British development cooperation with China has moved from tied aid to direct, 'poverty focused' programming around Millenium Development Goals, and is now thinking about how to engage with a China whose role on the global stage has changed profoundly.

Over the remaining years of this decade the UK's Department for International Development (DFID) will continue to support ongoing work in China in four, main sectors-AIDS prevention and care, basic education, tuberculosis control and water resource management, water supply and sanitation-while "moving upstream in engagement to communicate and influence at higher levels," according to a draft Country Assistance Plan (2006-2011), a final version of which will be formally approved early next year.

The document does not set a date for withdrawal, but it seems almost certain that this will be the last round of British official development assistance funding for a country whose GDP is already at least five times higher than when British aid began in the 1980s, and whose government revenues have recently been increasing well above the rate of GDP growth. No major, new projects are envisaged, whereas a reduction in Beijing-based staff is planned, starting in 2007.

But this is not necessarily the end of the road for DFID's engagement with China. The draft stresses changes in the bilateral relationship, which is becoming a progressively more "equal partnership," and goes on to emphasise not only China's growing impact on the global environment and in global natural resource, trade and investment flows, but also China's emergence as an international donor of substance. It thus foresees a role for DFID "to develop a strong partnership with the Chinese on international development issues" and also to "facilitate the relationship of other UK government departments with China;" and the document envisages leaving behind, within the British Embassy, a small team of DFID specialists charged with continuing such work.

This can be interpreted as a generous vision of a bilateral relationship in which, alongside growing, mutually beneficial trade, there is growing exchange and dialogue on policy and management experience. A more cynical gloss would be that DFID hopes to influence not just how the government of China spends its money and behaves inside the country, but how it does so on a global stage.

The long march to 'pro-poor programming'

For much of the 1990s, British government development assistance to China largely consisted in concessionary finance for infrastructure: for example, a GBP 100 million soft loan for a bridge over the Yangtze in Jiangsu, and for coal handling facilities at a Tianjin port. Additional technical assistance grants, with a total value of around GBP 4 million per year, mainly funded British contractors to work with Chinese counterparts on assessment, monitoring and control of pollution: for example, developing water and environmental management plans for Shanghai and other fast-growing coastal cities, and a cluster of joint research and training projects to enhance China's environmental management capacity. Technical assistance was also given to support 'effective administration'-a phrase that hinted at 'good government,' which was a major preoccupation of British aid at that time-and which translated into a variety of training programmes for Chinese civil servants, lawyers and judges. Finally, modest support for English language teaching was delivered through the British Council.

This portfolio broadly resembled that of other bilateral donors to China at the time, and many bilateral programmes remain largely in this mould.

The 1997 election of a Labour government in Britain, however, brought a wholesale overhaul of the overseas aid programme, complementing a new commitment to 'ethical' international engagement and foreign policy. A newly established, cabinet-level ministry-DFID-was mandated to de-link aid and trade and to use all of its resources to reduce poverty. A pledge was also made to reverse a fifteen year decline in aid budgets that, by 1995, had fallen to 0.28% of Gross National Income (GNI). Although the 'ethical foreign policy' soon evaporated in office, the Labour government has largely honoured its aid pledges. Aid spending has progressively increased, to nearly GBP 8 billion in 2004, equivalent to 0.36% of GNI, with a commitment to rise further to 0.47% of GNI by 2008 and 0.7% by 2013. Britain's Treasury, meanwhile, has been at the forefront of international governmental initiatives on debt relief; and last year Prime Minister Blair launched a Commission for Africa (reminiscent of the 1980 Brandt Commission and the 1983 Brundtland Commission) that, especially following this summer's G8 meeting in Scotland, has galvanised international attention, and seems likely also to mobilise substantial resources for Africa, even if progress is slow on the more vexed issues of trade. It is also fair to say that DFID has earned, within the global aid industry at least, a reputation as a thoughtful donor with a clear focus on poverty.

Turning around the aid programme involved several practical difficulties, however. Most fundamentally, whilst it is relatively easy to spend tens of millions of dollars on infrastructure projects, it is much harder, and requires much more careful thought, to spend even greater sums in ways that have direct and lasting benefits for the poorest.

Secondly, whilst Britain can claim comparative advantage in building bridges and dealing with 'brown' pollution-having a strong track record in engineering, and its own relatively recent experience of urban filth-there is little in its recent national experience that fits it to advise on reducing rural poverty in poor counties. For Britain was the first nation in the world to depopulate its countryside, and had almost completed the process by the end of the 19th century. The social pain attendant upon that process, the birth pain of capitalism in Britain, was at least equal to that which China is experiencing now; but lessons from 19th century Britain are not necessarily directly relevant to developing countries in a very different, 21st century context. There are numerous areas of technical expertise that are of developmental importance for China and in which Britain can claim strong, comparative advantage-for example, road traffic management (Britain being, after all, the inventor of that early signal of globalisation, the traffic light; and having since had to cope with one of the highest vehicle densities in the world.). But such areas are at the very outer edge of a 'focus on poverty' (although one could fairly argue that better management would prevent poor children being run over by trucks, which is an everyday occurrence in China.) Therefore, any comparative advantage in direct poverty reduction overseas has to rely much more on acquired 'development expertise,' conceived as a professional skill in its own right, than upon domestic experience.

