My friend was visibly shaken. He had just learned that he had lost one of his clients to Chinese competitors. “It’s amazing,” he told me. “The Chinese have completely priced us out of the market. We can’t compete with what they are able to offer.”

Of course, manufacturing jobs are lost to China every day. But my friend is not in manufacturing. He works at the World Bank.

His story begins in Nigeria. The Nigerian government operates three railways, which are notoriously corrupt and inefficient. They are also falling apart. The World Bank proposed a project based on the common-sense observation that there was no point in loaning the Nigerians money without also tackling the corruption that had crippled the railways. After months of negotiation, the bank and Nigeria’s government agreed on a $5 million project that would allow private companies to come in and help clean up the railways. But, just as the deal was about to be signed, the Chinese government offered Nigeria $9 billion to rebuild the entire rail network—no bids, no conditions, and no need to reform. That was when my friend packed his suitcase and went to the airport.

It is not an isolated case. In recent years, a variety of wealthy, nondemocratic regimes have begun to undermine development policy through their own activist aid programs. Call it rogue aid. It is development assistance that is nondemocratic in origin and nontransparent in practice; its effect is typically to stifle real progress while hurting average citizens.

China has backed such deals throughout Africa; its funding of infrastructure there has boomed from $700 million in 2003 to between $2 and $3 billion for each of the past two years. Indeed, it is a worldwide strategy. In Indonesia, Beijing agreed to expand the country’s...