Covid-19 and Chinese Soft Power in Africa: Q&A with Ambassador David H. Shinn

Former U.S. Ambassador to Ethiopia and Burkina Faso shares his view on how recent events may reshape China-Africa relationship

Amb. David H. Shinn is a former U.S. ambassador to Ethiopia (1996-99) and Burkina Faso (1987-1990). A keen observer of African affairs, he is also co-author of China and Africa: A Century of Engagement (University of Pennsylvania Press, 2012), an encyclopedic book about China’s relation with each country on the African continent. Currently, he is an adjunct professor of international affairs at George Washington University in Washington D.C.

Panda Paw Dragon Claw has the opportunity to interview Amb. Shinn, who also runs his own Africa-watching blog, through email to get his take on recent developments in China-Africa relationship that has garnered international attention. His observations from across the Pacific offers a third-party perspective on China’s standing in Africa and the forces that are reshaping this important cross-continental relationship.

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Ambassador David H. Shinn, Credit: Phi Theta Kappa Honor Society

Panda Paw Dragon Claw (PPDC): Observers have compared African response to President Trump’s 2018 “shithole” comment and to China’s recent maltreatment of African communities in Guangzhou and found a particular sense of betrayal in the latter. As a long time observer of China in Africa, do you think there is special “brotherhood” between China and African nations beyond economic and political ties?

Amb. David Shinn: There is some special attachment to China by many older African elites who were involved in their country’s struggle for independence or at least were alive at the time. But this has little resonance for younger Africans who were not alive during the independence struggle and are now primarily interested in finding employment. Younger Africans also obtain much of their information from social media, which does not face the same restrictions of government-controlled media in many countries. These social media are not easily accessible in China. As a result, Chinese officials initially did not fully appreciate the level of anger expressed by Africans.

The suggestion that there is a special “brotherhood” between China and African nations is, in my view, a stretch. African governments appreciate China’s financing, investment, development aid, military assistance, and political support, but I do not see this as constituting a special “brotherhood.” African governments are just being practical.

PPDC: How serious do you think the damage done by the Guangzhou incident is on China’s “soft power” in Africa? What areas of the relationship will it impact on?

Amb. David Shinn: I was surprised that several African leaders publicly criticized China for what happened in Guangzhou. This is highly unusual for African leaders and demonstrates the degree to which they were motivated by their own domestic audience, which is rare. African leaders, Nigeria’s House of Representatives excepted, subsequently went quiet on the issue, probably under pressure from Chinese embassies in Africa and perhaps even calls from Beijing. This did not surprise me. China is too important of an economic and political partner in most African countries and it does not take criticism lightly. At the level of African governments, I think the damage is short term and manageable.

The far more important question for China is Guangzhou’s impact on African publics and with people-to-people interaction. Guangzhou builds on a history of ill-advised Chinese advertisements and TV programs that played badly in Africa. Nor is there any guarantee Guangzhou is the last time something like this might happen. Consequently, at the level of the African public, I think serious damage has been done based on social media information and media coverage in the free press in some African countries.

This is, however, hard to measure until there are new scientific public opinion polls that ask about African perceptions of China and compare them with earlier polling data. The degree to which African students, even with a full scholarship, decide to study in China will be an indicator. The size of the African diaspora in China, whether it is rising or falling, is another gauge. On China’s side, the extent to which Chinese tourists feel comfortable choosing Africa as their destination post-coronavirus will shed some light on the China-Africa people-to-people relationship.

PPDC: China has a long history of providing medical assistance to Africa, which constitutes a major component of its “soft power.” The Covid-19 outbreak is supposed to be a moment when China demonstrates to Africa that it is a “friend in need.” How do you evaluate China’s overall Covid-19 response in relation to Africa this time?

Amb. David Shinn: I agree that China’s medical teams in Africa have been one of its most successful programs. The fact that they date back to 1963 in Algeria and today are found in nearly all African countries makes the case. In 2014, China also made a useful contribution to combatting Ebola in Sierra Leone, Liberia, and Guinea. Covid-19 is different than Ebola, however, in that the former originated in China and the latter in Africa. This puts a different face on Covid-19 and, in the minds of some Africans, there may be a tendency, fair or not, to blame China. With Ebola, China could assist without concern about any connection with China. With Covid-19, Chinese assistance is a reminder of the origin of the virus. Nevertheless, China’s assistance, especially that from Alibaba founder Jack Ma, seems to have been well received in Africa.

PPDC: How do you assess China’s handling of the Guangzhou incident so far from a diplomatic point of view? Do you think statements and gestures coming out of the Chinese foreign policy apparatus are adequate? What does the Chinese government’s response to it tell us about China’s ability to wield soft power on the continent?

Amb. David Shinn: Again, it is important to distinguish China’s handling of this incident as it has impacted African governments and as it has impacted African publics. In the early days of the crisis, I think China’s lack of transparency in explaining the situation resulted in a poor response at both the governmental and public level. Subsequent messaging improved and largely ended any additional damage at the governmental level. It appears that Chinese embassies in Africa went all out to control the damage. China’s information effort has not, however, convinced African publics that this matter is finished and that it could not happen again. China’s governmental response tells me that it still has a lot to learn as it tries to wield soft power in Africa. It might start by paying more attention to what is being said by Africans about China on social media.

PPDC: African leaders appear to be willing to move on from the incident and restore cross-continental relations to a level of normalcy. What do you think are the strategic considerations behind this?    

Amb. David Shinn: I agree that China has generally restored the government-to-government relationship to normalcy. China has always emphasized the relationship with African governments. It is not surprising that is where it has devoted most of its effort.

From the African side, I suspect that reminders of continuing Chinese financing, investment, and political support were the primary strategic consideration. China’s financing and investment in Africa were declining, however, before Covid-19. As global economies, including China, face new stresses and challenges, it raises the question whether China will be able to meet African expectations over the next several years.

PPDC: What do you think are some of Africa’s priorities in relation to China post-Covid-19? To what extent will these priorities be affected/constrained by African public sentiments?

Amb. David Shinn: First on the list will be debt postponement or even cancellation. Ethiopia’s prime minister recently called for creditor nations and especially the Group of 20 to either postpone the debt of poorest countries until the Covid-19 health crisis is over or to cancel debt entirely. The next priority will be a request for assistance to rebuild African economies, which will almost certainly suffer significant damage. Covid-19 may provide opportunities for terrorist groups from northern Nigeria to the Sahel to the Horn of Africa to Mozambique to take advantage of preoccupied governments and deteriorating economies. This could lead to requests for additional assistance to combat these groups. Unfortunately, these requests will come at a time when the wealthier countries are experiencing significant damage to their own economies.

Traditionally, African publics have not played a major role in the decision-making of their governments except when they reach the point of large protest movements, especially those that take to the streets. When the situation reaches that point, there is either an overthrow of a government or severe repression of the protests by a government. Ideally, African governments would take more account of public opinion before it reaches that point.

PPDC: The US government and politicians have also responded to the Guangzhou incident by raising concerns about racism in China. The US-China rivalry in Africa is no secret these days, with Secretaries of State Tillerson and Pompeo’s warning of African nations about China reverberating in international media. In your opinion, will Covid-19 (the Guangzhou incident included) change anything in the US-China-Africa relationship? What are dynamics likely to be afterwards?

Amb. David Shinn: There is a saying dating back to 14th century English author Geoffrey Chaucer that “people who live in glass houses should not throw stones.”  Africans are perfectly capable of coming to their own conclusions about the implications of events in Guangzhou. They do not need any help from American officials. Most criticism of China for the situation in Guangzhou originated in Africa by Africans and not by the Western press or Western officials.

It is also not useful to deny the existence of racism in China or anywhere else. Racism of one kind or another is a global phenomenon. China is not immune. When official Chinese statements suggest otherwise, China just diminishes its credibility.

Covid-19 is impacting in a negative way the US-China relationship, but I doubt that it will change the US-China-Africa relationship. In a better world, there would be a joint effort by the United States and China to combat Covid-19 in Africa. While both countries are assisting Africa individually to counter the pandemic, the prospects for a cooperative approach in the current political environment are remote. This is unfortunate.

After Guangzhou, 3 things will shape China-Africa “brotherhood”

A quick take on the aftermath of the diplomatic crisis triggered by Guangzhou’s Covid-19 measures targeting African communities

By Ma Tianjie

If “people to people connection” was really one of the five pillars of the Belt and Road Initiative, it has been seriously damaged over the past week. The disturbing images and video clips of shelterless Africans roaming the streets of Guangzhou, as the result of evictions, rattled the cyberspace of the African continent and started a diplomatic crisis rare in the history of China-Africa relationship.

