The Rise of Asian Aid Donors: Recipient-to-Donor Transition and Implications for International Aid Regime

Introduction

Official Development Assistance (ODA) ¹ has been a major source of investment capital and technical assistance for developing Asia. ODA projects, programs, and technical cooperation have supported technology transfer, capacity development, and knowledge sharing. ODA has historically been provided through bilateral programs of mainly developed countries and through multilateral development institutions like the Asian Development Bank (ADB) and the World Bank. Over time, sources of development finance, including ODA and key aid providers for Asia, have changed. Several Asian countries—first Japan, later Republic of Korea (ROK, hereinafter Korea), and of late the People’s Republic of China (PRC, hereinafter China)—have made the transition from ODA recipients into major providers of development assistance. It is noteworthy that these countries started providing development aid while they were still receiving aid themselves. Other Asian aid recipients like India and Thailand have had similar patterns of providing and receiving assistance simultaneously. Why and how an aid recipient country would aspire to become a donor country or develop aid programs while simultaneously receiving assistance are interesting but unanswered questions.

How to make aid effective has been much debated in the literature. Most of the existing studies have examined principally how aid works in recipient countries. There is little explicit recognition, however, of how donors’ own experience has been brought to bear in the aid effectiveness assessment. Donors’ firsthand experience with aid utilization adds credibility to the debate. In addition, emerging donors like China and others have become increasingly important aid providers with different practices compared to Western aid donors. This has caused concerns if not criticisms in the West. From the aid effectiveness point of view, one needs to understand the underlying reasons for the differences in aid provision. Therefore, this study of recipient-to-donor transition makes a distinct contribution to the literature on aid effectiveness and emerging donors. The landscape of development aid is changing rapidly, with more and more emerging donors taking an increasingly important role, supporting countries to achieve the Sustainable Development Goals (SDGs).

The transformation of an aid recipient into a full-fledged or emerging aid donor is most prominently an Asian experience. ² This article is an attempt to explain the recipient-to-donor transition of Asian donors and its subsequent implications for the international aid regime. It argues that a mix of developmental and security goals had motivated Asian donors to develop their initial economic cooperation programs which persisted over time. This explains why Asian donors, today, allocate a disproportionate share of their assistance to neighboring countries and why foreign aid is deployed as a key tool of commercial, diplomatic as well as development goals. Taking a historical perspective, the article examines the historical context of the Asian donors’ transition from being recipients of aid. It seeks to explain the emergence of their aid approaches, modalities, principles, and priorities that are common, and which reflect certain Asian values like mutual benefit. Lawrence (1984, p. 307) defines historical perspective as “the study of a subject in light of its earliest phases and subsequent evolution.” Unlike historical research that studies the past, historical perspective aims to sharpen one’s vision of the present (Lawrence, 1984). As historical events are path-dependent, they create inertia that persists over time and, thus, influence national policy choices like aid approaches far into the future. By analyzing the historical context behind their rise as aid providers, the study contributes to the growing literature on emerging donors, particularly why their aid approach is different from their western counterparts.

The article is divided into four main sections. The first section discusses the historical contexts and motivations behind the rise of Asian aid providers. The second section examines the emergence of shared principles, approaches, modalities, and priorities of Asian donors. The third section discusses the influence of these on the international aid regime and Asia’s development landscape. The last section concludes the discussion.

The Crucial Role of Motivations and Historical Contexts: A Brief Review

One of the success stories of Asia’s development is the remarkable transition of several Asian countries from aid recipients into either full-fledged or emerging aid providers. The literature on this topic is sparse but developing, though mostly focused on individual country case studies. Sato and Shimomura’s (2013) study highlights the role of a third-party country in developing a recipient into a donor. In the case of Japan, the USA played that crucial role. In turn, Japan’s transition and aid activities in Asia were crucial in the evolution of China, India, Thailand, and Korea from recipients to donors. Sato and Shimomura (2013) also highlight the economic contexts of Japan’s rise as an aid donor. For instance, during the early stage, Japan used its aid activities to overtly address its economic insecurities.

Other studies tend to focus on topics of specific interest. Western scholars’ main interests regarding Asian donors are often concerned with challenges that the emerging Asian aid model poses on the international aid paradigm, centered on the Development Assistance Committee (DAC) of the Organization for Economic Co-operation and Development (OECD) (Jerve, 2006; Soderberg, 2010; Stallings & Kim, 2017). Recent studies have pointed to commonalities between emerging donors generally (Mawdsley, 2012) as distinct from western DAC donors, and several scholars have noted commonalities in the aid programs of East Asian donors such as Japan, China, and Korea (Lim, 2013). Moyo (2009) reports that aid from emerging donors, especially China, is preferable to aid from DAC donors because it is more like investment than aid and more closely aligned with the needs of the recipients.

Many scholars and observers deny the existence of a distinctive Asian approach to aid giving. In a seminar on “Asian Models for Aid” organized by the Chr. Michelsen Institute, speakers asserted that there is no distinctive Asian model of aid, while, at the same time, claiming that much of the success of East Asian aid rests on the principle of mutual benefit (Jerve, 2006; Soderberg, 2010). Unlike their Western counterparts, however, Asian donors tend to conceptualize aid as mutually beneficial economic cooperation rather than as altruism (Soderberg, 2010). Focusing on the three major East Asian donors, namely Japan, Korea, and China, Stallings and Kim (2017) trace the institutional root of mutually beneficial economic cooperation to the developmental state, where strong links between the state and the business sector are a key feature. This, in turn, led to the state’s promotion of commercial interests in their aid policies by linking its aid policy to trade and investment.

