Lending a Hand to USAID: What the United States Can Learn from China’s Playbook
The Hambantota International Port in Sri Lanka, leased in 2017 for 99 years to the company China Merchants Port after they bought a 70% stake in the port’s holding company. The Sri Lankan government sold a large share of the port to help make debt payments to the port’s financer, Exim Bank of China. Photo by Dinesh De Alwis.
In the past few decades, foreign aid has become a focus of much of international policy, growing rapidly across the greater international community. While multinational institutions like the World Bank Group and various regional development banks championed foreign aid initiatives, a new era seemed to have emerged in China. Shifting away from the multilateral model, China instead adopted the infamous Belt and Road Initiative (BRI), a series of bilateral foreign investment projects meant to enhance global trade by serving as the hegemon of the network. Conversely, the United States has maintained its underperforming foreign aid department—the United States Agency for International Development (USAID). China has proven, through its many projects and investments, that it is not only investing more in other countries, but it is better at achieving results across its projects. The United States, if it wants to maintain its global influence as a superpower in the international world, needs to vastly improve its model.
Foreign aid generally falls under two categories: official development assistance (ODA) and other official flows (OOF). The Organisation for Economic Co-operation and Development is the international body responsible for tracking these transactions and designating these labels. It defines ODA as “government aid that promotes and specifically targets the economic development and welfare of developing countries,” specifically such that it does not have a grant element below 25%, meaning it cannot be in the form of high-interest or predatory loan. All aid that doesn’t fall in this category is then defined as part “other official flows,” or OOF, which includes aid such as loans that have a grant element below 25%, private sector subsidies, export credits, and aid not directed at economic development.
Each year, the U.S. provides roughly $40 billion in ODA to other countries and around $500 million in OOF. China, on the other hand, provides anywhere from $40 to $100 billion each year, but almost entirely in OOF. This distinction is important because by using almost entirely OOF, China is able to use their investment projects to stimulate their economy and expand their hegemonic reach. Take, for example, the Aysha Wind Power Project in Ethiopia, in which the Chinese government finances nearly 85% of the project on a loan and uses its own state-owned company, Dongfang Electric, to build the wind plant. In many of these projects, China stipulates that its own state-owned enterprises must be the ones to build the project. This effectively turns foreign aid into a domestic stimulus package, allowing China to reinvest in its own economy while simultaneously building infrastructure abroad to help expand their ever-growing international trade network.
In many cases, this predation can expand even further, such as the case with the Hambantota port in Sri Lanka, where China will essentially “buy out” a greater stake in their own projects because the recipient country cannot afford to pay back the loan. China thus not only uses these programs as opportunities to stimulate its own economy, but it oftentimes is able to expand its hegemonic reach by acquiring newly-built infrastructure that will become critical to many of these developing countries’ economies. This comes at the expense of the recipient country, which is now unable to earn revenues from the project.
Despite their schemes, however, Chinese aid surpasses U.S. aid in one critical aspect: it actually achieves results. By taking a stake in their own projects, Chinese investment projects abroad are reliably built and financed simply because there is obvious interest in making sure the project succeeds, especially when their stake in the project has the potential to grow with loan buyouts, as was the case with the Hambantota port. Despite selfish motivations, Chinese infrastructure projects can still improve recipient countries’ economies in the long run. This effectively kills two birds with one stone: China further bolsters its economy, while also supporting foreign, often less developed, nations. For the United States, on the other hand, it's very common that aid simply does not achieve the intended results, leading to millions in wasted funds and efforts. This is due to the more individualistic system: the U.S. does not run its own aid programs; rather, it allocates grants to charities, activist groups, and non-governmental organizations (NGOs) for their foreign aid projects.
This system has generated extremely mixed results. An audit from the Office of Inspector General showed “that 35 of the 81 [USAID] awards did not achieve intended results. Accordingly, we estimate that 43 percent of USAID’s 2,321 awards ending in fiscal years 2014, 2015, or 2016, did not achieve all of their intended results, averaging 53 percent of what was intended.” Likewise, the vast majority of these projects could not provide substantiated, statistical evidence showing that they had achieved their intended goals with the grants they received.
While there are some programs that have proven to be cost effective, it still stands that nearly half of all aid projects simply fall flat. Much of this is because USAID awards funding “cost-plus” grants, a system where those seeking funding simply estimate their total costs for the project and the grants cover the whole sum. This method has no practical accountability measures, so much of the grant money given away simply cannot be guaranteed to be used effectively. As a result, resources are wasted on programs where results simply cannot be shown.
