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ideas || Choosing Foreign Aid: Emerging Markets and the U.S. – China Battle for Strategic Global Influence

There seems to be two global economic systems emerging with different institutions and goals, one led by the United States, one by China. Which system do you think will be more attractive to emerging and developing markets, and why?

I just finished a course this semester called Business Government and the Global Economy. It was a discussion-based course, where each week we covered a new Harvard Business School case. Here were the case titles:

  • Brexit
  • Russia: A Drama in Three Acts
  • Singapore: “Facing Challenges Together”
  • The U.S. Shale Revolution: Global Rebalancing?
  • Europe, Russia, and the Age of Gas Revolution
  • Can the Eurozone Survive?
  • Goodbye IMF Conditions, Hello Chinese Capital: Zambia’s Copper Industry and Africa’s Break with Its Colonial Past
  • Stalemate at the WTO: TRIPS, Agricultural Subsidies, and the Doha Round
  • Evolving Trends in Global Trade
  • The TTIP: Bridging the Transatlantic Economy
  • Huawei and the U.S.-China Trade War

We’d read it before class each week, and then have a 1.5 hour synchronous virtual session (in 2020 Zoom University fashion). The first half of the session was devoted to discussing three questions in comfortable, 4-person breakout groups, and then we’d together in the main room to have a larger group discussion led by the Prof. It was a very interesting course, and really encouraged me to learn more about current events. It also fit in really well with a book I was reading through January and February, “All the President’s Men” by Carl Bernstein and Bob Woodward (about Watergate), and my Business Law 1 course from the same semester.

I really like discussion courses, because they’re exactly the type of environment I always idealized university to be. Especially so in third year, at which point the people you find yourself discussing things with are genuinely interested in the course and chose it from among a list of far “easier” courses. Lots of the discussions were genuinely thought-provoking, albeit a bit challenging given they were virtual.

But as much as I’d like to romanticize the British concept of “reading” in university, the truth is that the course grading scheme generally dictates how you spend your time during the most demanding periods of the semester.

Source: Collins Dictionary

In my case, the class effectively became a “China” course. My three marks: team debate presentation, case assignment, and final term paper all ended up being about China’s rise in some form or another. I’m not mad about it! It’s incredibly interesting, and touches on a lot of things happening in the realm of politics, economics, social unrest/sentiments, and finance. It also is a continuation, of sorts, of my final term paper from my Emergence of the Modern Industrial Economy course from second year. It was titled “The Transition from Amsterdam to London as Financial Centers of the World” and you can read it on the blog, too!

So for this course’s final term paper (worth 30% of our final mark), we could choose from a range of topics generally related to the case topics of the course. Since I’d already done a lot of research on China, I chose to write on the prompt below. The task was to provide an analysis of the fundamental problem, context on the issue, clear arguments to support a position, and a summation of conclusions and implications.

There seems to be two global economic systems emerging with different institutions and goals, one led by the United States, one by China. Which system do you think will be more attractive to emerging and developing markets, and why?

A Present-Day Snapshot of Foreign Policy and Emerging Markets

The United States’ current claim to hegemony traces back to its post-war leadership and foreign policy strategy throughout the 20th century. After World War 2, the United States pioneered the fruits of an important lesson from the first half of the century: it isn’t enough to win a conflict and punish the opposition. Ensuring peace for succeeding generations requires a long-term strategy: mutual recovery efforts, continued movement towards economic integration, and a strong network of allies with a solid framework for shared values moving forwards. 