The incident was one of the unintended consequences of China’s response to the coronavirus outbreak, now in its 5th month since the first reported cases emerged in Wuhan, Hubei province in December 2019. As domestic spread of the virus is more or less brought under control and situations in other parts of the world became more serious in recent months, the frontline of the response effort began to shift: emphasis was put more on stemming the import of cases from overseas. Chinese and foreigners returning from international hotspots of outbreak were subject to quarantine and testing measures that had gradually evolved in China with sophistication and force. And Guangzhou’s African community, the largest in Asia, began to feel the heat, as landlords and hotels began evicting black tenants out of both panic and prejudice. The resultant scene created an ugly spectacle and a cross-continental outcry.

By the end of Apr 15, the issue had been declared “sorted out” by African leaders, who, days earlier had made open and unprecedented protests about the situation to Chinese diplomats and officials. There are signs that African governments are now ready to move on and return the relationship to normalcy after receiving assurance from the Chinese government of “equal treatment of foreigners” and “zero tolerance for discrimination”.

But as Nigerian journalist Solomon Elusoji wrote in a latest China-Africa Project analysis, “while the current controversy might only linger for a while and soon be forgotten in the long, winding cabinets of history, Beijing must realize these are the incidents that tarnish its positive relationship with African countries and create deep distrust of China and its intentions among the more than a billion people living on the continent.”

The impact of the incident, on the hearts and minds of the African public and on the long-term prospect of China’s presence on the continent, will likely be long-lasting regardless of the intention of political elites on both sides. Here is a quick take on how the situation is going to continue to playout in the near future, based on information available to us from public sources.

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A Weibo video showing Guangzhou residents distributing food and supplies to Africans who lost shelter in the city’s Covid-19 containment campaign

1. Tensions between Chinese authorities and African communities will likely continue

When Zhao Lijian, spokesperson of China’s Ministry of Foreign Affairs, spoke of “equal treatment” and “zero discrimination”, he was talking in code language that only those familiar with dynamics of the country’s Covid-19 response in the past months could fully comprehend

Racial discrimination against black people, manifested both online and offline, is not uncommon in China. Elusoji, a guest of the Chinese government in a 2018 tour in China, experienced it firsthand. But another side of the story, that is often lost in international conversations about the situation, is the issue of perceived “preferential treatment” of foreign citizens within China, which has intensified tensions amid the implementation of confining Covid-19 control measures across the country.

Before the Guangzhou situation flared up, Chinese internet has witnessed multiple controversies of foreign residents in China being “taken better care of” than Chinese citizens under the coronavirus control regime. In some situations, this translated directly into more lenient quarantine measures for foreign nationals than for Chinese citizens. This created huge resentment online and began to challenge the credibility of the government’s pandemic fighting measures for the citizenry. Exceptional cases of assault on nurse by a Nigerian Covid-19 patient and group infection of 5 Nigerian residents of Guangzhou only made things worse.

It was in this context that on Mar 9, Beijing city had to make an explicit statement about “bringing all foreign nationals under the same coronavirus prevention regime as Chinese citizens.” It is also the subtext of Zhao Lijian’s “equal treatment” reference. It can mean equal treatment with respect. It can also mean equal treatment of coercion (as Chinese citizens know well).

The Guangzhou incident is possibly a mixture of over-correction on “equal treatment” and terrible under-performance on cultural and racial sensitivity. There were complaints that African people were subject to an extra 14-day quarantine on top of the existing quarantine rules applied to everyone in Guangzhou. If controlling the pandemic is the final goal, then racial profiling, targeting people based on skin color rather than epidemiologically relevant factors such as travel and contact history, which China has proved effective at tracking via mobile apps and QR codes during the epidemic period, does not make sense.

But coronavirus also exposed the deep-rooted issue of managing foreign nationals in Guangzhou. For China’s brand of pandemic-fighting measures to work, which has now evolved into an ultra-sophisticated system of mandatory hotel quarantine, home quarantine, neighborhood watch, travel history tracking and massive testing, it has to have a confident grasp of the movement of people living in China. While Chinese citizens can be more easily brought under such a society-wide system of control through all kinds of surveillance and administrative measures, foreign nationals are more challenging to incorporate. Different visa types, people working on incorrect visas, multiple nationalities and the diplomatic issues that entails, as well as various language and cultural factors all make it more difficult to monitor and control this diverse group of residents.

As Yangcheng Wanbao, Guangzhou’s influential local newspaper, pointed out in an Apr 9 Weibo post, Guangzhou’s African community management was a “black hole” (without racial connotation) in the middle of the city. Authorities there genuinely have a hard time keeping track of the African population, which for many years has taken root in the southern China city known for its highly active international trade sector. At a “normal” time, such undocumented presence might not pose too much a problem other than occasional need for order keeping. But Covid-19 will likely force the hand of the authorities to fundamentally change the status quo and eliminate grey areas that have so far shaped the existence of the African community there.

Regardless of this contextualizing of the Guangzhou incident in the past and in light of the pressure of Chinese public sentiment and pandemic-fighting measures, new cases of profiling and arbitrary treatment may well emerge and further test the strength of so-called “China-Africa brotherhood.”

2. Chinese social media will be slightly tamed for racial contents

To further complicate things, throughout the Guangzhou incident, Chinese social media (Weibo and WeChat) became hotbeds for racist comments against the African community. The Chinese internet actively censors any information that is considered politically sensitive, but racially inflammatory comments, including the N-word, did not seem to qualify for that category. This is beginning to change.

On Apr 15, Weibo suspended and permanently shutdown 180 user accounts for “publishing information about foreign countries” and “promoting community discrimination.” As most of the accounts and contents in question are now deleted, it is impossible to find out what exactly triggered the crackdown. But given the timing, it is reasonable to assume that recent events have prompted Chinese authorities to take a hard look at racial discrimination on social media.

Even though Chinese internet users inhabit a cyberspace separated from the rest of the world by the Great Firewall, the Guangzhou incident shows that what’s being said inside the wall can still penetrate the double barriers of language and technology and cause outcry outside of China’s borders. Over the last few weeks, a great number of African social media users (many of whom speak and read Chinese after studying or working in China) screenshotted and translated Weibo utterances of racism on Weibo and posted them on Twitter, Facebook and YouTube.

In some cases, Chinese internet users jumped over the fence (using VPNs) to pick fights with netizens in other countries over what they considered cultural and political offenses, actively bringing insults to the cyberspace of other countries. From the information released by Weibo, at least one user was suspended for participating in the online quarrel with Thai users over perceived offenses. An episode (unrelated to the Guangzhou incident) that became a spectacle on Twitter and created new vocabulary in the Urban Dictionary.

Chinese social media’s agitating role in racial and foreign affairs has been made clear by incidents in Guangzhou and beyond. This will likely bring more regulatory (i.e. censoring) attention to such content in the near future. Whether this will actually contain its destructive force in the China-Africa relationship is yet to see. If the root cause of tension is unaddressed, social media is but one place where grievance, bigotry and outright hatred bubble up.

3. True people to people connection is taking place

As people stare into the bleak future of China-Africa connections at the civilian level, severely tarnished by the latest incident, one may find some hope in the grassroots efforts trying to build bridges and tend to the wounds.

As some Chinese web users indulged themselves with racial slurs, others alarmed concerned compatriots that “if we don’t do something about racism in China, everyone will pay for the downward spiral of hatred between Chinese and Africans.”

Motivated Chinese netizens pressured McDonald’s for an explanation and apology for a “no black” notice at one of its stores in Guangzhou. And a group of volunteers self-organized to provide support to Africans who have lost shelter in the city.

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A notice circulating online recruiting volunteers to support Africans in Guangzhou

One impact of the coronavirus outbreak in China is a rekindled sense of civic duty among many of its citizens. The crisis that almost brought Wuhan to its knees in Jan and Feb mobilized people to donate and volunteer for their fellow countrymen. Now that sense of civic duty is being extended to Africans in Guangzhou.

Such efforts are not without costs. Paranoid Guangzhou residents reported the volunteers to the police, claiming that they were undermining pandemic control measures. It highlights the stubbornness of anti-black sentiments but also the preciousness of citizens standing up to such prejudice.

As the world continues its struggle against the coronavirus and experiences the cracks in the international order that are emerging and widening, the events in Guangzhou in the spring of 2020 will forever form part of the covid-19 experience for both China and Africa. Communities on both sides can choose to go along with the downward spiral or turn it into the beginning of a difficult yet necessary conversation. Doing the latter would take agency, wisdom, and time.

Belt and Road actors brace for coronavirus shock

The epidemic is already disrupting some BRI operations but SOEs are getting prepared for more long lasting impacts

By Ma Tianjie and Tom Baxter

Up to the point of writing, the entire country of China has been at war with a disastrous outbreak of a novel coronavirus (2019-nCov) for three weeks, with no end in sight. The epidemic has infected more than 35000 people and killed more than 900. The virus has already claimed more lives than SARS, and the numbers are still growing rapidly.