Another significant aspect of the recipient-to-donor transition is that Asian donors began their aid programs as developing or middle-income countries. Japan and Korea had yet to join the ranks of developed or high-income countries when they started their aid programs. As recipient and provider of aid at the same time, middle-income countries perform a unique role in regional development dynamics. Middle-income countries can themselves participate actively to contribute to economic growth of neighboring countries through technical cooperation and triangular cooperation programs. This is the “intermediary function” of middle-income countries when they receive ODA from developed countries and provide technical cooperation for less developed countries simultaneously (Sato, 2013, p. 15). In comparison, Western donors began their aid programs as developed countries. This difference in economic status partly explains the different sectoral focus and perspectives of Asian and Western donors. For example, Western donors tend to view aid as altruism or charity cooperation (Opeskin, 1996; Saidi & Wolf, 2011). In contrast, Asian donors tend to align their foreign aid policies with their commercial and economic policies. In this perspective, both the donor and recipient seek to mutually benefit from ODA. It also explains why historical experience (especially from being a recipient of aid) resonates in their respective aid principles and policies.

Recipient-to-Donor Transition of Asian Aid Donors from a Historical Perspective

The beginnings of ODA as we know it today can be traced back to the US Government Aid and Relief in Occupied Areas (GARIOA) Fund, the Economic Rehabilitation in Occupied Areas (EROA) Fund, and the Marshall Plan, which provided about US$13 billion (The George C. Marshall Foundation, 2018) in bilateral aid to European countries and US$5 billion to Japan to finance recovery from World War II. In 1949, the US President Truman announced during his inaugural speech that the USA would embark on a bold new technical cooperation program to assist underdeveloped countries, which became the precursor of today’s ODA. Following the American initiative, European countries started their bilateral ODA programs as part of the decolonization movement of the 1950s and 1960s. Since then, bilateral and multilateral development assistance has played a vital role in Asia’s socioeconomic development (ADB, 2020).

Initially, Western countries, particularly the USA, were the main source of development finance for Asia during the early postwar period, but by 2000, new ODA players had emerged in the region. Starting with Japan and later Korea and China, the new Asian aid providers launched their development assistance programs while they were still aid recipients themselves. The process of transition from recipient to donor varied from country to country. Japan started development assistance in the mid-1950s, became an OECD member in 1964, and continued its ODA formative phase through the mid-1970s. Korea transitioned from aid recipient to full-fledged ODA provider when it joined the DAC in 2010. China’s foreign aid existed long before the country itself started to receive development aid. Its aid strategy and programs have changed, especially since mid-2000s. While it is not a member of DAC, it has kept close interactions with international development community for exchanging experiences and institution building.

The earliest form of economic and technical assistance programs of China, India, Thailand, Indonesia, and Malaysia were responses to the Afro-Asian meeting in Bandung, Indonesia, in 1955, which called for economic cooperation and closer relations among developing countries. This was the starting point of South–South cooperation (SSC). The goal of advancing economic cooperation among developing countries subsequently led to the creation in 1964 of the United Nations Conference on Trade and Development (UNCTAD). At present, SSC is an important feature of development cooperation between developing countries in Asia. In 2013, the annual value of SSC was US$20 billion (International Fund for Agricultural Development (IFAD), 2017). Most SSC activities involve knowledge sharing through training and dispatch of experts and focus on topics that developing countries have common interest in, like agricultural development.

Japan’s Transition from Recipient to Donor

It is the common view that reparations payments in 1954 were the start of Japan’s ODA. Even prior to this, however, Japan had provided technical assistance to Southeast Asian countries under the Third Country Training (3CT) program of the US International Cooperation Administration (ICA) in the 1950s (Higuchi, 2013). The advantage of Japan as provider of technical assistance for Asia was that “the economic and cultural character of Japan is very similar to other Asian countries and consequently solution patterns to technical and economic problems are more apparent to participants during their stay in Japan” (Higuchi, 2013, p. 41). The 3CT program also gave Japan the opportunity to improve relationships with Southeast Asian countries (Higuchi, 2013).

When Japan joined the Colombo Plan in 1954, it had an opportunity to further develop its own technical assistance program by hosting trainees and dispatching experts overseas. Another important component of Japan’s ODA was yen loans, which were first extended to India in 1958, and was the first major step in Japan’s successful transition to becoming an aid donor in the 1950s.

Japan’s ODA was distinguished from other donors by what Japan referred to as the “request principle.” Japanese ODA was offered based on requests from the recipient rather than proposals from the donor. The request principle, which characterized Japan’s ODA process for years and which became evident first in Japan’s war reparations payments, was inspired by the US procurement system during the Korean War. The US government’s procurement of goods and services from Japan for American troops in Korea led to a revitalized and increased industrial production in Japan and enabled Japan to achieve a trade surplus by the end of 1953. Eventually, the request-based process was carried over to Japan’s economic cooperation in the 1960s in which economic assistance was closely linked to Japan’s catch-up development strategy.

In 1964, Japan joined the DAC of the OECD. The aid norms that the DAC adopted profoundly shaped the attributes of Japan’s ODA. For example, aid tying was a common practice in Japanese aid activities in the early days, which meant that ODA was used to procure goods and services from Japanese contractors and businesses. Over time, this practice has substantially changed, with Japan’s untied aid now accounting about 93.1% in 2017 according to the OECD (2020).