The Marshall Plan, passed in 1948, was the cornerstone of the United States’ foreign policy strategy following World War 2. As a percentage of U.S. output, it was equivalent to about $800 billion today. (Steil, 2018) However, it was more than just a huge sum of money to rebuild Western Europe. The money paid for supplies which would be purchased from the U.S., thereby ensuring a fundamental integration of European and U.S. economies. In doing so, it also served a greater political agenda: to keep Western Europe out of the grip of the Soviet Union and away from the temptations of communism during the Cold War. At the time, the CIA warned: “The greatest danger to the security of the United States is the possibility of economic collapse in western Europe and the consequent accession to power of communist elements.” (Steil, 2018)

Sure enough, the 21st century has seen unprecedented economic growth, globalization, and market integration. Key to that growth are emerging markets, which represent more than half of global economic growth today. (Christy, 2020) The MSCI Emerging Markets (EM) Index, launched in 1988, lists countries that are the “biggest forces shaping the global economic and financial market landscape”, a status that is driven by their “ongoing capital market liberalization and improving market accessibility”. (MSCI, n.d.) These countries include: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. They are also a significant consumer market and increasingly skilled workforce. Together, these countries are home to a telling 85 percent – 6 billion – of the world’s population. (Amadeo, 2020)

It isn’t always an uphill trajectory for emerging markets, though. The decade has seen significant setbacks to human rights, environmental, and democratic progress. A case study by Freedom House in 2020 spotlighted some of the setbacks India has faced since 2019, which center around internet censorship, oppression of minority groups, human rights abuses, and a non-democratic suppression of political opposition. [Exhibit A]

Exhibit A

Source: (Repucci, 2020)

Freedom House also found that 2019 was the 14th consecutive year of declines in the global aggregate Freedom in the World Score. (Repucci, 2020) Amid these challenges, the recent COVID-19 pandemic in 2020 thrust the world into a health and economic crisis that has hit emerging markets the hardest.

Butting Heads: Two Emerging Economic Leaders

When it comes to a modern-day aid program to help actualize the ambitious goals of these emerging markets, and fill their void for skill, training, technology, funding, strategic direction, and a responsible development path, two emerging systems of foreign aid are in the bidding for influence: the U.S. and China. 

The decade has seen rapidly escalating tensions between these two emerging superpowers. First, China’s pure technological advantage in advanced manufacturing industries is an inherent threat to the U.S.’ technology leadership and competitiveness. The recent spats, sanctions, and combative rhetoric over the influence and national security threats posed by Chinese telecommunications company Huawei touches on many aspects of the conflict: the Chinese government’s refusal to play by free market rules in mobilizing state resources to ensure the success of national firms,  cultivation of conditions that enable unfair transfers of foreign intellectual property to Chinese firms, and fundamental disagreements over China’s policy of state surveillance codified in their National Intelligence Law. 

Second, the ascension of Xi Jinping to the leadership of the Chinese Communist Party (CCP) in 2012, combined with Donald Trump’s presidency term in the U.S. between 2016 and 2021, represented noticeable pivots for both countries’ political discourse. In China, Xi Jinping brought the reversal of many reforms, effectively “closing up” the economy, cracking down on corruption, silencing political dissidents and activists, and reasserting control over many aspects of Chinese society and economy. The CCP also continues to be aggressively vocal in response to any criticism of its own internal affairs, recently evident in its assertive responses to Western condemnation of human rights abuses of Uyghur minority group in Xinjiang, its claim to Taiwan, and its crackdown on Hong Kong in denial of the One Country Two Systems principle.

Finally, on a micro level, individual attitudes towards China have declined to an all-time low this year. Polling by the Pew Research Center at the height of the COVID-19 pandemic in 220 found that “73% of Americans held an unfavourable view of China”. (Silver et al., 2020)

On the flip side, Trump’s “more assertive, transactional approach to foreign policy”, combined with his internally and externally divisive politics, have thrown the U.S. into one of its most turbulent periods of the decade. (Chatham House, 2020) At a time when the U.S.’ network of allies was most needed, Trump’s protectionist, America-first approach was marked by withdrawals from key partnerships including the Paris Climate Accord and the Trans-Pacific Partnership (TPP). The latter would have created a strategic free-trade zone among 12 countries to help manage Chinese influence, including Japan, the United States, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. During the COVID-19 pandemic, he also neglected to take on the U.S.’ historical health leadership role. As of March 2021, “the U.S. accounts for 27% of the world’s coronavirus vaccine production, but 0% of the global supply beyond its own borders.” (Lawler, 2021) Although the Biden administration has taken the first tentative steps to change this, former U.S. undersecretary of state for political affairs Thomas Shannon highlights the dangers of such a precedent: “The United States, until recently, was the go-to country for any major health disaster […] the world will realize we’re not a reliable partner, and that would be dangerous for us.” (Smith, 2021)

