China's Billion-Dollar Aid Appetite

Why is Beijing winning health grants at the expense of African countries?

Back in 2001, I was the lead U.S. negotiator in international talks meant to transform the way that poor countries fight some of the world's most pernicious diseases -- HIV/AIDS, tuberculosis, and malaria. Our vision looked like this: Instead of each country spending on its own, rich countries would pool donations into one coordinated fund that would give grants to help resource-strapped countries purchase medicines, build health programs, and prevent the diseases from spreading. We imagined the bulk of the money ending up in places like Lesotho, Haiti, and Uganda, where these three diseases have reached crisis levels. So it might surprise and concern you -- as much as it still does me -- to learn that one of the top grant recipients isn't in sub-Saharan Africa, Latin America, or impoverished Central Asia. It's a country with $2.5 trillion in foreign currency reserves: China.

Over the eight years since the Global Fund to Fight AIDS, Tuberculosis and Malaria first launched, China has applied for and been awarded nearly $1 billion in grants, becoming the fourth-largest recipient of funds behind Ethiopia, India, and Tanzania. Already, the country has drawn nearly $500 million from this credit line and soon expects to receive $165 million in new grants. China's aggregate award from the fund is nearly three times larger than that of South Africa, one of the most affected countries from these three diseases. Moreover, China has won malaria grant money totaling $149 million (and $89 million more might be on the way) -- in a country where only 38 deaths from the mosquito-borne illness were reported last year. That is more than the $122 million awarded to the Democratic Republic of the Congo, which reported nearly 25,000 malaria deaths during the same period. In fact, only seven sub-Saharan African countries receive more malaria aid than China -- and 29 countries in Africa get less. Combined, those 29 countries report 64,000 deaths from the disease each year.

China has aggressively pursued Global Fund grants and has continued to win significant amounts with every passing year. Beijing does make a nominal contribution to the fund of $2 million annually, meaning that it has donated $16 million over the last eight years. By comparison, the United States, the leading donor, has committed $5.5 billion, and France has offered $2.5 billion over the same period. These contributing countries expect no financial return for their gift, but China has recouped its spending by 60 times.

Even more alarming, China's persistent appetite threatens to undermine the entire premise behind the Global Fund. The organization's leadership is trying to solicit between $13 billion and $20 billion to cover its next three years of operations -- a tall order at a time of global recession. Donors will grow even more reluctant if they realize that substantial funds are being awarded to a country that can more than pay for its own health programs.

How did China ever become eligible for grants in the first place? In short, because of a loophole. The Global Fund decides eligibility for grants based on the World Bank's classification system, which divides countries by income. High-income countries such as the United States, the European industrial countries, and Japan are ineligible. Low-income countries, including many in sub-Saharan Africa, are grant-eligible. In between, so-called lower-middle-income countries like China are eligible if the grants are part of a cost-sharing program through which the fund pays up to 65 percent and the country pays the rest. (China stays in this lower-middle-income category because its huge population keeps per capita figures down.) The country competes with the likes of Bolivia, Cameroon, and India in this category. But because the fund's pot of money isn't allocated by income group, any grants that China wins reduce the remaining money available for all eligible countries.

For a country like Cameroon, cost-sharing grants make a lot of sense. By giving part of the full amount, the fund can spur the host government into investing more of its discretionary budget in health. The extra cash can build health infrastructure and capacity, preparing the country to wean itself from foreign funds. But in China's case, the argument for a Global Fund grant is tenuous at best. During the depths of the world economic crisis in 2008, China put forth a massive economic stimulus package of $586 billion that included new health and education spending of $27 billion. The government announced its intention to boost rural health coverage with $125 billion in spending over the next several years. Even a fraction of that promised amount would negate any need by China to draw upon the Global Fund.

This is not to say, of course, that China's health system does not face formidable challenges. Indeed, global health policymakers worry that HIV/AIDS and tuberculosis in particular could rise dramatically as the country urbanizes and industrializes and a new middle class veers away from traditional social mores. Everyone remembers the SARS outbreak in 2002 and 2003 that practically shut down major cities in China. And beyond specific threats, the Chinese Center for Disease Control and Prevention, the chief implementer of the Global Fund portfolio and officiator of the government's public health strategy, has hard work ahead to build up China's health workforce and medical infrastructure.

But China might want these grants for reasons having more to do with politics than public health. The Health Ministry is the only member of China's policymaking State Council not led by a political party member. As such, its ability to compete for domestic funds pales in comparison with other assertive, powerful ministries led by longstanding party leaders. So the Health Ministry might be driven to external funding by political necessity. Or, China might value obtaining the technical assistance of international health agencies such as the World Health Organization, UNAIDS, and the U.S. Centers for Disease Control and Prevention; Global Fund grants provide a means of securing their advice and services. China's participation on the fund's board might also be useful to Beijing's global politics, confirming its importance on the world stage.

Whatever benefits China gains from seeking grants, however, stack up poorly against expensive opportunity costs exacted upon needier countries. The $1 billion awarded to China could have been used by the poorest countries to distribute 67 million anti-malarial bed nets, 4.5 million curative tuberculosis treatments, or nearly 2 million courses of anti-retroviral therapy for AIDS patients (a number equivalent to all those living with the disease in Kenya).