By the 1970s, Japan’s ODA policy was increasingly aligned with the goals of its public diplomacy (Yasutomo, 1989). In line with its heart-to-heart diplomacy with Association of Southeast Asian Nations (ASEAN) since 1977, Japan has increased the amount of aid to Southeast Asia, eased its terms and conditions, and explicitly tied its aid policy with the aim of improving relations with countries in the region (Yasutomo, 1989). To meet the goal of expanding the overall volume of its ODA under the so-called Fukuda Doctrine, the Japanese government launched the first of the five Medium-Term ODA targets in 1978 (Table 1).

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Table 1.

Japan’s ODA Medium-term Targets.

Medium-term ODA Plans	Period Covered	Policy Goal
First medium-term target	1978–1980	To double Japan’s ODA in 3 years
Second medium-term target	1981–1985	To double Japan’s ODA in 5 years
Third medium-term target	1986–1987	Japan’s total ODA should be more than twice the 1985 ODA amount
Fourth medium-term target	1988–1992	By 1992, total ODA should be twice that of the 1987 ODA amount
Fifth medium-term target	1993–1997	Total ODA should reach US$70–75 billion

Source: MOFA (1999).

Emboldened by Japan’s strong domestic economy and the yen’s appreciation in 1985, Japanese policymakers drew up an ambitious plan to contribute to Asian economic development. In 1987, Japan’s Ministry of International Trade and Industry initiated the idea of the New Asian Industries Development (AID) Plan. The AID Plan was aimed directly at promoting East Asia’s industrial development by creating a production network, centering on Japan, through mobilization of aid to support trade and investment, or what Shimomura and Wang (2013) referred to later as the trinity development cooperation (TDC) model. Like a pack of geese flying in V formation, Japan would provide leadership in Asia’s development, using its ODA, trade, and investment, functioning as one integrated economic cooperation package. The TDC model is perhaps the most distinctive feature of Japan’s aid approach, a feature that would later be adopted by other Asian donors, including China and Korea.

The orientation of Japanese ODA diversified in the late 1980s to include poverty reduction and addressed basic human needs to better align with other major aid providers (Lancaster, 2007), a trend that continued through the 1990s and 2000s (Orr, 1990). In 1992, the Japanese government had articulated officially Japan’s aid principles and basic policies in its first ODA charter. The charter mentioned, among other things, a geographical focus on Asia, emphasis on infrastructure development and economic growth, as well as the nonmilitary use of aid, and the principle of self-help.

From the late 1990s to the 2000s, three new ODA programs were introduced in succession that subsequently became core features of Japan’s ODA priorities in the new millennium. The first program was the Green Aid Plan by the then-Minister Eiichi Nakao of the Ministry of International Trade and Industry (MITI) in a speech in Bangkok in August 1991. The Green Aid Plan was intended “to support the diffusion of clean coal technologies aimed at controlling sulfur dioxide (SO2) as well as energy saving technologies” (Evans, 1999, p. 826) and provide “technological and financial support to developing countries in the Asian region for the purpose of environmental protection and energy conservation” (Okano-Heijmans, 2012, p. 345). The second program was the incorporation of human security as a core principle of Japan’s ODA policy in the 2003 charter. By pursuing human security as a goal of Japanese ODA, Japan was able to contribute to the maintenance of international security even without increasing its military spending or participating in missions with combat operations (Carvalho & Potter, 2016). The third was the adoption of aid programs aimed at supporting the international peacebuilding/peacekeeping efforts of the United Nations.

Over time, Japan’s ODA management system has undergone major institutional restructuring. In 1950, the Japan Export Import (JEXIM) Bank was established to provide services to Japanese trade and investments overseas, primarily through provision of export or buyers’ credits. The Overseas Economic Cooperation Fund (OECF) was established in 1961 to manage JEXIM’s Southeast Asia Development Cooperation Fund and ODA loan assistance. The first OECF ODA loan was provided to Korea in 1966. The Japan International Cooperation Agency (JICA) was established in 1974 under the supervision of Japan’s Ministry of Foreign Affairs (MOFA) to administer grant assistance and technical cooperation programs. Eventually, JEXIM and OECF were merged in 1999 to become the Japan Bank for International Cooperation (JBIC). In 2008, the Overseas Economic Cooperation Operations of JBIC, which handled Japan’s ODA loans, were merged with JICA, making JICA Japan’s sole ODA implementing agency. ³ Japan also has a long and well-organized program of supporting Japanese volunteers to conduct overseas development work.

By 2003, Japan’s aid commitments reached the highest levels since the early 1990s and have since continued to increase, reaching nearly US$21.4 billion in 2015 (OECD, 2019c), the highest ever. In the administrations led by the Democratic Party of Japan (DPJ) (2009–2012) and the Liberal Democratic Party (LDP) (2012 to present), Japan has more explicitly linked ODA policy as one tool to contribute to the revitalization of Japan’s economy. It promoted the export of infrastructure systems or the package-type of economic cooperation that combines hard and soft infrastructure and harnesses synergy between loans and grants. The DPJ cabinet first introduced this arrangement in 2010 as part of Japan’s revitalization strategy. The Abe cabinet later pursued the Quality Infrastructure concept to guide Japan’s infrastructure investments. In this type of cooperation, Japan helps to build safe and reliable infrastructure and provides the technical assistance required to operate and maintain such infrastructure projects.