The U.S. has also faced its own share of scrutiny for overlooking human rights abuses, which one article calls a history “of selective embrace of democracy and human rights”. (Chatham House, 2020) Trump’s withdrawal from the UN Human Rights Council in 2018, and recent scandals surrounding issues like the Iraq war, Guantanamo Bay and Edward Snowden, have taken their toll on the U.S.’ global reputation.

As a result, governments of emerging markets face difficult, and often mutually exclusive options that are few and far between. Chinese and U.S. support each promises its own unique advantages and disadvantages, but rising tensions mean that choosing one will alienate the other. Much like the Marshall Plan, each country is in a neighborly bid to actualize its own political agenda, grow its sphere of influence, and establish its values abroad. But for emerging markets with their own host of pressing power struggles, temptations are high to overlook long-term consequences or underlying motivations in favour of the most convenient choice.

China: Belt and Road

China is itself an emerging market. The conclusion of a ‘century of national humiliation’ between 1839 and 1949 marked the start of the Era of Mao, the establishment of the People’s Republic of China, and the rule of the Chinese Communist Party (CCP). Since then, it has gradually emerged as a force to be reckoned with. Mao’s harsh rule was characterized by a socialist revolution in China’s agricultural, pre-industrial society. He was followed by Deng Xiaoping, who elevated China’s international status through reforms such as the Open Door Policy and Four Modernizations Program. Over the past three decades, China saw incredible economic development and lifted more than 600 million people out of poverty [Exhibit B]. (Lagarde, 2016)

Exhibit B

Source: (Diallo, 2019)

With a population of 1.4 billion, the sheer size of China’s market isn’t its only strength. Household savings rates in China were 36.1% in 2016, compared to Canada’s 1.7% and the U.S.’ 7.0% – albeit driven in part by the absence of a social safety net and consumer debt options. (Ventura, 2021) Its people are also incredibly ambitious, driven, and entrepreneurial. In 2016, entrepreneurship and innovation was bookmarked as the leading agenda of China’s national economic strategy. (Tse, 2016)

China undoubtedly has a lot of knowledge to share with emerging markets from its own successes. Announced in 2013, current ‘Core Leader’ Xi Jinping’s foreign policy goal is rooted in China’s expansive One Belt One Road (OBOR) initiative made up of an overland Silk Road Economic Belt and a Maritime Silk Road. It has since been expanded in scope and renamed the Belt and Road Initiative. In 2014, the Asian Infrastructure Investment Bank (AIIB) was established to finance regional and multilateral infrastructure development. As of 2020, “more than sixty countries—accounting for two-thirds of the world’s population—have signed on to [Belt and Road] projects or indicated an interest in doing so.” (Chatzky & McBride, 2020)

The actual size and scope of the Belt and Road initiative is difficult to assess. Today, it consists of Digital Silk Road and Health Silk Road projects intended to fulfill a world infrastructure financing gap that is “projected to reach nearly $15 trillion by 2040”. (Council on Foreign Relations, n.d.) Moreover, projects and loan terms are not publicly disclosed, leading to very different estimates of the Initiative’s scale; although the official policy statement describes the initiative as “open… harmonious, and inclusive,” claiming that it “advocates tolerance.”