Thirdly, a go-it-alone bilateral programme makes sense only if it also aims to foster trade and institutional linkages. During the 1990s, for example, there was negligible coordination between European donors, who were in more or less open competition to secure deals for their contractors to build water treatment plants in China (which, in mitigation, the country sorely needed). But, if aid is entirely disinterested, there is a much stronger imperative for coordinated approaches that maximise the impacts of individual agencies. Not surprisingly, therefore, 'harmonisation' and 'impact' have become DFID mantras in recent years, and these imperatives are especially strong in China where all donors face the 'drop in a bucket' syndrome-the fact that their financial resources are tiny relative to the size of the country, its economy and its government revenues.

For DFID, both in China and worldwide, an important part of the answer to these issues lay in closer collaboration with agencies in the UN system, and especially the World Bank, on programmes that address the UN Millennium Development Goals. Closer partnership has developed on two levels. Firstly, through increased British contributions to multilateral institutions: 2005 saws a record GBP 1.3 billion contribution to the World Bank's International Development Assistance facility (which provides soft loans for social sector projects), and Britain has also supported numerous other multilateral and public/private sector partnerships. Secondly, through in-country collaboration with the Bank and UN agencies. DFID's evolving China portfolio has presented a prominent example of this.

The rationale for closer partnership with the Bank is that, in accordance with the original vision for that institution, it has a leading role in global poverty reduction efforts, and is a unique repository of international development experience and expertise. Of course there are many people (including, beyond doubt, some in DFID) who do not see the Bank in quite this light. A host of critics complain, with varying degrees of intensity, that the Bank's operations are wedded to macro growth models that are inattentive to local conditions, distributional impacts and the social dimensions of development. But a cogent objection to this is that it provides all the more reason for partnership with the Bank, to influence and improve its practice, with a clear commitment to multilateralism.

The reconstructed China portfolio

As it assessed how to pursue its new mandate in China in the late 90s, DFID embarked on work to support economic and social reform (see table below). Many of the issues involved were fundamental to embedding a market economy in China, and thus of great interest to the development banks and several other donors. However, some of the programme activities-such as a collaboration with the International Finance Corporation to pilot the sale of bankrupt state owned enterprise in Sichuan and Liaoning-were hard to place at the centre of a 'direct' poverty reduction programme. Thus, although encouragement of demand-led approaches has also underpinned work in water sector reform, over the last five years most of DFID's resources in China have been devoted to initiatives in health, education and access to water and sanitation, which are buttressed by UN Millenium Development Goals adopted at the turn of the century. (DFID's own assessment of China's progress towards these goals, as stated in the draft Country Assistance Plan, is reproduced in Table II).

Bilateral initiatives have included an urban community health and poverty programme that has tried to pilot community (as opposed to hospital-based) health services and improve access to services for poor urban residents; a programme to improve access to and quality of basic education programme in Gansu, and an HIV/AIDS prevention and care programme in Sichuan and Yunnan.

Work on HIV/AIDS has certainly coincided with-and quite possibly helped to trigger-a sea-change in the government of China's attitude to the epidemic. With more resources now coming in to the country through the Global Fund to Fight AIDS, Malaria and TB, DFID has provided additional assistance to help the government develop coordinated prevention, care and control models and policies.

In other areas, partnership with the World Bank has provided a mechanism for rolling out new approaches on a substantial scale that involves senior policymakers, and could have significant policy impact.

An early example of this was a 'Health VIII Support' project in which DFID provided funds to aid implementation of a Bank-financed effort to improve the reach and quality of public health services in western provinces. DFID's contribution made extra technical assistance possible, especially in a number of pilot counties that received intensive care both in training and in piloting management reforms.

Since then, DFID has partnered with the Bank by 'blending' grant aid with three, substantial loan projects, to support Tuberculosis control, basic education, and poverty reduction.

The blending arrangement essentially consists in DFID paying interest on commercial loans, on behalf of the government of China, in order to reduce the effective interest rate to 2%. This has allowed the World Bank to continue lending to China for social sector projects even though in 1997 the country passed the Bank's eligibility threshold for the soft, IDA loans that are generally used to support social investments in the poorest countries. The Bank was still able to offer China commercial loans but the government has always proved unwilling to borrow at commercial rates of interest for projects that do not bring a financial return, and this appeared to rule out further Bank financing for social sector projects in China. The blending of DFID funds, however, softens commercial loans to the extent that China is willing to undertake them.

Blending has thus allowed China to continue borrowing for social investments across China's poorest and least developed regions, while giving DFID a role in project design and monitoring, contributing lessons learned from its own bilateral projects. DFID also gains the opportunity to engage with 'upstream' Chinese policy makers in departments such as the Ministry of Finance and National Development Reform and Commission, which some bilateral donors find it hard to reach. This positions DFID, as the draft Country Assistance Strategy states with a slightly condescending note, "to help decision makers understand more clearly who the poor are and the nature of their poverty."