Parallel to its bilateral programs and integral to its ODA policy, Japan makes substantial contributions to the work of international and multilateral development organizations and actively participates in the full range of their programs. With the Asian Development Bank, for example, Japan has been consistently the largest contributor to the Asian Development Fund. In addition, Japan has established several trust funds with ADB to support project development and capacity building and the formal training of graduate students who are expected to become Asia’s future leaders and managers in government and businesses. This approach of contributing to and actively participating in multilateral development financing has also been adopted and followed by other Asian aid providers.

China’s Transition from Recipient to Donor

China is not a new aid provider; its first foreign aid was in the form of material assistance to North Korea and North Vietnam in 1950. In 1964, Zhou Enlai announced the eight principles governing China’s foreign aid. ⁴ In the 1970s, China’s economic aid was disproportionately allotted to sub-Saharan Africa and was utilized for infrastructure projects, including the construction of the massive Tanzania–Zambia Railway.

Following the opening up and reform in 1978, China decided to accept ODA from other countries and reduced its provision of aid to conserve its limited resources. To ensure that aid supported its own development, China continued to emphasize the win-win aspects of its remaining aid (Tang et al., 2013). After reaching its highest level in 1995, ODA to China began to steadily decline until 2008, after which allotments fell precipitously, while, at the same time, the country was rapidly expanding its own aid program. China would become a net aid provider from 2006 (see Figure 1).

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Figure 1.

Source: For net ODA received, 1979–2018 in current US$ (The World Bank, 2019); For China’s net ODA disbursements, 2001–2015 (Kitano, 2017).

In 1979, when China initiated its policy of reforms and openness, Japan was the first country to offer ODA to China. Japan quickly became China’s largest single provider of ODA before it began a steady reduction in 2000. Japan’s initial batch of ODA loans in 1979 were to be repaid in oil (Brautigam, 2009). ODA from Japan to China reflected Japan’s economic priorities as well as China’s prevailing development needs (Story, 1987). Japan recognized the opportunity of China’s resources, like coal and oil, and the country’s vast market size. China appreciated the access to advanced technology, credit, as well as the management know-how from Japan. The resource-backed financing gave the inspiration to China to adopt this financing modality later in its aid to resource-rich African states (Mawdsley, 2012, p. 77).

In the 1990s, China reorganized its aid management system. The Export–Import (Exim) Bank of China was established in 1994, and coordination mechanisms between government agencies involved in the aid process were initiated. During this period, the Exim Bank’s concessional lending has increasingly become China’s primary aid tool (Watanabe, 2012). The Exim Bank provides much more than ODA, however. Its main function is providing trade finance like buyers and exports’ credits, which are included in the Other official flows (OOFs) (that are not ODA), and vastly exceeds ODA-like concessional lending (Brautigam, 2011).

To convey more clearly its aid policy, the Chinese government released two white papers on its foreign aid in 2011 and 2014. Both documents refer to the 1964 aid principles as basic guidelines of economic and technical assistance. Both mention that the country’s aid consists of grants, concessional loans, and interest-free loans. About 61% of China’s aid was for economic infrastructure in 2009, while a total of US$14.41 billion was appropriated from 2010 to 2012. ⁵ In 2018, China’s International Development Cooperation Agency (CIDCA) was established to further streamline its aid administration.

China’s own development experience in the past four decades highlights the value of development learning from working with bilateral and multilateral agencies. Such development learning covers a wide range of topics, such as managing transitions to market economies, macroeconomic policymaking and implementation, project design, and project management. Through many years of learning by doing, China has also accumulated experiences to share with others.

Like Japan and Korea, China has, since the early 2000s, been actively working with multilateral development banks like ADB and the World Bank to strengthen its engagement on learning and sharing of development experiences among developing countries. In May 2004, China with the support of the World Bank organized the international forum on poverty reduction, to showcase China’s experiences. In March 2005, China and ADB established the country’s first trust fund with ADB to support innovative initiatives for poverty reduction and regional cooperation.

While both China and Korea have only recently become net aid donors, their ODA programs have been growing fast. Figure 2 shows that since the early 2000s, ODA disbursements by China and Korea have rapidly increased and together exceeded 50% of Japan’s gross ODA disbursements by 2015. Japan, Korea, and China were later joined by other Asian countries either as full-fledged or as emerging (aspiring) aid donors. India transitioned into a bilateral aid provider, while Malaysia, Thailand, Indonesia, and, to a lesser extent, the Philippines, expanded their respective technical cooperation programs under the framework of SSC.

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Figure 2.

Source: OECD for Japan and Korea. China estimates (Kitano, 2018).

Summary of the Transition from Recipient to Donor

In the preceding pages, we have reviewed the experiences of several existing and emerging Asian donors—origins, principles, modalities, and practices. Table 2 presents a comparative summary of the historical evolution of the Asian donors’ policies and the domestic and global contexts.

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Table 2.

Evolution of ODA Policies of Asian Donors and Their Domestic/Global Contexts.