The immense disruption to all aspects of life in China is clear for anyone to see. Wuhan, the epicenter of the outbreak and a city of 11 million, is in total lockdown, as its hospitals are overwhelmed by patients seeking medical attention. The rest of the country is half-paralyzed by travel restrictions and neighborhood seal-offs that keep most of its citizens confined at home. Schools are holding classes online and businesses are struggling to keep themselves afloat.

China’s overseas operations, from power plants to railway constructions, are also not immune to what’s going on at home. According to a tally kept by the Chinese National Immigration Agency (NIA), 128 countries have installed border control measures against Chinese citizens or people who have visited China. These measures range from Indonesia and Singapore’s strict ban on entry or transit of non-nationals or non-residents who have been in China within the last 14 days to the milder measures of the UK, where direct flights from Wuhan are to be checked. The disruption to the international movement of both people and goods is already sending shuddering shockwaves to China’s expansive presence across the globe.

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A quarantine space at a Power China overseas camp. Image: Power China

Scrambling SOEs

The outbreak derailed what would otherwise look like a brilliant start to 2020 for the Belt and Road Initiative. From January 17-18, President Xi Jinping made a state visit to Myanmar. His handshake with State Counsellor Daw Ang Sang Suu Kyi delivered a basket of key outcomes for the BRI that some media claimed would “remake the country”. Among them, the signing of the Letter of Intent for Yangon New City and the handover of Feasibility Study Reports of Mandalay-Tigyaing-Muse Expressway & Kyaukpyu-Naypyitaw Highway Projects are important progress for China Communications Construction (CCCC), one of the largest state owned enterprises (SOE) operating on the Belt and Road, specializing in building ports and roads.

Two days after the celebratory meeting between the leaders, on Jan 20, the coronavirus situation in Wuhan escalated into a national emergency, when top Chinese experts alarmed the country of human-to-human transmission and infected medical workers. And a national response was required. By Jan 29, CCCC was in a war posture to combat the outbreak, with units across the company’s massive organizational chart all mobilized to “win the war against the epidemic”. The company’s public records were not without worries. At a Feb 5 meeting, top executives instructed that the company should “minimize the impact of the outbreak” and come up with concrete counter measures to protect overseas projects with national strategic importance.

CCCC is not the only SOE scrambling to respond to the sudden deterioration of the situation. Power China, a major contractor for constructing power plants globally, provides a snapshot of the virus’s impact. The company immediately implemented traffic controls at its overseas bases, freezing holiday plans of all staff members on site while running health checks on anyone who had travelled to China two weeks before. Quarantine spaces were created and safety supplies such as facial masks were distributed at the bases. Moreover, the company also mobilized its overseas teams to source safety gears in their respective countries and ship them back home. In some cases, such as Bangladesh, the company worked closely with the Chinese embassy and the local authorities to collect and report the whereabouts of staff members and follow quarantine procedures. In other cases, such as Cambodia, the company went further to help communities living near its base camp to implement basic prevention measures such as sterilizing public spaces.

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Power China staff helping Cambodia neighborhood to disinfect door handles Image: Power China

Contract worries

The SOEs’ concerns go beyond just inconvenience at their overseas bases. The severe chokehold on the movement of personnel, goods and supplies is already threatening to delay project progress and trigger non-compliance clauses in project contracts.

In more than one case, SOEs referred to such risk in their instructions to staff. Power China reminded its legal departments to study local laws and contract terms to “get prepared for ensuing compensation claims.” CEEC, another big energy infrastructure contractor, asked its Philippines project company to start initial communications about potential compensation claims.

On 7 February, a Beijing law firm published an article outlining a few scenarios where the coronavirus outbreak may transform into legal risks to Chinese overseas projects. One obvious risk is the inability to send a large number of Chinese laborers overseas in the short term. The lawyer advised that Chinese companies should consider switching Chinese sub-contractors to local suppliers of services such as construction in order to avoid delaying project progress.

Some projects are already experiencing such difficulty. Bangladeshi media has reported that thousands of Chinese workers and engineers are now stuck at home after going back for Chinese New Year holiday, unable to return to work on a few priority projects such as the Padma Bridge and Payra Thermal Power Plant. The Bangladeshi government has already announced that this will lead to delays on a number of priority infrastructure projects, including postponement of the commissioning of the Payra coal power plant, which was supposed to begin commercial operations in early February. Similar situations have also been reported at Indonesian coal plants and nickel smelters with Chinese SOE involvement.

Another risk, according to the law firm, is “quarantine at anchorage” rules imposed by destination countries that may affect maritime routes. Such rules would not allow crew members to disembark before obtaining a quarantine officer’s permission. Malaysia is one of the countries that has implemented such measures. The risks of delayed or failed delivery of goods and equipment, and the ensuing costs at ports are something Chinese companies have to grapple with now.

A tricky aspect is that even “force majeure” clauses, already invoked in three contracts by CNOOC, according to a recent Reuters report, might not shield Chinese companies from legal liabilities unless such events as an epidemic outbreak have already been specified in contracts.

“Friend in need”

Commercial considerations aside, the outbreak appears to have become a litmus test of countries’ friendship with China, potentially redrawing the diplomatic friend/foe map across the globe.

In a telling episode, the BBC reported that China’s Ambassador Liu Xiaoming complained to Stanley Johnson, father of the UK’s Prime Minister, about his son not sending a personal message of condolence to President Xi.

With the government facing massive public discontent over its handling of the Wuhan situation at home, it is actively seeking international recognition and endorsement of its response to the epidemic to buttress its legitimacy. The effort has developed into an all-out diplomatic campaign that is two-pronged: 1) proactively seek messages of support from various levels of a foreign government; 2) scalding or threatening those who Beijing considers as “over reacting”.

The World Health Organization is an apparent target of such effort, with its Director General, Dr. Tedros Adhanom Ghebreyesus, placing lavish praises on China’s efforts to contain the epidemic. China’s ambassadors across the globe are also, like Liu Xiaoming, working hard to secure more such messages of support. Ambassador to the Philippines, Huang Xilian, sent back a message from Davao City Mayor of being confident that China will prevail over the disease under the leadership of the Chinese government. Li Jiming, Ambassador to Bangladesh, passed back praises from Bangladeshi ministers, commending China’s “responsible and transparent stance over the issue.” Probably the most impressive of all, is the message delivered in person, by Cambodia’s Prime Minister Hun Sen, who paid a visit to President Xi in Beijing and to the epicenter, Wuhan, on Feb 6.

Some countries, in contrast, are at the receiving end of China’s ire. Ministry of Foreign Affairs spokesperson Hua Chunying’s lambasting the US for implementing travel bans got a lot of media coverage last week. Lesser noticed was the stern words of China’s Ambassador to Indonesia, Xiao Qian, to the Indonesian government on certain trade restrictions the country has introduced. Speaking of Indonesia’s potential import ban on Chinese food and beverage, the Ambassador warned publicly:

“This kind of overreaction will harm the two countries’ normal trade relations and possibly give rise to serious consequences that neither side would wish to see for the two countries’ relations and future cooperation.”

Indonesia has since backpedaled from the position, claiming that the proposed ban only applies to live animals. But given China’s past practice of using economic leverage to punish “unfriendly” behavior from another country, the scuffle’s impact on the future of China-Indonesia relations, particularly Belt and Road projects in Indonesia, is worth watching.

In its hour of greatest need, just how well did China’s Belt and Road allies show up? And how will they be judged on their performance?

So far there is still no clear sign that the epidemic is going to be under control very soon. Dr. Zhong Nanshan, China’s top expert advising the State Council on the coronavirus, told reporters on Feb 11 that a turning point “might be expected in late Feb” but “no one can be certain.” Facing mounting pressure to reignite the frozen economy, the central government is cautiously loosening some confinement measures in non-epicenter regions. But this creates new uncertainty over whether it could slow or negate some of the earlier gains of containing the disease. A black swan event of epic proportions, the coronavirus outbreak is affecting almost every corner of Chinese politics and economics in the first six weeks of 2020. In what shape will BRI come out of this situation depends on how prolonged China’s war against the epidemic will be and how countries realign themselves in this war.

How does 2020 bode for China’s overseas investment? A Chinese lawyer’s take

Zhang Jingjing previews legal challenges awaiting a few controversial projects and welcomes a groundbreaking move by China’s Supreme Court

The last year of the 2010s was certainly eventful from the perspective of China’s Going Global strategy. Beijing held the 2nd Belt and Road Forum in early 2019 as both a celebration and a moment of reckoning, as China’s signature global development program was questioned by some host countries on its financial sustainability and from the international environmental community on its green merits. A correction of course (the publication of a Debt Sustainability Framework and the creation of a green coalition) was presented at the forum as a response to international concerns. But the rest of the year still saw major controversies erupt in different parts of the world. These surrounded, for example, a power plant in Kenya, a resource–infrastructure swap deal in Ghana, and a river dredging project deep in the Amazon forest.