It is intriguing that health ministers from the poorest countries have expressed neither concern nor opposition to China winning grants. Nor has there been any substantial public challenge to or debate about the money China has received from the Global Fund. Part of the reason might be structural; the fund's large 26-member board (which includes representatives of countries, regions, organizations, and the Global Fund itself) operates based on consensus, and its meetings are time-constrained forums that pressure members to make rapid decisions. Changing eligibility policy, for example to exclude China, would entail time-intensive negotiations that may well pit groups of grantees against one another. The board also approves grants en bloc, relying upon the advice of technical experts who review them for feasibility and public health impact, not fairness, balance, or a country's ability to pay.

Even so, there is likely more behind the silence than just procedure. For many of the poorer countries that lose out, opposing China in international forums would risk incurring Beijing's diplomatic wrath. Health ministers are skittish to imperil their country's broader interactions with China, which in the case of African countries, often entails Chinese loans, grants, infrastructure projects, and investment -- and indeed, even further, health aid. In turn, African countries seeking access to the burgeoning Chinese market must curry Beijing's favor. Any country that openly opposes China at the Global Fund might see these economic links broken or be put at a disadvantage to competitors. And so the neediest countries endure a loss of grant money to China through their collective silence.

Donor governments have also been mute or reluctant to oppose China at the Global Fund, perhaps for similar reasons of not wishing to provoke a reaction that impacts other diplomatic or political equities elsewhere. In the United States, neither Congress nor the White House has voiced open concern that an amount equivalent to President Barack Obama's entire fiscal 2011 Global Fund budget request of $1 billion has gone to a country that can afford to pay its own way.

This has left the fund's leadership as the only front left for trying to change China's stance. Based on China's national income and the rate of other donor contributions, the Global Fund recommends that China should give $96 million over the next three years, amounting to 16 times its current annual donation. In 2007, prior to China's hosting of a board meeting in Kunming, the fund asked China's government to up its donor commitment, but the appeal went nowhere. In June, with fundraising pressures escalating, the fund's executive director, Michel Kazatchkine, met in Beijing with Chinese Vice Premier Li Keqiang, who issued a vague promise to cooperate with international organizations to expand disease prevention and treatment, but made no announcement to refrain from taking new grants or signaled any intent to become a major donor.

Not even a rival country's actions seem to have convinced Beijing. In recent years, nearby Russia has transformed itself from recipient to donor, and it has done so under arguably less favorable economic conditions than those in China today. In 2006, then President Vladimir Putin pledged to repay the Global Fund $270 million over four years, covering the past assistance it received, and announced $156 million in new domestic spending for HIV treatment. Now four years out, Russia has paid in $250 million to the Global Fund, essentially fulfilling Putin's pledge.

It is audacious for China to assert that it needs international health assistance on par with the world's poorest countries. In fact, at the same time it is drawing from the Global Fund, China is building its entire global image as one of economic growth, accumulating wealth and international stature. To boost its public profile and prestige, China spent billions to host the Beijing Olympics and the Shanghai World Expo. Surely it could spend another $1 billion of its cash on health as well. And why not take it one step further? By becoming a Global Fund donor, China could win acclaim with the West and the world's poorest -- earning exactly the kind of respect that a rising power deserves.

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Ahmadinejad the Weak

The protests in the Tehran bazaar during the past few weeks weren't tied to the Green Movement. Even so, they are bad news for the regime.

Casual Iran-watchers were captivated last week by the intrigue around erstwhile nuclear spy Shahram Amiri and his successful homecoming. But the Islamic Republic was likely keeping closer tabs on the Tehran bazaar -- where shopkeepers and traders were on strike for more than seven days -- than on Washington's Iranian interest section, where Amiri awaited departure. The bazaar protests had little to do with the nuclear impasse or the Green Movement, but they are a sign of popular economic discontent and a likely harbinger of further turmoil to come.

Iran's traditional covered marketplaces earn their reputation as objects of historic and architectural interest, but they aren't just tourist destinations. They are still-active trading posts where small peddlers hawk their wares, and some of the country's most wealthy import-exporters and wholesalers conduct their business. The immense, covered complex in downtown Tehran, for example, is home to tens of thousands of would-be entrepreneurs. The bazaars are not quite as central to Iranian life as they used to be -- in the past 30 years, many of the most prominent bazaaris have either moved their headquarters to new business centers in Tehran and Dubai, while the Islamic Republic has carved out a privileged position in international and domestic markets for government foundations -- but they are still at the heart of the national economy. The bazaaris are an interest group keenly aware of the leverage they wield, and unafraid to use it.

Last week's protests were spurred by the national government's attempt to increase the merchants' annual income tax by 70 percent. Even though the government quickly adopted a conciliatory tone, the strikes persisted. The announcement last Monday that the government and the Guild Council, the bazaar's official representatives, had negotiated a modest 15 percent tax increase made no difference: The shops remained shuttered, leading to clashes between bazaaris and government security forces. It was only this past weekend that traders agreed to again open their businesses.