Asian Donors	Domestic/Global Contexts	ODA Policy
Japan	1940s–1950s: Economic reconstruction 1960s: Economic expansion 1970s: Energy security; oil crisis 1980s: Strong yen; strong domestic economy 1990s/2000s: ODA reforms 2010s: Economic revitalization	Access to resources and market through reparations payments Economic cooperation Aid for oil diplomacy; ODA expansion Comprehensive security; Green aid ODA charter; human security; and diversification of ODA programs Public–private partnership; package-type assistance
Korea	1960s: Early stage of Korean economic development 1970s: Economic transformation 1980s: ODA expansion 1990s: Transition from recipient to donor 2000s–2010s	Beginning of technical cooperation Start of equipment assistance Dispatch of experts and volunteers; concessional loan assistance was started ODA management system; adherence to DAC/OECD norms Articulation of clear development cooperation strategy; support for poverty reduction; and fulfillment of international development goals like the SDGs
China	1950s–1960s: International recognition 1970s–1980s: Transition and opening up 1990s–2000s: High-growth period 2010s: Focus on effectiveness	Assistance to sub-Saharan African countries China became net ODA recipient Aid expansion and administrative restructuring Creation of new aid agency; Release of white paper on China’s aid
India	Early postwar period: Security imperatives 1950s–1960s: Afro-Asian movement 1970s–1980s 1990s toward the twenty-first century	Capacity building; scholarships and training; and improve bilateral relations with recipient countries Adoption of the five principles of coexistence later applied to India’s development cooperation as basic guidelines and participation in Colombo Plan as provider of technical assistance Gradual ODA expansion and neighboring countries receiving the largest share of Indian aid Reorganization of India’s management system and continuous expansion of scope of India’s ODA
Thailand	1960s: Security imperatives; instability of countries within its borders 1990s: Emergence of more stable political regimes in neighboring countries 2000s: recovery from Asian financial crisis; aspiration to become full-fledged ODA donor 2010s: Improve ODA quality and efficiency	Start of technical cooperation program with neighboring countries New aid program for neighboring countries was begun Expansion of ODA program and reform of aid management system Submission of annual report to DAC/OECD

Source: The authors.

The preceding historical account shows that the five Asian donors’ motivation to develop their initial foreign aid programs was primarily motivated by the prospects of obtaining security and economic benefits. Japan’s initial foreign aid program was closely aligned with its catch-up development strategy in the 1960s and later with the goals of its public diplomacy in the 1970s. In the case of Korea, foreign aid was closely attached to its export-driven trade policy in the 1960s. China’s aid programs, in contrast, were aligned with its public diplomacy in the 1950s and 1960s. Likewise, India’s and Thailand’s earliest development cooperation was aimed at promoting closer relations with neighboring countries. Over time, the international development agenda (such as the Millennium Development Goals since late the 1990s) have been incorporated into the Asian donors’ assistance programs.

The role of third-party countries was crucial in preparing Asian recipients into becoming aid providers. Japan and Korea participated as technical assistance providers in the 3CT program of the USA before developing their own technical assistance programs. Asian donors began their technical cooperation programs, with the primary goal of improving relations with neighboring countries. Such activities were in terms of training programs, experts and volunteer dispatch, scholarship grants, and technical missions. Asian donors emphasize the role of capacity building in economic development. India and Thailand emphasize human resource development in their development cooperation policies.

One notable feature of development cooperation in Asia is the prominent use of technical cooperation for mutual benefit. Unlike the DAC/OECD-led technical assistance program, which treats knowledge as a material that can be passed on to the learner, Asian donors tend to view knowledge more “as a product of continuous human interaction within specific context” (Hosono et al., 2011, p. 182). This means that the flow of knowledge is two-way, which makes mutual benefits and learning possible. Thus, participating countries in technical cooperation mutually learn from each other’s experience, in contrast to Western technical assistance that tends to be one-way. The face-to-face interaction between participants also contributes to mutual understanding and hence helps improve bilateral relations.

Asian donors also emphasize the principles of self-reliance, mutual benefit, and respect for sovereignty. These principles helped guide the aid policies of Japan, China, Korea, India, and Thailand. For instance, the ODA charter of Japan refers to self-reliance as a basic principle of Japanese aid. Korea, Thailand, and Japan mention development experience as a principle in their aid policies. China and India incorporated mutual benefit and respect for sovereignty in their respective aid policies as early as the 1960s. These principles are reiterated in China’s foreign aid white paper of 2011 (China State Council Information Office, 2011).

Asian donors have not required that recipients adopt onerous reform programs as a condition of receiving support (Stallings & Kim, 2017, p. 15). The sensitivity of Asian countries to interference in their domestic affairs stems from their aspirations for national self-reliance, which dates to the 1955 Bandung Conference. It is manifested not only in aid relations but also in the conduct of regional and multilateral affairs. Japan’s tendency to avoid political conditions on aid is supported by Japanese cultural values that emphasize self-help and self-reliance (Sawamura, 2004).

Finally, the public–private sector coordination and the emphasis on infrastructure development translate into an Asian strategy for aid, where aid, trade, and investment are combined in a comprehensive strategic package (Shimomura, 2016). The explicit combination of aid, trade, and investment is typically facilitated by comprehensive cooperation packages like economic infrastructure projects that support the export industry and the business sector. China’s positive experience as an aid recipient and being the largest recipient of Japanese ODA for many years explain China’s adoption of this approach. Combined with a similar approach in the emerging ODA program in Korea, regional ODA providers have developed distinctive Asian approaches (Lim, 2013).

The coordination of aid, trade, and investment began as an Asian innovation stemming from Japan’s TDC model. The adoption of a similar approach by Korea and China and the positive reaction of aid recipients have led some Western donors to begin reforming their own ODA practices. For example, the OECD’s Aid for Trade initiatives highlight aid practices that focus on investment in economic infrastructure, enabling international trade and export promotion, and coordinating aid with trade finance as keys to achieving the SDGs (Lammersen & Hynes, 2016). These innovative approaches to aid that were developed by Asian donors have now influenced donor practices around the world.