Points of contention

But should UK taxpayers be subsidising bank loans for a country that has huge foreign exchange reserves and a growing international aid programme of its own?

The great majority of DFID's resources are spent in poorer countries, with a 10% ceiling on aid to middle-income countries. (Iraq and Indonesia are among the competitors for that 10% share, and spending on reconstruction in Iraq did indeed curtail plans for larger investments in China.) The rationale for continued engagement with China is that DFID assistance can encourage the government to allocate more of its own, substantial resources to 'pro-poor' investments and policies that will benefit many millions of poor people.

Joining forces with the World Bank is certainly an intelligible tactic for achieving that 'leverage,' for the Bank has a track record of work on health, education and poverty reduction in China that is unparalleled at least in terms of scale. Moreover, the most radical critiques of the Bank, which portray it and the International Monetary Fund as instruments of neoliberalism and US-led globalisation, have little purchase in China. Even the most implacable critic could not seriously ague that the Bank is able to dictate to the Chinese government, which has always been firmly in the driving seat of its 'reform and opening' programme. China shows few apparent qualms about integrating into the global economy, freely deploying its comparative advantage in sweated labour. Bank environmental, social and gender assessments for infrastructure projects are, however imperfect, certainly higher than the Chinese government's own standards. And in the social and environmental sectors the Bank has quite consistently argued not only for market-based and demand-driven approaches, but also for more-and more equitable-government support for public services and 'safety-nets.'

Yet the success of the blended projects is likely to depend not on whether the Bank is inherently villainous or heroic, but on whether the projects can resolve the perennial questions of scale that beset international development efforts in China. Money, combined with common sense, patience, and a smattering of 'participatory tools,' can produce good results from projects in a few poor townships, but it is hard to multiply those impacts without also scaling up their costs. For inattention to the needs of the poor is often not a failure of vision only on the part of senior policy makers, but also diffused throughout the agencies over which they preside; and changing the institutional culture and habits of huge, government systems that employ hundreds of thousands of staff is a momentous task. Large, internationally financed projects can attract high levels of political support, especially if linked to national programmes and priorities (as DFID's indeed are), but their scale also makes it much harder to guarantee quality of implementation at local level.

Chinese central decision makers themselves find it hard to push policy down through the multiple branches and tiers of government. Recent, pertinent examples include patchy implementation of centrally mandated 'participatory village planning processes', and experiments in cooperative medical financing (some of them overseen by the Health VIII project) that the State Development Research Council recently reported to have been largely unsuccessful. With many of the Bank's earlier investments in health and poverty reduction not yet finally evaluated,it remains too early to say whether the DFID partnerships with the Bank are likely to achieve the desired impact.

Nevertheless, in its quest for impact DFID now tends to eschew NGO programmes as being derisory on so large a canvas as China. (Continued support for Save the Children's work in Tibet is exceptional, and likely owes something to British government recognition of its electorate's attachment to Tibet.) Worldwide, although funding windows for British NGOs remain open, DFID has taken up the 'poverty' refrain with relatively little reference to the community of development NGOs for whom it was always a signature tune. On the other hand, many of the new DFID programmes are delivered through private sector contractors (some of whom have had to develop new skills to complement the engineering expertise that was their mainstay of old). The trend appears to be towards a relationship between government and development NGOs that is closer to the US model, with the NGOs bidding as implementing contractors for government projects, rather than defining and pursuing their own priorities. To at least some in the British NGO community, this seems like a retrograde step.

Full circle to the future

Given China's global rise and DFID's emphasis on harmonisation, there is a seamless logic to the agency's longer term vision for its role in China as both "capturing the lessons from China's development experience for the benefit of other developing countries," and serving as a facilitator for bilateral, interdepartmental exchange. A small project on climate change in Ningxia, facilitated by DFID and involving the British Department for the Environment and Rural Affairs, may be a sign of things to come.

The USA also offers a precedent in this respect. USAID never established a substantial programme in China (as this would require a Congressional mandate, which would likely prove controversial); but the United States and China have dozens of bilateral linkages involving government departments ranging from the US National Coastguard to the Department of Agriculture.

To some extent, however, a move in this direction would imply re-tuning the remaining aid programme to service the bilateral relationship once again-albeit in a context where hugely expanded global trade, and the cross-boundary migration of people, pollution and disease, together force a redefinition of national interest, and thus closer cooperation in global institutions and for a.

It is to be hoped, nonetheless, that the future allows for transfer of some native British skills, and not just in traffic management. For example, owing to fear of invasion by Napoleonic France, Britain mapped its coastline and countryside with a national 'Ordnance Survey' of unrivalled clarity and accuracy, and the cartographical habit was further refined by generations of colonial explorers and administrators. We look forward to the day when this expertise is transferred to a China that is so busy ripping up and recreating itself that no-one quite knows where they are.

Report by Nick Young with Matt Perrement