Zhang Jingjing started practicing law in the late 1990s, helping Chinese pollution victims win cases against polluters. She is one of the few Chinese lawyers in the overseas investment scene who stands side by side with affected communities. Based out of the University of Maryland Law School, over the past few years her nascent legal initiative, the Transnational Environmental Accountability Project, has been involved in a number of legal battles centering on China-related overseas projects. In one of those cases, her amicus curiae brief, delivered for the first time by a Chinese environmental lawyer at an Ecuadorian court in Cuenca, played an unprecedented role in bringing about a historic court order to suspend mining activities at a gold mine operated by Chinese mining company Junefield.

Panda Paw Dragon Claw spoke with Zhang Jingjing recently to get her take on the year ahead. Her insights about the evolving legal landscape surrounding a few high-profile Chinese outbound investment cases and the Chinese Supreme Court’s new interest in Belt and Road cases are as refreshing as ever.

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Zhang Jingjing inspecting a borehole in a village affected by bauxite mining in Boke, Guinea. (Image provided by Zhang Jingjing)

Panda Paw Dragon Claw (PPDC): In the past two years you have been deeply involved in a case in Guinea, West Africa, where a consortium of Singaporean and Chinese companies led one of the world’s largest bauxite mining operations, affecting the livelihood and environment of local communities. Could you share with us the latest developments with this case?

Zhang Jingjing(ZJJ): Chinese businesses have been very active in Guinea’s bauxite mining sector. SMB, the consortium that consists of Singapore’s Winning Shipping and two Chinese companies [Shandong Weiqiao Group and Yantai Port Group], entered Guinea in 2015 after their bauxite supply chain got cut by an export ban from Indonesia in 2014 due to heavy pollution caused by the business.

Since the operation began, SMB’s activities have been shrouded in controversies over impact on the environment and livelihood of local communities. The mining roads, full of heavy-duty vehicles transporting reddish bauxite ores, create large amounts of dust pollution. Open pit mining disrupts the local hydrology, dwindling precious drinking water resources for villages and polluting water from wells and boreholes that villagers depend on. Mining areas were never, or poorly, rehabilitated with recovered topsoil and vegetation. Those existing problems have barely been resolved yet. SMB, pressured by a major anti-mining riot in 2017, is still updating an Environmental and Social Impact Assessment (ESIA) of their existing mining sites. And despite this ongoing situation, big Chinese investments are pouring into the sector, with Chinalco and Henan International Mining all lining up to enter the scene on bauxite.

PPDC: What is on the horizon for SMB and other Chinese bauxite involvements in Guinea in 2020?

ZJJ: SMB is set to expand its operations this year with new mining sites, a planned aluminium refinery, and new railway construction. Land acquisition and other preparations are already underway. ESIAs for the new mining sites and railway construction are already being carried out but so far information about the expansions is scant.

This represents a major upgrade of its operation from a purely extractive nature – mining bauxite and then shipping ores all the way back to China – to a more value-added business of aluminum making. What’s important is the possible model for that business. Shandong Weiqiao Group, a member of the SMB consortium, is China’s largest aluminum maker and is known for its unique model of captive coal power plus aluminum electrolysis (an extremely power-intensive process). Captive power, self-generated electricity unconnected with the power grid and not subject to grid dispatching, helps keep costs low (a crucial component for the model) but is highly controversial in China for staying outside the environmental regulatory regime on the power sector. Weiqiao Group’s captive power plants in China are known for pollution problems. If this model is now exported to Guinea, we can certainly expect much more significant environmental impacts.

PPDC: Are there efforts to make SMB accountable for its practices in Guinea?

ZJJ: Local communities and civil society groups have been making complaints to the consortium about pollution. Unfortunately, such complaints have now been internalized as a kind of routine for the companies. SMB prepares small compensations to be doled out when complaints are made. It has also initiated Corporate Social Responsibility (CSR) projects that provide small scale livelihood support for affected local communities. But these cannot substitute legal obligations to minimize and mitigate negative impacts.

Guinean civil society is even more concerned after SMB recently won a bid to develop the controversial Samandou iron mine located in a key biodiversity hotspot area, given the consortium’s previous environmental records in the bauxite sector.

Guinea adopted a relatively modern Mining Code in 2011, incorporating some of the good practices from regulatory regimes of other African countries. It provides relatively strong protection to affected communities but is poorly implemented in reality. The country also has a basic Environment Act in place. However, Guinean NGOs and communities have never initiated any legal challenges to corporate ESIAs, nor have they had experience bringing environmental lawsuits to the court. With the massive inflow of Chinese investment into bauxite and iron mining, both Guinea’s governance capabilities and the capacity of its civil society to safeguard community interests are put to great test.

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A puddle frog on a large leaf at night in the Atewa Range Forest Reserve, Ghana. (Image: Alamy)

PPDC: In the past year, another bauxite mining project has garnered much more international attention. In exchange for Chinese supported infrastructure, Ghana plans to open up the precious Atewa forest for bauxite mining, using the ores as repayment for the US$2 billion deal. What is the prospect for this project in 2020?

ZJJ: It is almost certain that the project will encounter fierce opposition for its environmental and social impact. Ghanaian society is still very much traumatized by the havoc wreaked by Chinese small-scale gold miners (galamsey). Today you can still see the scarred landscape left by such illegal activities. Even though the individual Chinese miners were not part of any national strategy, they nevertheless shaped the Ghanaian impression of Chinese investment and would definitely overshadow the massive resource–infrastructure swap deal.

Unlike Guinea, Ghana’s governance capabilities are more advanced, and the country has an active civil society, including a great number of environmental lawyers. They are already mobilizing to challenge the deal through legal means.

PPDC: The company behind the Ghana deal, Sinohydro, is also currently at the center of another major infrastructure project in Peru. The Amazon Waterway project aims to dredge the Amazon river to facilitate transportation and commerce but has met with strong opposition from indigenous groups for its potential impact on fisheries and local culture. How is this case being handled in Peru?

ZJJ: The project’s Environmental Impact Assessment (EIA) is being challenged from multiple angles now by indigenous groups, which will likely affect the timetable of this major infrastructure program that Peru and Brazil have planned for over two decades. Even though reports are saying that approval of the EIA is imminent (as early as April this year), I have learned that local civil society will keep challenging it. Lawsuits might be on their way.

A few Latin American countries, including Peru, have enshrined indigenous rights in their constitutions, particularly the right to be informed and consulted before projects like this can go ahead [Free, Prior and Informed Consent, FPIC]. It is therefore unsurprising that local groups are now challenging the EIA for lack of prior consultation with indigenous people and have sent the case all the way to the Supreme Court in Lima.

None of the legal actions are directly targeting the Chinese company. Rather, their objective is to revert administrative approvals and decisions made by host country authorities. If those challenges are successful, they will invariably delay the progress of the project and bring losses to the developers. This is a prospect that any Chinese investors in the region should be aware of.

PPDC: You have been following a few other cases in 2019, including legal challenges to coal power projects around the world. What signals have you picked up from them?

ZJJ: A tidal wave of “climate litigation” is coming. Kenya’s Lamu power plant case, in which Chinese companies are deeply involved, is but one outstanding example of how a combination of lively civil society and an independent judiciary can become a formidable obstacle for environmentally questionable projects.

Globally, with climate change becoming an increasingly urgent concern, climate litigation is set to become more commonly used by communities and activists to challenge not only coal power but also government policies allowing such projects. In the past year, Indian farmers and fishermen have brought the International Finance Group (IFC) to court in the United States for funding a coal power plant in Gujarat. Bosnia-Herzegovina’s China-funded Tuzla 7 coal power plant is also bogged down by legal challenges.

Just a few weeks ago, the Dutch Supreme Court delivered a historic ruling ordering the government to cut greenhouse gas emissions 25% below 1990 levels by the end of 2020, after NGO Urgenda sued the Dutch government. Those developments around the world foreshadow the bumpy legal roads ahead if China continues funding and building coal power plants overseas.

PPDC: So far, those legal battles have all been fought in host countries. But people often wonder, can China’s own legal system be activated to make Chinese investment accountable overseas?

ZJJ: In transboundary cases, it is a commonly accepted principle to give host countries jurisdiction over lawsuits on environmental and social impacts. This is because their judiciary can more easily ascertain facts concerning damages and infringements on their native ground.

This doesn’t mean China’s regulatory regime has no role to play in injecting responsibility into its overseas investments. In fact, a host of policy items have been promulgated to steer outbound investment towards a more sustainable path. The 2017 Guidance on Promoting Green Belt and Road, published jointly by four ministries, calls on Chinese companies to abide by host country laws, global treaties and international high standards. But such policy items are often mere aspirational statements without binding force. The very few binding rules, such as the National Development and Reform Commission’s (NDRC) Measures on Outbound Investment, are low-level departmental rules with limited force. So China does need to install higher level outbound investment laws and regulations to introduce accountability to its companies going global.

