Newsletter September 2021

Contents: Blogs: Xi Jinping: “No new coal power abroad” (Guest post by Tom Baxter) / Newsletter August 2021 News: Myanmar: Moving closer to the military regime Readings: Debt debate: Digging into a ‘Black Hole’.                                            

Blog Posts

Xi Jinping: “No new coal power abroad”

Advocates have been doing everything they can for years to stop the construction of new coal power plants. Xi Jinping’s announcement could bring an end to China’s position as the world’s largest and last major public financial backer and builder of coal fired power plants overseas. A guest post by Tom Baxter, Panda Paw Dragon Claw. More

Newsletter August 2021

Contents: Blog post: Risks of labour unrest News: „Greening“ Belt & Road / Beijings human rights offensive Readings: Overseas investments and human rights / Public perceptions of BRI and sustainability. More

News

Moving closer to the military regime in Myanmar

China will transfer over US$6 million to Myanmar’s government to fund projects in agriculture, culture, Tourism and disaster prevention within the Mekong-Lancang Cooperation framework. Unlike Western countries that have condemned the junta that overthrew the elected government on February 1 and ousted and detained elected leader Aung San Suu Kyi, for cutting short democracy and the killing and imprisonment of its opponents, China has taken a softer line and said its priorities are stability and not interfering in its neighbour.

A stronger message that regardless of the military regime, Beijing still pursues its interests in Myanmar is the opening of a transport link by ship, road and rail between Singapore, the port of Yangon and the central Chinese metropolis of Chengdu. This is part of the China-Myanmar Economic Corridor (CMEC) and will eventually shorten the existing freight routes via China’s southwestern provinces of Guangxi and Guangdong by 20 days. It could also be used for the transport of goods from and to Europe and the Middle East. More important than the economic significance of the logistically complex route, whose reliability is also called into question by the escalating domestic political conflict, however, is probably the symbolic gesture that Beijing is sticking to its cooperation with the military government and strengthening the transport routes from its Western provinces to the Indian Ocean through Myanmar.

Source: South China Morning Post, September 5, 2021

Readings

Debt debate: Digging into a ‘Black hole’

China’s development financing, which has received an additional boost through BRI, has been the subject of fierce attacks for years: it would lead countries into a “debt trap”, make them politically vulnerable to blackmail and serve primarily China’s own economic and political goals – attributions that by the way also apply to Western development programmes and funds, even if their legitimating phrases are now more elegant and euphemistic after decades of criticism by civil society organisations and academic discourse. The central question is to what extent excessive indebtedness is caused in the recipient countries.

A current stage for PR is the tug-of-war over debt relief for the poorest countries, which have been hit severly by Corona: a multilateral moratorium within the framework of a G20 initiative, in which Beijing has participated for the first time, is more of a farce than real relief, because it only provides a postponement and, above all, cuts out the more important commercial loans from private lenders.

Beijing’s open flank for attack is the secrecy surrounding the scope and conditions of Chinese development funding. However, according to an earlier AidDatastudy, which evaluates around 100 contracts with 24 countries, “we cannot conclude that they violate international standards.“ Indeed, Western borrowing is not characterized by excessive openness either, imposes at times harsh economic and political conditions, and of course also benefits primarily companies from donor countries (see ‘My borrowers, your borrowers’).

In another recent report, AidData, a database funded by a number of Western funding institutions and foundations, has now renewed criticism of China’s approach. It announces new insight into BRI funding and Chinese development finance worldwide, based on more than 13.000 projects worth $843 billion across 165 countries over an 18-years periode: According to the study:

  • China outspends the US and other larger powers with $85 billion a year on a 2-to1 basis or more, using mostly semi-concessional and non-concessional loans rather than aid. The terms would be “less generous” than loans from OECD-DAC and multilateral creditors. with an average loan from China has a 4.2 percent interest rate, a grace period of less than two years, and a maturity length of less than 10 years.
  • By channeling more funds to state owned companies or private sector institutions instead to governments, most of these debts would not appear on government balance sheets, which makes it easier for governments to retain their creditworthiness. This also includes the subtle accusation that other lenders are thus kept in the dark about the true extent of debt levels and risks.
  • Stronger repayment safeguards indicates, that risks and risk awareness by Chinese banks and institutions have increased. Collateralization – using an asset to secure a loan and to mitigate risks – has become the most common way, especially when the stakes are high: According to the report, 40 of 50 largest loans from Chinese state-owned creditors to overseas borrowers are collateralized.
  • Finally: A third of the BRI infrastructure project portfolio has encountered major implementation problems, such as corruption scandals, labour violations, environmental hazards and public protests. They are taking substantially longer to implement than comparable projects outside of BRI, there are more project suspensions and cancellations. This would have a negative impact on repayment capacities because of lack of income from the projects like f.e. from new railway lines.

As a consequence, the report concludes that Chinese debt burdens are substantially larger than previously understood: 42 countries now have levels of public debt exposure to China in excess of 10 percent of GDP. Additionally the report estimates that the average government is underreporting its actual and potential repayment obligations to China by an amount that is equivalent to 5.8 percent of its GDP.

There are several open questions regarding this report: A fundamental one is the reliability of the data in view of the frequently lamented lack of transparency by the Chinese institutions as well as by recipient governments. Still, Chinese development finance seems to remain a ‘black hole’, even if more and more data become available. Secondly: Analysing Chinese development finance vis a vis Western aid programmes and development funding is like comparing apples with pears: The large proportion of commercial lending by private banks and institutions from Western countries are not adequately taken into account, because they don’t figure fully in the Western definition of development financing. Similarly, Chinese policies of debt reduction differ substantially from Western procedures, nevertheless, they exist and seem to have advantages for the respective countries. By conveniently removing from view the contribution of Western countries to debt, the debate around the issue becomes a political weapon in the “System competition”.

But it also seems to be true: Indebtedness becomes a real issue for many countries and for public concern in those countries. Beijing will need to become more transparent and address the concerns of host countries in order to sustain support for the BRI – more openness, more cooperation and dialog, better implementation of social and environmental standards, less hiding behind the responsibility of the recipient countries for mismanagement or other problems. These learning processes could become even more urgent if the much heralded alternative, the US Build Back Better World initiative, B3W, should actually take off and provide substantial support on favourable terms to China’s and BRI’s current partner countries. Because then they would have a choice.

Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development project. By Ammar A. Malik et al. AidData, September 2021

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