Emerging Asian Approaches and Implications for the International Aid Regime

As more Asian countries evolve from aid recipients to donors, observers have noted an approach to providing aid that is different from what is commonly practiced among Western members of the DAC/OECD (Mawdsley, 2012). The Asian approaches appear to be influencing emerging aid programs around the region and has begun to even influence the direction of ODA policy among the established Western donors in the DAC. In fact, two of the five principles ⁷ of aid effectiveness adopted in Paris in 2005, namely ownership and alignment—which emphasize the use of local systems in aid delivery and recipient-driven kind of assistance (in contrast to donor-driven)—bear close resemblance to self-reliance and respect for sovereignty principles prominent in aid from Asian donors. Moreover, innovative forms of financing like the so-called blending or blended finance now used in European Union (EU) development assistance as an aid modality is like the joint financing or mixed financing (or combination of aid and private finance) commonly used by some Asian aid providers. Blending is an innovative financial instrument, which combines “EU grants with loans or equity from public and private financiers” (European Commission, 2020).

Asian donors share commonalities in 6 key areas: (a) aid delivery (preference for official channels); (b) modality (a preference for offering concessional loans over grants); (c) sectoral distribution (focus on infrastructure); (d) sensitivity to domestic affairs of recipient countries (less conditionality); (e) emphasis on two-way knowledge sharing in their technical cooperation programs; and (f) adherence to aid principles based on self-reliance, mutual benefit, and respect for sovereignty. As discussed earlier, these key aspects of Asian approaches to aid have been manifested in the aid programs of Japan, China, Korea, India, and Thailand.

Asian donors prefer to deliver aid mainly through official channels (i.e., government to government) compared to their Western DAC/OECD counterparts, which often engage civil society organizations (CSOs) in implementation. ⁸ This government-centered aid delivery is based on the general view of the state’s role in development. The East Asian development model emphasizes the coordinating role of the state in economic development and close links between the public and private sectors, including heavy investment in infrastructure, which cannot be left to the market or to CSOs. Table 3 shows the higher share of infrastructure development in the ODA allocations of Japan and Korea. The Asian donors’ emphasis on financing infrastructure development is further discussed later.

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Table 3.

Sector Allocation of ODA Disbursements, 2006–2016.

	Infrastructure and Industrial Development (%)	Humanitarian Aid (%)	Health, Education, and Governance (%)
Other DAC members	19	11	70
Japan	50	4	45
Korea	45	3	52

Source: OECD (2018).

The Asian approaches emphasize loans rather than grants (see Figure 3), with the potential to finance bigger or more costly projects. While non-Asian DAC members provide about 80% of their aid as grants, Japan provides over 50% of its aid as concessional loans. China’s aid is even more concentrated in lending, with loans exceeding 80% of its total aid between 2000 and 2014 (Aiddata.org, 2017). Korea’s aid has been more varied, but the percentage of loans has been about 20% higher than the DAC average since Korea joined the DAC in 2009.

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Figure 3.

Source: OECD for Japan, Korea, and other DAC members (1990–2016 data), Aiddata.org for China (2000–2014 data).

The reliance on lending promotes country ownership since the money must be repaid, and the recipients would not agree to borrow for projects that they do not consider useful. Regional aid recipients appreciate this approach as it focuses on their greatest needs—infrastructure development (Trinidad, 2013). Recipients of Japanese aid request that Japan continue to focus its aid on infrastructure and perceive such ODA as one of Japan’s comparative advantages (Shimomura, 2016).

Moreover, lending enables both donor and recipient to mutually benefit from economic cooperation. Since the beginning, Japan’s ODA was considered an investment in both the economies of Japan and the recipient country (Orr & Koppel, 1993). ODA was regarded part of Japan’s economic and commercial strategies (Yasutomo, 1989). China was impressed by the way Japan’s aid also helped to develop its own industries as part of Japan’s economic development strategy (Shimomura & Wang, 2013). Although Japan was criticized for this approach in the West (Orr & Koppel, 1993), China liked the idea and has incorporated this coordinated approach in its own aid program (Shimomura & Wang, 2013, p. 119). Korea has, likewise, taken this approach in developing its aid programs for higher income countries (Kim & Oh, 2012).

Asian donors tend to earmark a considerable amount of their aid to economic infrastructure (i.e., construction of roads, highways, railways, airports, power plants, etc.). By focusing on economic infrastructure, the Vietnamese case exemplifies that Asian aid donors contributed to Vietnam’s overall economic growth in a variety of ways (Stallings & Kim, 2017). The first way is based on the long-held view that foreign aid serves as supplementary capital for recipient countries’ investment finance. The huge volume of ODA enabled the Vietnamese government to invest in economic infrastructure that would otherwise not have been possible, thereby preparing the country as a major destination of foreign direct investment (FDI) in the 2000s and beyond. In this respect, the Vietnam case is a useful illustration of the potential for ODA to spur additional investment that would not have occurred without ODA. In fact, researchers have shown that it is the very features of the Asian approaches to ODA, namely the focus on economic infrastructure and the coordination of ODA between the public and private sectors, that enable aid from certain donors to be a vanguard for increased FDI (Kimura & Toda, 2007).