What is really encouraging is that at the end of 2019, China’s Supreme People’s Court issued a groundbreaking opinion on how the judiciary system should support the Belt and Road Initiative, stating that China should “proactively contribute its judicial resources to global environmental governance”. More specifically, it calls on the Chinese judiciary to strengthen environmental public interest litigation and tort litigation to “stop environmental violation” and “enforce liability for damages”.

If these words are meant genuinely, the opinion in effect opens the doors of Chinese courts to environmental public interest litigation and tort cases on damages happening outside China’s borders, particularly along the Belt and Road. China’s judicial resources, and its experience with trying domestic environmental disputes, are now accessible by communities affected by Chinese investments in countries with underdeveloped environmental governance. This is certainly the best new year present I have received as a Chinese environmental lawyer and an offering that I am keen to activate in the coming year.

This interview has been co-published with China Dialogue

Between the lines: new reports offer a peek into Chinese policy banks

Research teams at Chinese and international institutions collectively shed light on the practices and thinking of CDB and Exim Bank.

In the past few weeks, reports released by teams at UNDP, China Development Bank, the Boao Forum for Asia and NRDC-Tsinghua University open windows into the operation of China’s policy banks when it comes to overseas financing.

None of the reports, even those compiled by China Development Bank itself, are particularly revealing in their description of practices and policies of the state controlled banks, underscoring the general opaqueness of those financial institutions. Most of the information presented in the reports is based on already published materials (policy papers, case studies, news reports etc), and only the Tsinghua University team’s report involved interviews with policy bank executives, providing fresh, first hand information on the banks’ sustainability policies.

Nonetheless, in this desert of accessible information on Chinese state actors, the reports’ compilation of information on the banks’ operations provides some interesting additional insights into how the two policy banks attempt to align their investments with Belt and Road goals and the global sustainability agenda, if you read carefully between the lines. In particular, we get a sneak peek into their differing approaches to environmental and social standards, and how loans for risky but much needed development projects are made secure, at least from the banks’ perspective.

Policy Banks on the Belt and Road

There is already an existing literature on the roles played by China’s main policy banks, China Exim Bank and China Development Bank(CDB), in China’s overseas industrial build-up. It is still worth highlighting, however, the distinctive roles of the two banks, as described in the UNDP-CDB “Harmonizing Investment and Financing Standards towards Sustainable Development along the Belt and Road” report (hereafter as “UNDP-CDB report”). CDB, being the world’s largest national policy bank, offers mainly mid-to-long term non-concessional, commercial loans on the Belt and Road, while China Exim Bank provides mostly concessional loans and export seller’s/buyer’s credit based on market interest rates. According to the UNDP-CDB report, by the end of 2018, CDB had provided financing for over 600 Belt and Road projects with accumulated value of USD 190 billion (USD 105.9 billion still outstanding). The Exim Bank’s Belt and Road portfolio is larger in size, with outstanding loans over 1 trillion RMB (about USD 143 billion) spread across 1800 projects.

A key observation made by the UNDP-CDB report is that loans still occupy a dominant share of Belt and Road financing, as opposed to equity investment. This may be due to the fact that most Chinese financial participants of the Belt and Road Initiative are banks, whose mandate is to provide lending (especially for commercial banks). Nevertheless, the UNDP-CDB report notes that Chinese financing may have also tilted toward loans for their relatively low risk and ability to pool resources for supporting large projects, while equity investment involves longer term exposure to risks over the entire lifecycle of projects and higher transaction costs. But, as a previous blog post on this site has shown, this preference might be changing for some Chinese Belt and Road players as they become more attracted to the higher and sustained return of projects funded through equity investments.

Policy Banks on the Belt and Road
Source of information: UNDP-CDB report

BRI’s heavy infrastructure focus means that the banks’ Belt and Road portfolios tilt heavily towards energy, transportation and construction, with the energy sector the largest recipient of bank financing. The go-to data source for BRI researchers – even for established and connected Chinese research teams, such as at Tsinghua University – Boston University’s Global Economic Governance Initiative shows that coal makes up the majority of the two bank’s BRI financing between 2000 and 2017, followed by oil and gas financing.

Sustainability, Sustainability, Sustainability

One question that observers of the BRI often have is how come Chinese policy banks, despite a domestic emphasis on sustainable development, continues their funding of overseas projects with questionable sustainability, both environmentally and financially. Many analyses approach this question by looking at the banks’ “safeguard policies”, i.e. to what extent can mechanisms at the banks rule out financing “bad” projects. But an interesting insight from the NRDC-Tsinghua report “Research on Green Investment and Financing Standards for Policy Banks in the Belt and Road Initiative” (hereafter as “NRDC-Tsinghua report”) is that domestically, Chinese policy banks, particularly CDB, approach sustainability not so much from a safeguard point of view, but rather from an industrial policy point of view. China’s “green banking” policies are essentially an extension of the central government’s industrial policy. Its central components are sector-specific or client-specific credit guidelines. Through those sector-specific policies, CDB systematically channeled more than RMB 1.6 trillion (about USD 229 billion) into supporting China’s domestic green transformation agenda, which involves the set-up of low-carbon cities and smart cities, pollution control and environmental rehabilitation, renewable energy development and circular economy. In the process, CDB sets up a regular communication channel with the Ministry of Industry and Information Technology (MIIT), a key maker of Chinese industrial policies, to screen and create a pool of bankable industrial energy saving projects.

Without the same level of industrial policy coordination and strategic guidance, Chinese policy banks have a much less clear green mandate when financing overseas, and have to resort to basic safeguards based on host country policies. According to the NRDC-Tsinghua report, this approach has clear limitations. The idea of deferring sustainability standards to host country regulations seems to have been deeply rooted in the thinking of bank executives. The NRDC-Tsinghua team’s interview indicates that those executives are fully aware of the “strictness of environmental and social safeguards developed by the World Bank and Inter-American Development Bank”. But they also believe that strict standards “limit where banks can go in terms of their businesses”, as they require too much on the side of the recipients. These executives nevertheless conceded that when local standards “prove inadequate”, they are willing to bring in Chinese standards (if more robust) as a stopgap. The rationale for applying Chinese standards is to elevate their global acceptance for future technological exports.

The deference approach also applies to grievance mechanisms, where Chinese policy banks demonstrate a clear preference for complaints to be directed to recipient country authorities rather than themselves. Addressing the issue of deference, the UNDP-CDB report recommends governments and financial institutions to assess host country standards and identify countries lacking the ability to implement standards or those lacking standards altogether. Based on such assessment, capability enhancing efforts can be made in the form of technical support or modest grant financing. “Defer to the host country on standards that are already aligned with best-practice standards,” the report prescribes, “but work with the host country to boost implementation, compliance and monitoring capabilities.” This approach can “substitute practices received with limited enthusiasm”, a subtle criticism by report authors of the Bretton Wood institutions’ “conditionality” methods.

Both the NRDC-Tsinghua report and the UNDP-CDB report outline how environmental and social review is embedded in the policy banks’ internal procedurals, with slight differences, as shown in the table below. Before delving into the table, one should note that neither bank currently has dedicated offices or teams to handle environmental and social standards. The safeguard is therefore scattered ( or “embedded)” in bits and pieces across the banks’ due diligence and approval processes without any overarching overseers of how green their lending is. Interviews by the NRDC-Tsinghua team also shows that Chinese bank interviewees have little comprehension of the “Environmental and Social Covenant” approach commonly practiced by international development financial institutions, which would put clients’ environmental and social commitments into loan agreement to become legally binding.

Policy Bank ESS
Source of information: UNDP-CDB report and NRDC-Tsinghua report

The above table might give the impression that safeguards are available and working at the Chinese policy banks, as the banks themselves often argue. But as report writers pointed out, the reliance on recipient country standards mean that in regions with weak governance, such as Southeast Asia, poorly-designed projects might get greenlights. And the lack of a central policy, a dedicated staff and clear project-level standards for environmental and social issues means they are at the risk of being treated as secondary concerns at each of those steps wherein their consideration is supposedly “embedded”.

Green Loan

If the bank’s safeguards seem a bit underwhelming, the Boao Forum for Asia’s “Belt and Road Green Development Case Study” report (hereafter as “Boao report”) brings to the fore interesting details of a solar mill project that CDB financed in Zambia. At Panda Paw Dragon Claw we love graphs and flowcharts that illuminate the workings of Belt and Road actors. The Boao report did a nice job of drawing the below diagram of the parties involved in the CBD solar mill loan:

Zambia Model
Source of diagram: Boao Forum report

Based on the report authors’ description, Zambia’s hydro-powered mills for cornmeal, a staple food for the country, faced curtailed power supply due to a lack of rainfall in 2014, leading to rising food prices. President Edgar Lungu launched the Presidential Solar Milling Initiative to construct 2000 solar mills around the country to ease the pressure on cornmeal supply. The initiative, with a total estimated cost of USD 200 million, was financed through a CDB loan worth USD 170 million. The rest would be paid by Zambia itself.

