China & Japan Increase Aid to Asia as U.S. Pulls Back

China and Japan are becoming increasingly important foreign aid donors to Southeast Asia as the United States, European Union and United Kingdom have all made cutbacks in aid to the region. Analysts at the Lowy Institute say that the aid cuts will deepen the development divide, with poorer countries and the social sectors of health, education and civil society most affected. Official Development Finance (ODF) includes traditional aid, such as grants and concessional loans (ODA), as well as other official flows (OOF) from foreign governments and multilateral bodies.

In 2024, France, Germany, the Netherlands, Sweden, Finland, Austria, Italy and the EU announced $17.2 billion in foreign aid cuts to be carried out between 2025 and 2029. The U.S. has cut an even higher $60 billion in ODA, beginning in early 2025. Meanwhile, the UK announced ODA cuts of $7.6 billion, due to redirected government spending towards defense.

According to the Lowy Institute, Beijing has continued to show interest in taking on big projects in the region, with a fourfold increase in Chinese infrastructure project commitments in 2023 - rising from $2.5 billion in 2022 to almost $10 billion by the end of the following year. Analysts say that Western alternative infrastructure offerings have “failed to materialise in recent years” and that as the pool for development financing options shrinks, receiving countries will have less space for negotiating.

China’s development financing looks different in different countries. Where poorer economies such as Cambodia, Laos and Myanmar have limited access to alternative financing and remain reliant on China, richer Southeast Asian countries such as Indonesia, Malaysia and Thailand are accepting finance based more on their own priorities.

In 2022, the U.S., UK and EU accounted for 31 percent of ODF to Southeast Asia, compared to 30 percent from Japan and 24 percent in China. By 2025, analysts estimate that 16 percent of ODF will come from the U.S., UK and EU, compared to 31 percent from Japan and 37 percent from China.