Second, ODA investments in economic infrastructure have led to mutual benefits—they helped improve Vietnam’s export sector, while providing support for firms from donor countries. Vietnam’s exports increased remarkably from US$5.4 billion in 1995 to US$132 billion in 2013 (Kimura & Toda, 2007, p. 214). East Asian donors do more than extend economic assistance to recipients. The TDC model discussed earlier ensures that private businesses from East Asian donor countries gain from economic cooperation through joint financing and business upgrading. Japan’s Special Terms for Economic Partnership (STEP) loans for Vietnam “are tied to the use of Japanese firms and equipment; in return, the recipient receives a preferential interest rate and a longer amortization period” (Kimura & Toda, 2007, p. 212). Korean ODA-funded road and highway projects are concentrated in areas where Korean businesses are located and link them to major cities in Vietnam. Korea also administers a Public–Private Partnership (PPP) type of ODA loan assistance wherein the financing for an infrastructure project in Vietnam is shared by the United Nation’s EDCF and a private Korean firm.

Finally, for Vietnam, investments in economic infrastructure have enabled exportable products to get to market, while cross-border, connective infrastructure has linked Vietnam to global and regional supply chains (Kimura & Toda, 2007, p. 211). Vietnam is now an important production base and network for East Asian multinational firms like Samsung, LG, Canon, Panasonic, and Fujitsu. East Asian ODA investments in the construction of East–West and North–South highway corridors benefitted not only Vietnam but also the entire Indochina subregion and all other firms operating therein. Connective infrastructure has led to increased mobility and reduced costs of transportation, thus bolstering Asian integration. Supporting regional connectivity for broadening and deepening regional networks and supply chains has become a prominent feature of Asian donors’ partnership agenda.

The rise of Asian aid providers and the transformation of regional economies of Asia have created a new dynamic to donor–recipient partnerships. One area where strong partnerships between Asian aid donors and the private sector is supporting Asian connectivity, like in the construction of cross-border transport infrastructure to connect key cities within Asia. The concept of connectivity is not new. The ASEAN has adopted it as one of its primary strategies to increase regional integration. ADB was a pioneer of the concept when it helped launch in 1992 the Greater Mekong Subregion (GMS) Economic Cooperation Program to enhance the economic relations of the six countries of the GMS, where connectivity was identified as one of the strategies to realize this goal. ADB has since been engaged in various cross-border infrastructure projects within GMS countries.

In 2013, the Chinese government announced a more ambitious connectivity concept called the Belt and Road Initiative (BRI). The BRI consists primarily of the Silk Road Economic Belt and the New Maritime Silk Road, which would connect several countries and regions by land and sea through construction of railways, roads, ports, airports, and communication facilities. In many ways, the BRI serves as a key organizing principle for China’s bilateral economic cooperation and aid activities and provides a cohesive framework for identifying and developing economic infrastructure in the Asian region. The BRI promises many strategic benefits for countries involved. And it is critical that the BRI implementation must effectively incorporate key principles of development financing. Drawing on the lessons from many decades of ODA and development financing experience, the key financing principles include economic viability, debt sustainability, social inclusion and environmental protection, and emphasis on local capacity building.

Although regarded by some observers and scholars as a reaction to the China-led BRI, Japan’s Quality Infrastructure initiative is essentially a connectivity program that emphasizes value for money and Japan’s comparative advantage as a provider of infrastructure finance. The Quality Infrastructure concept incorporates principles like economic efficiency, safety, resilience, and sustainability into Japan-financed infrastructure projects (Harris, 2019). In 2015, Prime Minister Abe introduced the Partnership for Quality Infrastructure to promote collaborative quality infrastructure investment with international organizations and partner countries. The members of the Group of Twenty (G20) endorsed it at their annual summit meeting held in Osaka in 2019. In what could be regarded as a policy convergence or competition, China’s President Xi mentioned that the country would provide high-quality infrastructure under the BRI at the second Belt and Road Forum held in April 2019 (CGTN, 2019). Earlier, Japan had expressed an interest to collaborate with the BRI (Jennings, 2018).

The high demand for infrastructure development in Asia has made strong partnerships among Asian aid providers an imperative. First, the total cost of infrastructure needed for Asia is massive. According to ADB estimates, if developing Asia is to maintain its growth momentum, reduce poverty, and address climate change, it must invest US$26 trillion in infrastructure or US$1.7 trillion a year between 2016 and 2030 (ADB, 2017). Second, no bilateral or multilateral donor can provide such massive amounts of financing. Partnership among aid donors is therefore crucial. This massive infrastructure development will strengthen connectivity, which will then lead to greater mobility, reduced transport time, and cost, which will promote trade, regional integration, business opportunities, and higher levels of interdependence.

Another form of development partnership that Asian donors can explore is with the private sector. In many Asian countries, governments have resorted to PPP to address massive infrastructural backlogs and to reduce dependence on foreign loans. ODA can play a crucial role in leveraging and adding value to private finance “either by leading the way and proving profitability, or sharing some of the risk” (Alonso et al., 2014, p. 10). Developing the right institutional and regulatory frameworks to cultivate capacity and readiness of developing countries for PPP is something that can be addressed by technical cooperation programs. By participating in infrastructure development, the private sector benefits commercially and contributes to cross-country connectivity. Developing a better synergy between foreign aid and the private sector in a growing Asian region is the way forward. This may require combining aid, trade, and investment and partnership among donors (Gu & Kitano, 2018).