Despite its green merits – the mills are solar powered and have a public livelihood objectives at its core – the loan also has clear CDB features. Based on the description of the report and news reports from Zambia, the loan appears to be non-concessional (interest rate is unknown), although CDB waived all other fees associated with the loan. It is sovereign guaranteed from Zambia’s Ministry of Finance. A Chinese EPC contractor gets the contract to build the solar mills. And Sinosure, China’s policy insurer, provides mid to long-term insurance for the loan.

Touted as green finance, the loan nonetheless shows both the advantages and limitations of CDB debt financing. Zambia is considered “high risk” in World Bank/IMF’s debt sustainability assessment, and would be advised to avoid or limit non-concessional borrowing. This may restrict the country’s ability to raise funds from international lenders, making CDB’s offering highly attractive. (In cases like this, multilateral development banks would only offer concessional loans with very low or zero interest. And market rate lending will be made to private companies without sovereign guarantee.) While the solar mills may be fulfilling a genuine development need and have a viable future revenue stream (local cooperatives would pay to use the mills), a non-concessional loan inevitably adds to the overall financial stress of a country whose 2018 debt stock stood at USD 10 billion. On the China side, CDB has thoroughly risk-proofed its loan (sovereign guaranteed and Sinosure insured) and the Chinese EPC contractor will reap the benefit of a major construction deal. But Zambia has to figure out how to make the project work in the next 15 years so that the loan can be serviced.

In Zambia, there are already signs of trouble: the President has openly expressed dismay that some of the solar mills have become “white elephants” and is urging provincial officials to take action. Vandalism and theft (of solar panels) also plague the project. “Government borrowed money which has to be paid back with interest,” says Zambia Daily Mail, “Zambia cannot afford to waste resources in that manner (referring to the non-working solar mills).”

If providing financing and construction help get projects like the solar mill initiative off the ground, there is still a distance from a true “win-win” if one side bears a disproportionate risk of project failure while the other side enjoys the safety of near-term benefits.  If the latest reports collectively highlight one thing, it is the disproportional burden Chinese financing is putting on the weak shoulders of its Belt and Road partners, be it environmental governance or debt sustainability. If BRI is to be genuinely “mutually beneficial”, fine tuning that risk-benefit equation would be a first step.

Interview: Can Chinese NGOs help companies obtain “social licenses” along the Belt and Road?

As a Chinese NGO stepped outside the country for the first time, it found itself caught in between Chinese companies and skeptical local communities.

One largely untold story in the narrative of China’s Going Out, which focuses on the government, SOEs and banks, is how its own burgeoning civil society, witnessing the huge impact China is making overseas, tries to catch up with the footsteps of state actors and make their own mark in shaping the country’s footprint abroad. With the daunting constraints NGOs are facing domestically, working in a foreign country offers only further challenges. They not only have to overcome the barriers of language and culture, but are also confronted by a more fundamental reality of their delicate relationship with the Chinese state.

What is unbeknownst to many international observers of China’s Belt & Road Initiative is that a few Chinese civil society groups have already ventured out, albeit slowly and quietly, and have set up a presence in a handful of key Belt and Road countries. In this space, there are government-backed NGOs such as China Foundation for Poverty Alleviation, which has already set up development programs in 5 countries including Myanmar, Nepal and Ethiopia; professional environmental NGOs such as the Global Environmental Institute, and grassroots community development groups such as Social Resources Institute (SRI), the organization of focus in this interview.

Yue Jinfei, a young development worker had spent a few year in the Chinese countryside before joining SRI in 2014, was, in 2015, tasked with a project untried before in the organization’s history: with a few team members, he was to map the complicated web of interests around the controversial Letpadaung copper mine project in Myanmar. SRI had never had any experience working in another country.

Letpadaung was Asia’s largest hydrometallurgical copper mining project and one of the most controversial Chinese projects in Myanmar. Violent protests had disrupted the project, acquired in 2010, by Chinese state-owned company Wanbao, over issues of land acquisition and relocation of villages. The situation prompted President Thein Sein to appoint Aung Sang Suu Kyi, then the chairwoman of National League for Democracy, as the chair of an investigation commission tasked with giving a comprehensive assessment of the problems surrounding the project. The commission has since come up with a set of recommendations and rectifications that Wanbao is required to implement.

Yue Jinfei and his team made field trips to Myanmar between 2016 and 2017, talking to a wide range of stakeholders affected by the project to come up with a comprehensive report widely referenced by researchers, journalists and civil society workers taking an interest in China’s involvement in Myanmar. In a recent interview with Panda Paw Dragon Claw, he shared his reflections on the promises and limitations of Chinese civil society’s “Going Out”.

Jinfei
Yue Jinfei has worked in China’s countryside for years before joining an SRI team to map the interests around the controversial Letpadaung copper mine in Myanmar.

Panda Paw Dragon Claw (PPDC): Why did SRI decide to get involved in a Chinese overseas project like Letpadaung?

Yue Jinfei (YJF): In the early 2010s, SRI started working on poverty alleviation through sustainable agriculture in China. Within that space we did extensive research and consultancy on agricultural supply chains, including tea, coffee, tomato and cosmetic ingredients.

In 2014-15, that work brought us to Chinese agricultural investments in other countries. That’s when we first cast our sight overseas and we realized very few Chinese NGO peers had overseas experience, so there was not much we could build our work upon. It was uncharted waters. The realization made us think maybe it could be more valuable to take a broad viewpoint rather than focusing on sectoral issues. So we focused our research around how Chinese companies deal with local communities in other countries. As a first step, we were just trying to understand what’s going on, as Chinese civil society as a whole seemed to have very little clue of the situations beyond China’s borders.

We selected Myanmar as a starting point because of its complexity as a country. In 2014-15 the political transition was already under way but not quite completed. Other Chinese projects such as the Myitsone dam had already caused lots of controversy. But unlike the Myitsone dam, which was already halted, Letpadaung was still ongoing at that time. Its ups and downs provided a very good window into the dynamics of a Chinese overseas project. How it went from problem to at least partial solution is a source of knowledge and understanding that has guided us ever since.

PPDC: You adopted the Sustainable Livelihood Framework (SLF) in your report. Was it an attempt to show comprehensiveness and balance in your analysis?

YJF: The adoption of a research framework for us was also a learning process. At SRI, we were studying useful theories and tools in the field of rural development. We encountered the SLF developed by the UK’s Department for International Development (DFID) and Francis Fukuyama’s work on social capital. We felt they were very relevant for the Letpadaung case, which is a rural community affected by a major industrial project. Using the framework allowed us to capture multiple dimensions of those impacts, from human capital, natural capital to social capital, that collectively determined the quality of a rural livelihood which was really our main concern. It’s like dissecting a sparrow. And SLF provides a handy tool for doing that.

PPDC: Did the complexity of the local situation surprise you?

YJF: We picked Letpadaung exactly because of its complexity. So that was almost expected. But still I was struck by the complicated web of factors that contributed to conflicts in that case. There were dynamics between villagers who refused to move and those who agreed to relocate to Wanbao-built new villages (and therefore enjoyed new homes and new job prospects). And conflicts happened within each group. For example, in order to maintain collective leveraging power, villagers who remained would exert pressure on those who showed willingness to relocate. And in some cases, conflicts even manifested on household levels. I have seen siblings split over compensation and relocation. Someone who had nominal ownership of a piece of land might have received the compensation from Wanbao, but his or her sibling might be the person who actually occupied and worked the land and refused to vacate it.

How actors approach such complexities may reflect different (cultural) values. Chinese companies often consider household disputes a purely private matter (家务事) and refuse to intervene into the private sphere. But if you look at reports by Western civil society groups, they would point to such household disputes as the result of Chinese investment (or at least exacerbated by it): the disruption of traditional family structures by the injection of external resources.

As a Chinese NGO, how should we look at such problems? I don’t have an answer yet. But it did remind me that many phenomena that we had taken for granted in China for the past decades, such as the disintegration of family structures by external economic forces, could become problematic issues overseas.

Letpadaung mapping
SRI’s mapping of stakeholders involved in and affected by the Letpadaung project

PPDC: What did you plan to do with such an analysis of the complex community-level impact of Wanbao’s project?

YJF: As an organization we are probably too research-minded [laughs] that we were simply studying the situation for the sake of understanding it. We did not have mature ideas of how we should utilize the result of the research and apply its findings.

