China pours foreign aid money into political leaders’ provinces | Belt and Road Initiative

A new book reports that China’s funding of overseas projects has disproportionately benefited core political supporters of current presidents or prime ministers in those countries that receive the funds.

During the 20th century, China was mostly known as a recipient of international development finance. Its development program abroad was modest – almost on par with that of Denmark. But over the course of a generation, as Beijing emerged as the world’s second largest economy, its footprint began to extend far beyond its borders—often in the form of infrastructure initiatives like the Belt and Road.

Its use of debt rather than helping to finance high-cost foreign projects has created new opportunities for developing countries for rapid social and economic gain, but it has also created significant risks, such as corruption, “political capture” and conflict.

The authors of the new book, Banking in Beijing, published by Cambridge University Press, found that in those countries receiving Chinese aid, funding for a political leader’s boycott increased by 52% during the years he was in power. But the effect of this political appropriation faded when the leader left office.

They also found that in the run-up to elections, these regions often experienced sharp increases in Chinese government-backed funding.

“There is rot in the system that Beijing built to speed up development projects,” said Dr. Bradley Parks, executive director of the AidData Research Laboratory at the College of William and Mary in Williamsburg, Virginia, and one of the book’s five authors.

Beijing often solicits project proposals and loan requests from incumbent senior politicians rather than technocrats. This often results in green lighting projects that disproportionately benefit the president or prime minister’s primary political supporters.”

In Sri Lanka, for example, during his presidency, from 2005 to 2015, Mahinda Rajapaksa attempted to turn the remote Hambantota region at the southern tip of the island — his birthplace and home to just 12,000 — into a second capital through China. Building a supported infrastructure, including a huge international airport.

But questions soon emerged about the cost-effectiveness of these projects. In a 2007 telegram from the US Embassy in Colombo, Ambassador Robert Blake stated: “An empty port, an empty airport, and a vast empty convention center will not generate the benefits Hambantota needs, and may, if constructed, be considered the folly of the President.”

In 2014, Sri Lanka’s aviation minister told parliament that the airport, which cost $210 million, “only generated $123 in revenue in one month”. When a visiting journalist asked a senior government official about the airport, he said, “When I visited the airport there, I asked the only immigration officer how many passports she had stamped that day. She said, ‘One.'”

But despite these differences, Beijing insisted that its cooperation between China and Sri Lanka is “mutually beneficial and has been warmly welcomed by all sectors of Sri Lanka”. During his visit to the island in 2014, Chinese President Xi Jinping signed 20 bilateral cooperation agreements, including a $1.4 billion Chinese-funded port city in Colombo. She described Sri Lanka as a “fantastic pearl”.

Former Sierra Leone President Ernest Bai Koroma and Chinese President Xi Jinping presided over a signing ceremony in Beijing in 2016. Photo: Greg Baker/EPA

In Sierra Leone, when Ernest Bai Koroma became president in 2007, his district, Bombali, was one of the country’s four most populous but also one of the poorest. His rise to political stardom quickly changed the situation.

Parks and his colleagues found evidence that Koroma and his allies, with the help of Chinese assistance, actively discriminated in favor of their provinces and territories. By the end of Koroma’s second term, the provincial capital, Makeni, was one of the few places with 24-hour electricity.

In his 2012 re-election, Koroma had the average vote share in the country’s other 13 provinces with just 51%, but in Bombali it was 93%.

Dr. Hong Zhang said: “This research finds stronger evidence of ‘original boycott bias’ among Chinese social infrastructure assistance projects – schools, hospitals, stadiums, etc. – but not so in productive projects financed by Chinese loans such as mines or factories. From the Research Initiative Sino-African at Johns Hopkins University in Washington.

“It will be interesting to see, however, whether other bilateral donors such as Japan – who also take a demand-driven approach to their development assistance – disproportionately support projects that benefit key categories of current political leaders.”

It’s not just Chinese companies and banks that have sought to partner with politically connected businesses and entrepreneurs to facilitate overseas investment, said Ben Bland, director of the Asia Pacific program at London-based think tank Chatham House. Many other foreign investors are taking a similar approach.

“These deals often reflect the political economy of partner countries but also expose foreign investors and financiers to violent public and political reactions if and when governments change due to elections, personnel issues or coups,” he said.

Analysts point out that as China’s economic growth begins to slow, Beijing’s generous external financing has inevitably declined. Chinese offshore lending has been declining since 2017, and lending to Africa and Latin America almost came to a halt in 2020 as many debtor countries defaulted or were on the verge of doing so.

And in Asia, Bland said, many developing countries are still trying to complete and integrate major infrastructure investments, such as new railway projects in Laos, Indonesia and Malaysia.

“After a string of big deals in previous years, it’s only natural that there will be a slowdown as countries absorb these projects,” said Ben Bland, director of the Asia Pacific program at think-tank Chatham House in London. .

For China, the emerging risk is how countries mired in financial trouble keep their contractual obligations. Last week, Sri Lanka defaulted on its debt for the first time in its history as it grappled with its worst financial crisis in more than seven decades. China holds approximately 10% of Sri Lanka’s total external debt.

This is a cautionary tale for Beijing. “China now needs to decide what to do with countries that cannot repay loans in time,” Zhang said. “This is a very uncertain time for banks, Chinese companies and borrowing countries.”

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