Finally, while there continue to be lingering apprehensions about non-DAC/OECD aid, China’s experience with infrastructure investments shows that such investments “create a more equal distribution of economic activity within the provinces and districts where they are implemented” (Bradley, 2018). The region’s donors are intent on and capable of improving the quality of their aid programs. Harnessing the full potential of aid for Asia’s development finance takes time, and Asian donors are constantly learning from their recipients and their engagements. As the Asian donors have shown, aid works when it is adapted to domestic needs of recipient countries.

Conclusion

This article examined from a historical perspective the transition of Asian countries from being recipients of foreign aid to either full-fledged or emerging aid donors and its subsequent implications on the international aid regime. It highlighted the security and economic imperatives that drove these Asian donors to develop their initial cooperation programs. The role of a third country in preparing a recipient country into becoming an emerging or full-fledged donor was crucial. This role was played by the USA in the case of Japan. The path-dependent nature of historical events accounts for the emergence of Asian approaches to aid. From the start, Asian donors have allotted a disproportionate share of their assistance to neighboring countries, which they utilized as a key tool of foreign and security policies. In comparison with their Western counterparts, Asian donors share commonalities in their aid approaches in six key areas, namely their preference for official channels as a mode of aid delivery; preference for offering concessional loans over grants; focus on economic infrastructure; less conditionality and more sensitivity to domestic affairs of recipient countries; emphasis on two-way knowledge sharing in their technical cooperation programs; and adherence to aid principles based on self-reliance and mutual benefit. Being the first full-fledged aid donor in the group, Japan’s role in the construction and diffusion of these approaches over the course of time was vital. Japan’s aid institutions and practices resonate in the aid approaches of China and Korea and are likely to be reflected in the practices of other emerging Asian donors with long experience as recipients of Japanese ODA.

The article noted that the growing demand for infrastructure in Asia has made the Asian approach to aid, which prioritizes infrastructure development, more relevant. Consequently, Western donors, which traditionally provide grant assistance to support the recipient country’s social welfare programs, have introduced innovative forms of infrastructure finance. Due to the emerging donors’ growing global aid activities, the international aid community has become more inclusive and open to partnership and collaboration. Meanwhile, international aid practices and norms have been an important basis of ODA reforms among Asian aid donors, particularly, in the improvement of the quality of their aid management systems. Japan, for instance, significantly reduced its tying practices over time, while Korea incorporated some of the best practices of the DAC/OECD after its accession as a member. China released White Papers on its foreign aid and remains committed in improving its aid management system. Thailand has also reformed its ODA system and reports its development finance flows annually to OECD, while India began the ODA rationalization and reorganization of its aid institutions. This development indicates the importance of the international aid community’s continued engagement with and the socialization of emerging donors. Finally, by fostering partnership and by promoting connectivity, foreign aid may contribute to the unity and stability of the Asian region, which is beset by political and territorial disputes.

While Japan and Korea are established DAC donors, the emergence of Asian donors outside the DAC (China, India, and Thailand) has resulted in a major expansion in the total aid and concessional financing available. Real net ODA disbursements by DAC member countries increased by over 300% between the levels that prevailed in the 1970s and 2016 and is substantially higher than it has ever been. Aid from China, India, and Thailand represents a major expansion of total aid available with much of it targeted to neighboring countries in the Asian region.

Aid recipients can now strategically shop for highly concessional ODA financing for their development priorities. The Philippines is a good example of an aid recipient, leveraging large aid packages from both established and emerging donors to expand the total amount of development finance supporting the country. After providing very little assistance to the Philippines between 2010 and 2016, China has begun offering large aid packages to the Philippines. As of 2020, proposed projects under Chinese financing amounted to about US$13.5 billion, more than the US$7.6 billion in proposed project financing from Japan. Between 2008 and 2017, average aid commitments to the Philippines were only about US$1.46 billion annually. ODA commitments from the USA to the Philippines declined from around US$253 million in 2014 to US$194 million in 2018; the decline was not large compared to the increases from other donors. The Philippines has been able to maintain aid commitments from DAC donors while, at the same time, increasing its aid inflows from emerging donors like China. The expanding universe of aid donors now presents developing countries with the opportunity to enjoy larger aid inflows than at any time in recent history.

In the future, the willingness of emerging donors to offer large aid packages may aid recipients to avoid the conditionality associated with ODA from DAC donors. For example, after the 1997 Asian Financial Crisis, the aid packages from Western donors and the International Monetary Fund (IMF) were perceived as forcing damaging and unpopular policy conditions on vulnerable countries. China, which had emphasized its respect for the sovereignty of aid recipients as a core principle of its aid program, was able to use the crisis to burnish its image as a benevolent actor. China provided aid and export credits to Thailand, Indonesia, and other Asian countries; used fiscal policy to boost domestic demand; and maintained the value of its currency, which provided an economic lifeline to other countries in Asia. The increased credibility of China after the Asian Financial Crisis coincided with rapidly expanding trade and investment between China and Southeast Asia, in particular, and marked the beginning of the rapid expansion of China’s modern foreign aid program. The expanding availability of alternative sources of aid and concessional finance has continued to make it easier for aid recipients to resist difficult policy conditions in exchange for aid (Lewis-Workman, 2020).

One question for the future is whether more limited leverage over aid recipient countries will reduce the perceived benefits the DAC donors expect if aid recipients begin to resist the policy conditions that were typical before emerging donors became a major force. As of 2018, DAC aid has shown no sign of an overall decline and has generally trended higher from 1997 through 2018. At present, there is no sign that aid from emerging Asian donors is displacing DAC aid; rather, it has expanded the total aid available.