Foreign aid: USs,China and Japan

Though China continues to grow its economic heft and is seen to increasingly exercise its influence in global affairs, the United States still extends millions of dollars of financial aid to its Asian adversary.  It is debatable, though, whether China really needs that! CATO institute’s Dan Ikenson’s joke is an appropriate description of the practice: “I think the Chinese are just laughing whenever they receive a cheque. How silly this is of the US to be subsidizing the faster-growing, second-largest economy in the world.”

China received $27.2 million of financial aid from the US in 2010 and is one of the ten top beneficiaries to receive aid from America. Besides the US, Japan donated $800 million in 2011 to China, but its aid has tapered off from the peak of $1.98 billion that it gave in 2000, as per reports released by People’s Daily Online, the official website of Chinese Communist Party. What is amusing is that China's biggest benefactors also happpen to be its most redoubtable rivals.

Several legislators in the US have voiced their concern for such largesse to the second-biggest economy and a country that is growing four times faster than their own. Moreover, China’s perceived hostility towards the US makes the latter's generosity towards the Asian dragon a matter of debate, especially when China is seen to undercut US interests wherever it can! However, the issue of American aid hides more under its surface than is revealed to the eye.

In return for the US aid, China holds $1 trillion in US treasury bonds. That effectively means that China loans the US an amount that is far greater than what it receives from them! This complex bilateral financial mechanism is hard to decipher. A number of senators in the US are flabbergasted at this bizarre mutual deal! Senator Tom Coburn of Oklahoma has echoed this general sense of wonderment. "Why in the world would we be borrowing money and then turn around and give it back to the country that we're borrowing it from? If they have enough of a surplus to loan us money, they have enough of a surplus to take care of their own needs."

One reason for this backhanded deal could be that it helps to insulate shared threats. On the one hand, the US's superpower image is preserved by brandishing its dollar flow to the second-biggest economy. In return of this favour, the US turns a blind eye to China’s Achilles heel, that is, Tibet. It's the same dynamic with a slightly different twist in the case with Japan. The former imperial power's guilt complex in fostering genocide in China seems to play a role in its aid politics, along with concerns about environmental factors that can affect Japan adversely. Japan wants to contain the Chinese military influence in the Senkaku islands, which China claims and Japan administers.

Although China has the world’s largest foreign exchange reserve, to the tune of $3.4 trillion, and Chinese pride prickles at receiving foreign loans (like Beijing declined Tokyo’s offer of assistance in the wake of the earthquake in April), even their policymakers know that they have some distance to travel in order to catch up with the US and Japan’s prosperity. Therefore, Beijing’s policy of strengthening its nationalism and at the same time using foreign money to advance its economic interests cannot be faulted.