China Channels Overseas Financial Aid to Political Leaders’ Home Provinces | Belt and Road Initiative

China’s funding of overseas projects has disproportionately benefited key political supporters of sitting presidents or prime ministers of countries receiving the funds, according to a new book.

In the 20th century, China was best known as a recipient of international development funding. Its overseas development program was modest – roughly comparable to that of Denmark. But within a generation, as Beijing became the world’s second-largest economy, its footprint began to extend far beyond its borders – often in the form of infrastructure initiatives such as Belt and Road.

Its use of debt rather than aid to finance big projects overseas has created new opportunities for developing countries to make rapid socio-economic gains, but it has also introduced major risks, such as corruption, “political capture” and conflict.

The authors of the new book, Betting on Beijing, published by Cambridge University Press, found that in countries that receive Chinese aid, funding from the political leader’s home province increased by 52% during his years in office. But this effect of political capture faded when the leader left office.

They also found that in the run-up to elections, these areas often saw large increases in Chinese government-backed funding.

“There’s rot in the system that Beijing has created to fast-track development projects,” said Dr. Bradley Parks, executive director of the AidData research lab at William & Mary College in Williamsburg, Va. , and one of the five authors of the book.

“Beijing often seeks project proposals and loan applications from senior politicians rather than technocrats. And this often leads to giving the green light to projects that disproportionately benefit the main political supporters of the president or the president. Prime Minister. ”

In Sri Lanka, for example, during his tenure as president from 2005 to 2015, Mahinda Rajapaksa attempted to transform the remote neighborhood of Hambantota on the southern tip of the island – his birthplace and home to just 12,000 inhabitants – in a second capital through the intermediary of the Chinese. -the construction of sustained infrastructure, including a huge international airport.

But questions quickly arose about the profitability of these projects. In a 2007 cable from the U.S. Embassy in Colombo, Ambassador Robert Blake said, “An empty port, an empty airport, and a vast empty convention center would not generate the benefits Hambantota needs. and could, if built, be considered the President’s folly.

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

But despite these controversies, Beijing has insisted that its Sino-Sri Lankan cooperation is “mutually beneficial and has been warmly welcomed by all sectors in 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. Xi described Sri Lanka as a “splendid pearl”.

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

Parks and his colleagues found evidence to suggest that Koroma and his allies, with the help of Chinese aid, actively discriminated in favor of their home provinces and districts. At the end of Koroma’s second term, the district capital, Makeni, was one of the few places with 24-hour electricity.

During his re-election in 2012, in the other 13 districts of the country, Koroma obtained an average vote share of only 51%, but in Bombali it was 93%.

“This research finds stronger evidence of such a ‘province of origin bias’ in Chinese aid projects for social infrastructure – schools, hospitals, stadiums, etc. – but not in productive projects funded by Chinese loans such as mines or factories,” said Dr Hong Zhang. of the China-Africa Research Initiative at Johns Hopkins University in Washington.

“It would be interesting to see, however, whether other bilateral donors such as Japan – which also follow a demand-driven approach in their development assistance – also disproportionately support projects that benefit key constituencies of political leaders. in place.”

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

He said: “These agreements often reflect the political economy of partner countries, but they also expose foreign investors and lenders to public and political backlash if and when governments change due to elections, personnel issues or coups d’etat.”

Analysts point out that as China’s economic growth began to slow, Beijing’s lavish foreign finance inevitably declined. Chinese lending abroad has been declining since 2017, and lending to Africa and Latin America came to a near halt in 2020 as many debtor countries defaulted or were about to default.

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

“After a flurry of big deals in previous years, it’s only natural that there will be a slower pace as countries digest these projects,” Bland said.

For China, an emerging risk is how countries mired in fiscal difficulties will meet their contractual obligations. Last week, Sri Lanka defaulted on its debts for the first time in its history as it battled its worst financial crisis in more than seven decades. China holds nearly 10% of Sri Lanka’s total external debt.

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