The government is right to be concerned. The Iranian capital's marketplace has proven among the most reliable catalysts of political upheaval in the country's long history. Bazaaris have used similar methods of resistance to channel opposition to rulers and show support for larger political movements.  Bazaari dissent was instrumental to the successes of Iran's constitutional movement of 1905, the nationalization of the oil industry in the 1950s, and the overthrow of the monarchy in 1979.

With those historic resonances, it's no surprise that the Green Movement and its sympathizers have paid such keen attention to the marketplace rebellion. And the merchants' implicit message of "no taxation without representation" fits broadly with the Greens' liberal defense of civil rights. But expanding the already unwieldy and battered Green Movement tent to include the bazaaris may be a case of wishful thinking. There is little evidence that the bazaaris' actions of the past week were anything more than a defense of their economic interests and profits. A revolutionary coalition is probably not in the making.

But even if the bazaar protests weren't part of a larger political front, they do reflect deep tensions in Iran's political economy that can't and shouldn't be ignored. Negotiations between the guilds and the government over taxes are nothing new, but these debates rarely spill over into the alleyways of the bazaar or lead to physical confrontations with security forces. The fact that in 2010 they have is a symptom of the perilous state of Iran's broader economy and polity.

The macroeconomic data on Iran is not encouraging. Though the government has proudly touted that inflation has gone down to single digits, this is probably a product of economic recession and the cooling of the housing market rather than a sign of fiscal health and economic stability. The economic sanctions passed by the United States and Europe will also soon take their toll. Ordinary Iranians will probably pay higher prices at the cash register, but the sanctions will have implications for the commercial networks that import, export, and distribute consumer and other goods. Sanctions will bolster the position of shadowy transnational networks and middlemen, as well as the role of politically powerful actors, such as members of the Islamic Revolutionary Guard Corp, who are best equipped to skirt these regulations. Iranians are also bracing themselves for the impending radical reform of the subsidy system, which will replace broad price controls on basic goods with cash payments.

The combination of high unemployment, political turmoil, and continued threats of a military attack will soon lead to a drop in consumer spending and a cut in bazaari profits. Already, there's reportedly been an epidemic in Iran of bounced checks. The bazaaris' stance during this year's tax negotiations was no doubt informed by the ominous economic horizon.

More generally, the clash between bazaaris and government agencies also reflects the public's deep and longstanding lack of trust in state institutions -- a situation that predated, though was no doubt exacerbated by, the disputed 2009 election and its aftermath. Two years ago, when the bazaars of Tehran, Isfahan, Tabriz and other cities banded together for a similar protest, the issue was a proposed Value Added Tax that would have required businesses to open up their accounting ledgers to government tax collectors. The bazaaris refused, largely out of fear of what else the government might do with the information. According to recent reports in Iranian newspapers, this year's protests were also motivated by the state auditor's insistence on having more control over bazaar receipts.

The new strikes and the government's reaction underscore just how badly the government's authority has eroded and how dependent it is on coercion when seeking the public's compliance. What Iran's recent protests have in common is their challenge to the regime's sincerity. In the summer and fall of 2009, the government's intent to conduct a fair election was at issue; this summer, the bazaaris were questioning the government's good faith in establishing a basic quid pro quo of taxation in return for public goods and social services. The bazaaris' hesitancy to accept the settlement between the government and the Guild Council suggests that many traders do not identify with their own state-recognized "representatives"; perhaps their recognition by the state is enough already to discredit them.

Finally, the inability of the government to extract taxes from the bazaaris is a symptom and symbol of President Mahmoud Ahmadinejad's own lack of authority among the greater public. It is yet another example of the president having to backtrack from an openly stated policy to increase the government's tax receipts. Ahmadinejad wanted revenue to establish a more efficient bureaucracy that, among other things, can better manage the economy. But Iranians who don't feel bound to their hard-line president by a social contract have refused to back his reforms of the state.

Forced to compromise on the tax rate, the president has projected personal weakness, which may inspire future protests. Indeed, however demonized he is by the West, at home Ahmadinejad is seen as eminently vulnerable. Over the last year his government has faced open challenges from all sides: from ordinary citizens who have marched in street rallies, and conservative parliamentarians and newspaper pundits who openly rebuke his policies and question his commitment to the constitution. Meanwhile, workers have engaged in isolated, but regular protests against work conditions and lack of pay, and industrialists last week complained that their factories have not been receiving enough electricity.

The bazaar protests did not exhibit coordination with major civil organizations, nor did they rely on the kind of solidarity across socioeconomic groups that could truly threaten the regime. Yet, in a situation as politically fluid and economically brittle as Iran's, minor events can embolden groups and undermine the most confident of rulers. These latest bazaari protests have not yet earned their place alongside the major Iranian protests of the 20th century, but they are pregnant with potential. Indeed, Tehran's jewelers, textile sellers, and carpet merchants may ultimately have more to say in determining Iran's future than the country's nuclear scientists.

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