But we did have a general direction. In rural development work within China, the methodology of participatory community development, first introduced by Western development groups, has taken roots among NGOs. Many organizations use such methods in China to facilitate the expression of community needs and inform their response. Is it possible to introduce this to corporate community relations management? We knew that some companies had introduced stakeholder analysis into their CSR work. But their way of stakeholder communication is far from the participatory method development workers are familiar with.

Here we encountered a fundamental dilemma that is still haunting me today: the way you treat minority interest in a situation like this. I would call it the “20% problem”. If 20% of the villagers refuse to move no matter what the Chinese company does, what should we do? Wanbao in the end chose to ignore them, as their opposition to the project no longer posed a substantive threat to the operation of the plant and the majority of the community had already started over in new villages. This may be a rational decision in a business sense. But as a Chinese NGO, our years of work in this field tells us that even a small minority voice represents intrinsic human rights. So how should we play the bridging role that we set out to play in a situation like this?

PPDC: Did you have a conversation about this with Wanbao?

YJF: Our access to the company wasn’t as good as some business groups. We were not able to enter the core premises of Wanbao’s plant in Letpadaugn . But we did visit its Yangon office (which was Public Relations oriented) and interviewed them about the project. To some extent our relationship with the company was also defined by our stance on the minority issue. I was reminded not just once by my friends with close ties to the business sector that openly expressing sympathy with “the 20%” would negatively affect future communication with companies. On the other hand, we were also sometimes warned, albeit friendly, by civil society partners in Myanmar that it could alienate local communities if we appeared too cozy with Chinese companies – we’d be seen as their invited guest. We were really caught in the middle.

Wanbao was quite sensitive of how we represented its practices, so they did provide three rounds of feedback in our drafting process and provided information about what they were doing, especially in areas where they felt they were misunderstood. But on the substantive level, we didn’t think our study would make much of a difference on the project level as Wanbao was quite confident that their problems were already settled.

PPDC: Do you agree?

YJF: Maybe their Letpadaung operation is now unscathed by remaining opposition. But recently, as Wanbao has started prospecting for a new mine in the nearby region, they have met with fierce resistance from local communities. Many simply wouldn’t let Wanbao personnel in. That speaks to a continued lack of social license to operate in the wider neighborhood, despite all the work Wanbao has done.

PPDC: How did the local community and civil society groups receive you?

YJF: We were introduced to some civil society groups in Myanmar through partners and then our reach just snowballed to a wider network. Some of the NGOs were research oriented while others, such as Myanmar Alliance for Transparency and Accountability (MATA), were active on the ground. Through them we were then led to community based organizations (CBO) working on very local levels in Letpadaung and also community members.

But as a Chinese NGO our interaction with the local community was shadowed by the larger context of China as an authoritarian state. There was always the perception that, no matter whether you are a company or an NGO, you somehow represented the Chinese government. That’s why our local partners often treated us with a level of caution, as they were unsure what our real intention was. This kind of mistrust has only been exacerbated by China’s physical closeness and its assertiveness in recent years. I would even say that this misgiving towards China was much more intense than towards Japan, which actually invaded and occupied Myanmar during WWII. In Myanmar eyes, that invasion is now firmly in the past, while China’s impact is present.

When at the end of 2018 the Chinese embassy in Yangon made controversial comments about public perceptions of the Myitsone Dam in Kachin State, we immediately felt the heat while doing field work in Myanmar. We were asked a lot of questions by local contacts and some of our scheduled meetings or interviews couldn’t happen as local contacts got suspicious of us collecting information about their attitudes and perceptions at that sensitive moment.

Our acts were closely scrutinized, sometimes even when we were not physically in Myanmar. Information about a recent workshop that we held in Beijing on corporate-civil society relations in Myanmar was widely circulated in Myanmar’s NGO circles after someone probably Google translated our workshop introduction from Chinese. Criticism of us “selling information” to Chinese companies arose just because we shared our interview findings at the workshop where corporate representatives were present.

PPDC: Given this situation, do you think Chinese civil society groups can play a role in obtaining social license for China’s overseas involvements?

YJF: As individual organizations, I think it’s difficult. But collectively as a group, there is a possibility for Chinese NGOs to build the foundations of local public support for or acceptance of constructive Chinese involvement in the region.

Japanese civil society serves as a good example for us. With Japan’s deep involvement in Southeast Asia, Japanese NGOs have long ventured out into the region. On the one hand, there are Japanese NGOs doing traditional aid work such as building roads, setting up schools and digging up wells; on the other hand, there are watchdog groups like Mekong Watch, which focuses on Japan’s environmental and social impact in the region. What’s unique about the Japanese civil society presence in the region is its “depth”. It’s not rare for Japanese NGO workers to plug in a rural area of Myanmar for months or even years, learn the local language and really advocate for the local communities. How many of us have that conviction even when working in the poor countryside of China? With that kind of deep involvement, local communities associate “Japan” with generosity and benevolence.

This level of public trust cannot be built by a single NGO. It takes long term cultivation by an ecosystem of different groups. It doesn’t matter if CFPA only focuses on donations of goods in Myanmar and not on corporate accountability. As long as their work creates recognition among local communities of what “Chinese” do, other Chinese NGOs can build on this acceptance of our presence to further their areas of work. My hope is that through this collective effort, a diverse China will be more visible. People will discover that China is not a monolithic entity and that its civil society is here to help for the greater good.

 

Empty trains on the modern Silk Road: when Belt and Road interests don’t align

China’s provinces are sending empty freight trains to Europe. Chinese media explains why.

China is sending empty freight trains to Europe through one of its key Belt and Road Initiative (BRI) projects: the China-Europe Railway Express. The bizarre phenomenon caught the attention of Depth Paper (等深线), a Chinese online news platform. In a rare move by a Chinese media outlet in today’s media environment, Depth Paper probed critically into one of the BRI’s most visible “connectivity” projects, uncovering the perverse incentives that are luring China’s local governments and companies to create huge “bubbles” of ostensibly flourishing rail routes that run tens of thousands of kilometers across the vast landmass of Eurasia.

The revelation partly confirms what some observers have suspected all along: that China’s central government lacks the ability to keep BRI strategically tight and coordinated. Sub-national stakeholders, as they do in other policy areas, have the incentives to bend the initiative to their own narrowly defined interests and in the process undermine the overarching strategy, if such a strategy indeed exists at all. The curious case uncovers some important dynamics playing out among Belt and Road’s diverse stakeholders.

China Railway Express
Depth Paper uncovered the perverse incentives that are luring China’s local governments and companies to create huge “bubbles” of ostensibly flourishing rail routes that run tens of thousands of kilometers across the vast landmass of Eurasia.

The China-Europe Railway Express

Transporting goods between China and Europe through railroads is not a common choice for traders. Up to now, it only makes up 4.8% of the total bilateral trade volume, far behind commodities moved by sea (68%) and air (19.4%). For many years, the China-Europe rail routes were interrupted by the fragmented customs, quarantine and taxation regimes of countries along the way. As a rail transport agent in west China told Depth Paper, sending cargo to Germany through rail was unimaginable as recently as 1997. “Central Asia was as far as we could go.”

But, according to the report, things changed about a decade ago. Years before the advent of the Belt and Road Initiative, the instigator of this change was in fact the American computer company Hewlett-Packard. In 2009, as the computer giant negotiated a major investment deal with Chongqing, the city on the upstream Yangtze River with no easy access to a sea port, it included a condition that it should be able to transport its products to the European market by train: westbound directly from the city, instead of first going east to the sea. The Chongqing government accepted the condition and after two years, the Chongqing to Duisburg rail route was made navigable, allowing HP to ship to Europe in a relatively low cost (compared to air transport) and speedy way (compared to shipping by sea).

Before 2013, the year when BRI was formally announced, a few other freight rail routes were made possible by such bottom-up commercial interests. The city of Wuhan in central China, a major base for car manufacturing, developed Wuhan to Europe routes upon which half of its car outputs now depend for transportation. Similarly, Yiwu, the light industry powerhouse of Zhejiang province, opened up its own rail route to ship large quantities of small commodities, from garments to needles, to Europe. Ironically, those early trials, mostly developed by landlocked Chinese municipalities, received little central government support around that time. According to Depth Paper, China’s railway administrators even charged a fee for the extra burden those freight lines created. Its attitude toward such initiatives would make a 180 turn after BRI came into being.

2013 saw the creation of BRI and the incorporation of China-Europe rail links under the umbrella of Xi’s signature initiative as a key connectivity component. As China’s 2015 Vision and Strategy document for the BRI declared the intention of building the rail routes into a “brand name service”, the number of routes began to explode. Dozens of Chinese cities, including those on the east coast with easy access to ports, joined the bandwagon of rail transportation.

