its own pharmaceuticals companies,' explained Mr Brown.
In light of decreasing US and UK-funded aid, China may have ample opportunity to expand its Health Silk Road in countries which scramble to match hundreds of millions in health assistance.
In September last year, Chinese president Xi Jinping already pledged £39 billion ($51 billion dollars) in aid, investment, and loans to the Africa region over the next three years, in a bid to further deepen diplomatic ties.
As the UK and US draw back on aid, their soft power is at risk of dwindling. The uncertainty lies in where that power will go.