News Analysis
On Belt and Road projects, “China offers substantial financing, usually as loans, but Beijing is not a member of the Paris Club and has never supported globally recognized transparent lending practices,” said Ambassador Alice Wells, principal deputy assistant secretary of state for South and Central Asian Affairs.
A lack of transparency in the Belt and Road Initiative (BRI) funding leaves citizens not knowing how much money their government has committed them to repaying or under what terms. Additionally, a stream of “free money” from the Chinese Communist Party (CCP) supports corruption and degrades democracy, as autocrats make themselves rich to ensure they remain in power.
In 2013, when Chinese leader Xi Jinping first inaugurated the BRI, he used slogans like “a rising tide lifts all ships.” And the world seemed to believe him. Now, eight years later, the BRI has become synonymous with wasteful spending, environmental devastation, crippling debt, and a global power-grab by the CCP. Projects along the BRI have suffered lengthy delays, cancellations, financial untenability, protests, and physical attacks.
The Kiel Institute estimates that China is now the world’s largest lender, with $5 trillion in loans across the globe. Beijing does not, however, publish the details of its lending—not even the amounts. As a result of this lack of transparency, ratings agencies, the Paris Club, and the International Monetary Fund (IMF) are unable to monitor China’s lending.
Unlike traditional global lenders who consider a country’s ability to repay, China is loaning large sums of money to the world’s poorest nations. Sixty percent of BRI countries have an international credit rating of junk or no rating at all.
In addition to increasing the debt burden of these countries, the CCP is exporting corruption, non-transparency, and waste. Beijing’s official stance of non-interference in the sovereign affairs of other countries means that it requires no follow-up on the investments it makes in BRI countries. Pumping in billions of dollars—with no questions asked—is exacerbating the corruption, which was already keeping these countries poor.
Local politicians often approve unneeded mega infrastructure projects, with no sound economic basis, in order to justify the flow of billions of dollars. Chinese companies pay kickbacks to local politicians to be awarded the construction contracts. The companies then have incentive to inflate the costs, to increase their own profits, and to hide money that was lost to corruption.
Malaysian Prime Minister Najib Razak was accused in a BRI corruption scandal, when it was discovered that $7.5 billion had disappeared. Chinese companies helped cover up for the missing money by inflating the costs of infrastructure projects. In return, Razak awarded them with large stakes in national railway and pipeline projects, as well as permission for the Chinese Navy to utilize some of Malaysia’s ports.
Former Malaysian Prime Minister Najib Razak arrives in court in Kuala Lumpur, Malaysia, on July 4, 2018. Lai Seng Sin/Reuters
The government of Bangladesh shut down a highway project when it was discovered that China Harbor Engineering Company, a subsidiary of state-owned China Communications Construction Company (CCCC), had paid bribes to politicians. BRI funds were even diverted to the failed reelection campaign of former President Mahinda Rajapaksa.
Bribes are commonplace along the BRI. A 2017 McKinsey survey discovered that 60 percent to 80 percent of Chinese companies in Africa paid bribes. According to a group of local lawyers and journalists, Chinese firms paid $31 million in bribes to Joseph Kabila, former president of the Democratic Republic of the Congo.
Over the past 13 years, Chinese telecom firms Huawei and ZTE have been accused of corruption in at least 15 nations across Africa. In 2017, Patrick Ho, a representative of the state-backed CEFC China Energy Company, was arrested by U.S. officials for having paid bribes to politicians in Chad and Uganda. The bribes had been paid to benefit state-owned China National Petroleum Corporation.
According to the TRACE Bribery Risk Matrix, many BRI countries are ranked among the most at risk for bribes. Among the countries with the worst records for bribe acceptance are prominent BRI members such as Cambodia, Turkmenistan, Equatorial Guinea, Yemen, South Sudan, Somalia, Venezuela, Laos, among others.
Due to the lack of transparency, according to USAID data, $385 billion of Chinese BRI debt has been concealed from the World Bank and IMF through intentionally opaque lending structures. An arrangement commonly used by local governments in China has apparently been employed in BRI lending. Private shell companies, called special purpose vehicles (SPVs), are established. The money is then loaned to the SPV, rather than to the government. This way, the loans remain off of the government’s balance sheets.
Off-balance sheet and hidden lending, through SPVs, make it very difficult to assess the economic costs and benefits of the BRI and the China-Pakistan Economic Corridor (CPEC). China’s loans to Pakistan have an average interest rate of 3.76 percent and a maturity of 13.2 years. The average loan from an OECD-DAC country—like Germany, France or Japan—by contrast only charges 1.1 percent interest and has a maturity of 28 years. Now Pakistan is struggling to bear the burden of its CPEC debt. The country needs to cover $9.1 billion of Chinese government and commercial banks loans, as well as safe deposits of $3 billion from China.
For BRI borrowing countries, Ambassador Wells warned that “Failure to repay those huge loans raises roadblocks to further development and leads to a surrender of strategic assets and it diminishes sovereignty.”
An implication for the United States is that the BRI “free money” and kickbacks make it nearly impossible for U.S. companies to win contracts in BRI countries. In fact, 89 percent of contracts awarded in BRI projects go to Chinese companies. The United States could potentially have benefitted from an overall increase in global GDP that Xi Jinping promised would result from the BRI.
But analysts are now saying that as the most indebted countries fall into a financial crisis, the reduction of economic growth will be felt across the globe. And, of course, this would result in countries increasing their dependency on China, undermining U.S. political interests.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