Since its inception, the Belt and Road has been compared on many occasions to the U.S. Marshall Plan. Setting aside the acknowledgement that the scale, scope, and political backdrop varies greatly, the comparison is in equal part praise and criticism. By way of praise, it recognizes the benefits that China’s initiative stands to realize for the world, by fulfilling a need for infrastructure in emerging markets. However, harsh criticism lies in comparing the motivations underpinning both initiatives. China’s ambitions for the Belt and Road can be pieced together from increasingly nationalist sentiment, strong values-driven communist rhetoric under Xi Jinping, and the silk road symbolism promising a return to China’s height of world power. Together, they suggest a geopolitical agenda for dominance that is strikingly similar to the U.S.’ Marshall Plan. In his 2013 speech, Xi Jinping articulated a possible long-term payoff: “The eventual demise of capitalism and the ultimate victory of socialism will require a long historical process to reach completion.” (Greer, 2019) However, China has rejected the comparison to the Marshall Plan. At the opening ceremony of the Belt and Road Forum in 2017, Xi affirmed that China “will not resort to outdated geopolitical maneuvering”. (Yamei, 2017)

Many of the projects financed under the Belt and Road represent huge investments in building roads, railways, power plants, ports, smart cities, telecommunications, and information technology and e-commerce platforms around the world. (Council on Foreign Relations, 2021) For emerging markets, China is an attractive partner. Its state-backed enterprises have significant excess capacity and accumulated savings to export, at low labour prices, cheap inputs, and with burgeoning technological skill. Importantly, Belt and Road financing also promises something that the World Bank and other traditional lenders don’t: lower standards for project approval, oversight of environmental and social impact assessments and corruption, and an absence of governance metrics – all of which have traditionally blocked access to funds for struggling emerging markets. Moreover, many countries “appreciate the speed at which China can move from planning to construction, its willingness to build what host countries want rather than telling them what they should do, and the ease of dealing with a single group of builders, financiers, and government officials.” (Council on Foreign Relations, 2021) Finally, many Chinese companies are more favourable partners out of sheer economic principle. Quality- and price-wise, China’s Huawei is simply the world’s best and largest global telecom provider. In 2020, it held 31% of the world’s telecom equipment market share. (Global Times, 2021) Despite a heavy U.S. campaign against the company, even long-time U.S. allies in Europe remain open-minded about engaging and implementing Huawei solutions in their countries.

For China, the Belt and Road is cited as being a key part of their strategy to improve conditions in China’s impoverished interior, by increasing connectivity with commercial coastal cities. Because of the projects’ commercial-leaning rather than foreign aid structure, they present direct advantages for Chinese companies. According to the Council on Foreign Relations’ report on implications of the Belt and Road, “an examination of the contractors participating in Chinese-funded projects shows that 89 percent are Chinese companies, 7.6 percent are local companies […], and 3.4 percent are foreign companies.” (Council on Foreign Relations, 2021)

However, commercial-oriented financing plans under the Belt and Road are defined by low-interest loans rather than aid grants. Although more convenient, this has massive implications for the refinancing approaches taken later down the line, in low-income countries facing debt distress. In what has become a signature example of this issue, Sri Lanka ceded a critical port to China in 2017 for a 99-year lease for failing to pay its Belt and Road debts. (Schultz, 2017) In Ecuador, a “renegotiation of its debt condition includes exporting 80% of its crude oil to China as repayment.” Many Belt and Road projects come with similar risks of unfavourable default terms, as a result of “funding economically questionable projects in heavily indebted countries”. (Council on Foreign Relations, 2021) Considering that China is “the world’s largest official creditor — surpassing traditional, official lenders such as the World Bank, the IMF, or all OECD creditor governments combined”, concerns abound about its deeply-rooted but sometimes irresponsible world development financing efforts. (Horn et al., 2020)

Lastly, Belt and Road projects often lack responsible long-term direction. In building advanced surveillance infrastructure and smart cities, the Digital Silk Road is “providing capabilities to states that would otherwise struggle to acquire such tools,” without filtering out access for oppressive autocratic governments. (Feldstein, 2020) With demand for surveillance capabilities and smart cities on the rise during the COVID-19 pandemic, China is contributing to accelerating “a fracturing of the global internet, as some countries pursue these policies of internet control while others remain committed to internet freedoms.” (Council on Foreign Relations, n.d.) Furthermore, environmental standards often go overlooked, locking emerging markets into unsustainable carbon futures. According to a Yale analysis, “Chinese companies are involved in at least 240 coal projects in 25 of the Belt and Road countries, including in Bangladesh, Pakistan, Serbia, Kenya, Ghana, Malawi, and Zimbabwe.” (Hilton, 2019)

