Prospects for Chinese and Mexican South-South co-operation post-COVID-19

By Denghua Zhang, former diplomat and Research Fellow at the Australian National University and Carlos Cortés Zea, Coordinator of the AMEXCID-UNDP Co-operation Programme

This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.

The COVID-19 crisis is having profound impacts on the international political and economic order. It also provides an opportunity for stakeholders to reflect on past practices in each sector and learn from lessons to improve policies in the future. In this case, we examine the purposes, approaches and capacities of emerging providers (or Southern providers as some may call them) through the lens of China and Mexico—two major players in south-south co-operation (SSC).

Emerging providers, similar to traditional donors, provide aid to serve their own national interest. Motivations underpinning emerging providers’ efforts can vary significantly. The Chinese foreign aid programme is driven by a combination of factors including diplomatic competition with Taiwan, access to natural resources in recipient countries, image building as a responsible global power, and generating geopolitical support when its relationship with developed countries is strained. For example, China is currently taking a whole-of-government approach to conduct its COVID-19 diplomacy; an effort to improve its global image and garner support from developing countries in the face of growing pressure from developed countries over China’s handling of the crisis.  

In the case of Mexico, Mexican international development co-operation acts as the executive arm of the country’s foreign policy. It presents itself as an expression of international solidarity with traditional partners (mainly in Central and South America), as well as an instrument to foster domestic interests within international fora and abroad. Mexico’s international development co-operation system was conceived as a five-pillar structure: a legal framework, an agency to manage and coordinate (AMEXCID), a programme setting policy priorities, a platform to quantify flows, monitor and evaluate programmes and projects, and a trust fund used as a financing mechanism. Compared to previous periods, Mexico’s renewed south-south co-operation is conveyed through limited geographical priorities in Guatemala, El Salvador, and Honduras, and a strong thematic focus on migration issues.  

Chinese aid consists of grants, interest-free loans and concessional loans. Introduced in 1994, concessional loans now account for the majority of Chinese aid spending. The rapid growth of these loans has given rise to heated debates on the debt issue in recipient countries. Because the concessional loans are raised by the China Export-Import Bank from the market and need to be repaid, it is more likely that China will extend repayment rather than writing off these loans as they did with some interest-free loans. As a recent example, Chinese President Xi Jinping announced during the China-Africa online summit in June 2020 that China would cancel the interest free loans due to mature by 2020 owed by African countries. In early June, China agreed to suspend the debt repayment from 77 developing countries. Concessional loans related debt will remain an issue in the future. In recent years, China has already started to face growing pressure on the debt issue from both governments and the public in recipient countries. Geographically, Chinese aid mainly targets countries in Africa and Asia.

According to the latest available data, contributions to international organisations accounted for 88% of Mexican international development co-operation flows in 2017, while the rest was allocated to scholarships, technical co-operation, humanitarian aid, and financial co-operation. The distribution of these flows is expected to change following Mexico’s initial efforts to implement the Comprehensive Development Plan throughout 2019. AMEXCID committed to disburse US$90 million to El Salvador, Honduras and Guatemala under its flagship south-south co-operation initiative. Specifically, Mexico is exporting two domestic social programmes – Sembrando Vida & Jóvenes Construyendo el Futuro – to these countries. These two programmes aim to provide unconditional cash transfers to youth and farmers in El Salvador, Honduras and Guatemala, in an attempt to reduce illegal migration in the region. The political will to export these initiatives as south-south co-operation programmes is the result of foreign policy formulated to serve domestic development goals rather than internationally agreed commitments.      

China’s foreign aid programme has expanded significantly since 2000 when China-Africa co-operation took off. This trend, however, could be affected as COVID-19 is slowing down China’s economic growth and placing constraints on the Chinese aid budget. The Belt and Road Initiative could also be impacted. Institutional capacity is a second challenge for China. The involvement of over thirty government agencies in the Chinese aid programme and their vested interest lead to acute internal competition for influence, making aid coordination difficult. There is no sign that the China International Development Co-operation Agency created in April 2018 can easily solve the problem. Two other challenges, aid monitoring and evaluation, could be exacerbated post COVID-19 if China limits its engagement with and learning from traditional donors. Aid transparency will continue to be a challenge. The Chinese government has been cautious in releasing data on its fast-growing foreign aid programme, fearing discontent from its domestic audience.      

The outlook for Mexico’s south-south co-operation is no less challenging. Nearly one decade since its establishment, institutional weaknesses and risks faced by the Mexican international development co-operation system persist. To name a few: the annual quantification of allocated resources to international development co-operation was interrupted in 2019; the programmatic document for the 2019-2024 period has not been published; the modifications of the internal regulation and operational structure of AMEXCID, adopted last year, have yet to be approved; and the national congress is currently discussing an initiative that would dismantle the international development co-operation trust fund. Moreover, domestic austerity policies – prior to the COVID-19 pandemic and reinforced ever since – will certainly reduce AMEXCID’s capacity to implement international development co-operation programmes and projects on the ground. Besides, the economic crisis brought on by coronavirus might monopolise government resources at the expense of a regional plan that aspired to renew Mexican south-south co-operation, finally addressing illegal migration as a foreign policy priority. In short, the Mexican government is required to do more with less, and financing for development will be scarce.

To sum up, the cases of China and Mexico reveal the challenges and uncertainties that the diverse forms of south-south co-operation could face in the post COVID-19 world. In the near future, emerging providers will most likely focus on domestic economic recovery, which will limit their attention and resources available for south-south co-operation. In the medium to long term, south-south co-operation is expected to be back on track and continue to grow. In particular, the heightened strategic tensions between China and the US – unfolding in regions such as the Indo-Pacific and Latin America, and pushing developing countries to choose sides – could discourage China from conducting development co-operation with traditional donors. This could shift the country’s attention back to south-south co-operation, regaining spaces and momentum. However, to reach the full potential of south-south co-operation, more domestic reforms and better coordination among emerging providers and beneficiary countries may be required.