So how can U.S. foreign aid be fixed? The Chinese model, or relying more on OOF, provides much to learn from, but first some limitations need to be recognized. First, U.S. funded projects will always be lesser in size and scale than their Chinese counterparts because aid is handled mainly by charity groups and NGOs. These groups often do not have the resources or incentives to undertake massive infrastructure projects. Therefore, more projects tend to be focused on humanitarian assistance and health than on similar massive infrastructure projects. These programs, while still extremely beneficial, oftentimes do not focus on long-term economic growth and development. Instead, their efforts primarily go towards programs like vaccine distribution, food aid, and other forms of humanitarian relief that provide exactly just that—relief. They address the symptoms rather than the causes of many of these issues. However, this is not necessarily an issue. Developing health infrastructure is vital to increasing economic growth, especially in developing countries in sub-Saharan Africa which are some of the primary recipients of U.S. foreign aid, because it allows workers to be more economically productive. While any one of these projects will probably be smaller than one of the multi-million Chinese infrastructure projects, their sum total can prove much more beneficial in the long run if their effects can be capitalized on. For that reason, emulating the Chinese model should not mean changing the focus of these projects, but rather the infrastructure and policies behind them.
One of the biggest lessons we can learn from the Chinese model is that of oversight. As stated before, USAID has a huge problem with accountability and assessing results. However, China builds oversight into its model by staking itself in the project: they have incentive for the project to succeed, and as such, they will make sure there is proper oversight and effort to have the project done correctly.
The U.S., on the other hand, does not receive the same economic benefit from programs like vaccine distribution. Unlike China, it cannot really tie itself economically to most of its foreign aid projects and thus does not have the same incentive for proper oversight. But even without that incentive, the U.S. can still increase its oversight of these projects.
For reference, the German foreign aid model showcases many of the tenets of efficient oversight that the U.S. can learn from. Germany relies on cooperation with larger international organizations like the U.N. to minimize the amount it has to invest into oversight itself. When it does undertake projects on its own or with private organizations, Germany employs a standardized reporting process and only awards further funding for a project after development goals have been met. Germany, with a very limited oversight committee, is able to achieve efficient and effective results in their foreign aid by simply adopting more rigorous oversight procedures.
Similar to Germany, USAID relies on reports from grant recipients to determine if the project is on track, but unlike in Germany, these reports often fail to accurately represent the progress of the project, despite attempts to reform the review process. Adopting the German model of efficient reviews has not worked for the U.S., and as such, the U.S. should turn to the alternative: efficient in-person reviewing.
I propose that rather than relying on the good faith and accounting of implementers, USAID should appoint its own officers to be auditors for any given project; rather than relying on the NGO in question to manage its finances well, appointed officials can serve as intermediaries and simultaneously assist the project and evaluate its success in reaching milestones. These officers, ideally, would be involved in the implementation and monitoring of the aid project onsite or within the area so they can monitor success themselves and determine how the program is doing. Germany has done this by relying on international organizations, but seeing as the U.S. cannot simply bring in a third party like the U.N. to every bilateral foreign aid agreement, the next best option is for the U.S. to follow China’s lead and simply provide that oversight itself.
Within this proposal, some problems would need to be addressed. First of all, approving individual auditors for each project is sure to create costs. Considering this, I propose these auditors be only appointed to projects receiving grants of above a certain threshold, that way projects that only cost a few thousand dollars are not subject to the same scrutiny and investment of USAID resources as the multimillion dollar projects. Likewise, more auditors should be appointed for projects of larger scope so that officers are not overwhelmed. While this type of expansion is sure to generate excess costs, I believe this program will save more money that it spends in the long run, especially considering even some of the programs with the best results are subject to “misplacing” millions of dollars.
Moreover, this system provides a much better model for implementing one of the most prominent proposals to fixing USAID, fixed-amount grants. As opposed to the aforementioned cost-plus grants, fixed-amount grants allocate money after organizations reach different development milestones. This differs from the current system where USAID awards the entire disbursement when the project is initially proposed. While grant money will still be given for initial costs, milestones will have to be met for projects to continue. This system saves money by not rewarding money to projects that can prove themselves successful. By having auditors on standby, aid projects not only expedite the approval process for their next milestone reward, thus resolving one of the criticisms of fixed-amount grants, but auditors also provide a way to improve milestone assessment so that the nearly half of all projects that are unable to substantiate their progress have assistance in evaluating their success. This means that only projects that suffer from ineptitude or inability are cut, saving charity groups that do good work from being cut if they lack the proper administrative skills to meet USAID’s standards on progress reports.
The starkest difference between the U.S. and Chinese foreign aid models is government involvement. While the U.S. tries to contract its aid efforts, China’s efforts are driven by their own government and its state-owned enterprises. As such, the U.S. should learn from China’s success in that proper oversight by the government can drastically improve results. While this proposal may not be politically viable given how poor our federal government is at bureaucratic reform, the point still stands that this proposal may start more conversations.
The U.S. foreign aid system has been under criticism for a long time, with little done to address issues of funds misuse and bureaucratic inefficiency. With regular reports demonstrating that the agency is failing in accountability, efficient use of funds, and in maintaining standards of rigor, it is necessary to discuss the issues USAID faces in hopes that further conversations can spark more solutions. It’s time that U.S. foreign assistance receives its own assistance and revamps itself to the standards of a leader in the international community.
Andrew Fahey (CC '25) is a Staff Writer for CPR and an Economics-Political Science Major with a Concentration in Computer Science.