U.S.: Foreign Aid

In contrast, the U.S. has long taken a leadership role in setting and demonstrating international values, creating standards in foreign aid lending at the helm of the World Bank, and facilitating partnership networks of allied countries. However, Trump’s turbulent presidency, the U.S.’ innovation decline relative to China, and the COVID-19 pandemic have threatened to upturn each of those advantages. First, U.S. foreign aid is characterized by strict stipulations of Western values in recipient countries: human rights, press freedoms, democratic governments, and environmental progress. These conditions have always limited access to funds for emerging markets struggling with political conflict and corruption. However, the U.S. retreat from many multilateral agreements and its approach to the refugee crisis and climate change under Trump have crippled its reputation as a world leader in areas it had traditionally spearheaded. Second, the U.S. has scorned its own lending initiatives in recent years by proposing several foreign aid budget cuts, including in the Trump administration’s debut 2017 budget, and plunging many of its partners into uncertainty. Although Congress rejected the cuts, Larry Nowels, co-chair of the Modernizing Foreign Assistance Network (MFAN) explains that it “would have eliminated the foreign aid programme in 27 countries. I’ve never seen anything like that in my time.” (Rigby et al., 2020) In the face of COVID-19, the U.S. is struggling with an unprecedented period of economic contraction and the highest unemployment rate since the Great Depression, while China’s economy has recovered to pre-pandemic levels. [Exhibit C] Moreover, tensions between the U.S. and its allies have peaked under Trump’s divisive America-first politics.

Exhibit C

Source: (Cheng & Lee, 2021)

For emerging markets, the key strengths of the U.S. lie in these three areas: its dedication to long-term development efforts and values, financial lending strength, and its strong diplomatic network of allies. Partnering with the U.S. on development infrastructure efforts means joining a global ecosystem of Western powers, and integrating with collaborative, transparent, and highly skilled Western markets. Most of all, the U.S. is an option in light of the risks associated with Chinese commercially-driven initiatives. However, the U.S. has significant work to do to regain the world’s trust in its leadership and rebuild its innovative R&D capacity.


In his first White House news conference, newly elected president Joe Biden set the stage for what is to come: “this is a battle between the utility of democracies in the 21st century and autocracies.” (Gaouette, 2021) China has clearly overtaken the U.S. in many key areas, and presents a compelling option for emerging countries’ ambitious infrastructure goals while allowing them to maintain a high degree of autonomy. Exhibit D shows the results of Pew Research Center’s August 2020 poll, in which “a median of 48% of people in 14 countries identified China as the world’s leading economic power, outstripping the US.” (Silver et al., 2020) Moreover, after decades of U.S. foreign aid with little results, countries are looking to China’s recent rise to power as a model of a successful emergent market with a lot to share. 

Exhibit D

Source: (Silver et al., 2020)

The new U.S. administration is faced with a massive undertaking to shift the balance and regain its leadership role amid an unprecedented global crisis. It has many historical advantages in its favour for becoming an increasingly more compelling alternative to China’s Belt and Road Initiative for emerging markets, despite a period of setbacks. However, China has irreversibly transformed the nature of global leadership on values, institutions, and governance, and is picking up steam as an alternative for emerging markets, beyond the traditional models of Western foreign aid, development and investment.

“Even if China does not seek to alter the internal character of other democracies, the sheer fact of its global influence in international and regional institutions has meant that China’s values are increasingly prominent in international affairs.”

(Chatham House, 2020)

Did this get you thinking? Let me know!


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Chatham House. (2020, October 15). US Foreign Policy Priorities. Chatham House.

Chatzky, A., & McBride, J. (2020, January 28). China’s Massive Belt and Road Initiative. Council on Foreign Relations.

Cheng, E., & Lee, Y. N. (2021, January 31). New chart shows China could overtake the U.S. as the world’s largest economy earlier than expected. CNBC.,on%20a%20preliminary%20government%20estimate.&text=That%20puts%20China%27s%20economy%20at,from%20%247

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