China Europe train routes
Planned train routes from China to Europe through Central Asia/Russia, source: NDRC

Growing bubble

In 2016, the National Development and Reform Commission (NDRC) laid out a five year plan for the expansion of westbound rail routes. And China’s railway planner published a blueprint document on building up the brand reputation of China Railway Express. China State Railway Group Corporation, which used to be the railway ministry, began to highlight the growth of Europe-bound voyages as a major achievement.

The elevation of the freight service in political importance created powerful incentives for players to “rig the game”. Depth Paper reveals two groups of schemers in the game:

Provincial and local governments: As the number of freight trips to and from Europe become a measurable indicator, local governments, particularly those sitting at key railway hubs, saw a clear opportunity to boost their visibility under the BRI (and probably to the leadership). At their disposal were subsidies to lower the cost of freight services and make them competitive with cargo ships.

The Ministry of Finance provides a guiding subsidy ceiling of 0.8USD/container/kilometer. But ambitious local governments circumvent it by inventing all kinds of additional rewards to lure businesses to their train terminals, sometimes even compensating for the extra mileage of truck transportation to bring containers from thousands of kilometers away. According to a chart collated by Sino Trade and Finance, many municipal government offer around 3000USD per container for a one-way Europe bound trip and a whole train could receive a total of 123,000USD worth of subsidies per trip. These local governments also use tax rebate and land use subsidies to sweeten the deal for freight service companies.

International railway service companies: Competition with each other and pressure from local governments eager for BRI visibility has incentivized the companies who actually run the numerous rail routes to Europe to increase the number of train trips. Every month these companies have to book planned trips from the railway regulators and get what is called a “route slip” that permits them to run those trains. The ratio of actual trips to the applied number is called  “realization rate” that regulators use to monitor rail capacity utilization.

The interplay of these incentives drives both groups to boost indicators that make them look good in this game, creating scenes that are outright bizarre. The government of Xi’an is one of the most active players starting from 2018. The city, 1000 kilometers to the west of Beijing and the former capital of Tang Dynasty more than a millennium ago, considers itself the “starting point of the ancient Silk Road” and strives to restore its glory in the Belt and Road era. With full support from its provincial bosses, it is the most generous with subsidies, dwarfing other provinces by a wide margin. “Subsidized per container transportation price from Xi’an is constantly below RMB 8500, while it costs over 20000 RMB from Shandong,” a trade agent told Depth Paper.

The subsidies are of the scale that they bend the gravity of trade. In the most extreme cases, traders in the far west Xinjiang Autonomous Region, which already borders Central Asia and is itself a Belt and Road rail hub, would move their cargo thousands of kilometers to the east to capitalize on the Xi’an government’s free handouts before transporting west across the Eurasian continent. Similarly, traders in coastal Shandong provinces would truck their goods all the way to Xi’an and load them onto trains, as it is cheaper even after taking into account the 5000 RMB per container transportation cost by truck (for which the Xi’an government also partially remunerates). The result is that Europe-bound freight train trips from Xi’an grew by a whopping 536.6% in just one year from 2017 to 2018.

The railway service companies, on the other hand, blow up their trip numbers even when they have very little to ship. Before Xi’an arrived on the scene in 2018, the competition between Chongqing and Chengdu, two nearby cities, was so fierce that the two cities would refuse to merge cargo loads back from Germany despite neither being able to fill a whole train themselves. When the pressure (and reward) to be the top railway service company facilitating “Belt and Road” trips to Europe becomes huge, the companies simply start loading empty containers to their trains. They must ensure that each train meets the regulator’s 40-container minimum before it leaves the station, but there is no obligation and no ability (for lack of demand) to fill those containers.

In the most extreme case, one train carried 40 empty containers and just one full container all the way to Europe. This makes the China Railway Express’s impressive growth number highly dubious, and most certainly a “bubble”. Even with all their tricks, companies can barely fulfill their promise to regulators: they have overbooked railway resources. In Q2 of 2019, Chongqing’s “realization rate” dipped to as low as 64% for some routes.

BRI undermined

Artificially enabled transportation routes are more of a disruption to than facilitation of trade, as China’s policy makers are slowly but painfully beginning to realize. Subsidies are both unsustainable and capricious: “Sometimes a city changes a Party Secretary and the new boss has other priorities for his budget.” This makes it hard for businesses to make long term plans and build China Railway Express into their logistic strategies.

Heavy subsidies also encourage opportunistic behavior that runs against the original intention of the policy. “[Subsidies] are supposed to help first-time users overcome initial transition difficulties and cultivate user acceptance of freight rail as a reliable means of transportation”, says one anonymous Liaoning provincial official to Depth Paper. “[But] what Xi’an does can hardly nurture real needs. Traders will go back to sea and air as soon as subsidies disappear.” The official also warns that such unpredictability and fluctuation would hurt the China Railway Express’s reputation overseas and permanently scare clients away.

The Ministry of Finance is reportedly determined to pierce the bubble by enforcing a schedule for phased subsidy reduction. Subsidies by local government are to be no more than 40% of a route’s total cost in 2019. The ceiling will be further lowered to 30% in 2020 and zero by 2022. The Ministry is hoping that by then the trains running up and down routes would be completely market driven and China Railway Express will stand on its own two feet.

The episode reveals the fundamental difficulties for China’s central leadership to implement its vision by reducing it to seemingly measurable indicators and supposedly workable incentives that mobilize local players to participate in a central government cause. Distortions and outright undermining of central government agenda happens with GDP numbers, air pollution targets, and other domestic issues. BRI is no exception.

It also calls into question a key underlying assumption of the BRI, that the power and “deep pocket” of the Chinese state can overcome problems that the market cannot solve when left alone. Trade flows, it turns out, are not easily bendable by the sheer will of the state. It is a rare occasion for a Chinese media outlet to so directly call out systemic problems in Xi Jinping’s signature initiative. As China embarks on other overseas adventures that premise on the ability of state capitalism to shift the center of gravity of global trade (through new ports and rail hubs), the troubles of China Railway Express should serve as a cautionary tale of the limits of state power.

Additional food for thought… when personal guanxi is more important than national strategy

CDBCaixin
Caixin’s frontpage story about the corrupt deeds of disgraced former CDB president Hu Huaibang

In another example of Chinese media exposing the “underbelly of BRI” , on August 3, Caixin Media published a frontpage story about the corrupt deeds of China Development Bank’s former President Hu Huaibang, who was recently investigated by the disciplinary arm of the Communist Party. The report, which has since been taken down from Caixin’s website, contains jaw-dropping, mind-boggling details of how recklessly senior officials of China’s largest policy bank (and a major instrument of the BRI) pursued their own interests at the expense of the bank’s financial health.

Hu’s tenure at the CDB (2013-2018) overlaps with the inception of the BRI. But according to Caixin, he was never much into the bank’s international adventures, which got expanded substantially under the leadership of Hu’s predecessor Chen Yuan. Hu reportedly shrank the bank’s international presence by cutting its commercial banking businesses overseas and only involved the bank with overseas financing when directed to by the top leadership (e.g. at deal signing ceremonies during state visits). The revelation somewhat shatters outside impression that CDB has been masterminding China’s BRI financing strategies, as one source told Caixin: “CDB almost never proactively sought overseas financing opportunities under Hu.”

Instead, Hu concentrated his political resources on two major clients: HNA Group and CEFC, both were offered exceptionally generous credit lines from CDB (at least 80 billion RMB for HNA Group, 42 billion RMB for CEFC). In both cases, Hu Huaibang rammed the deals through the bank’s internal risk management and gatekeeping mechanisms. In the face of resistance, he did not hesitate to replace officials who dared to disagree. The payback to his family members and political allies was fat, which, at one point, supported Hu’s unsuccessful bid to take the helm of China’s central bank.

As both companies later got embroiled in scandals in 2018 (CEFC founder Ye Jianming was detained in January and HNA Group’s chairman Wang Jian died in France in July), CDB faced the prospect of tremendous loss. HNA Group is reported to have accumulated 40 billion RMB of overdue loans to the bank, while the exposure to CEFC would cost CDB at least another 20 billion. Whether this will dampen the bank’s appetite for increased BRI involvement is unknown. But the Caixin report opened a rare window into the inner workings of arguably the world’s most powerful policy bank, and what it depicts is troubling.

With Belt and Road a top priority in Chinese foreign policy, space for calling out its flaws and problems is inevitably being curtailed. That makes reports such as Depth Paper’s and Caixin’s all the more remarkable, and all the more valuable for Belt and Road Watchers.

 

Following China’s footsteps from Andes to Amazon: advice from a Colombian journalist

Andres Bermudez Lievano, who has covered China for a Latin American audience from Beijing and Bogota, shares his views about how China reporting in the region can improve

China and Latin America exist largely in a commodity-centered relationship that is defined by a distinct close-distant paradox, bound together by increasing volumes of trade but separated by physical and psychological distance.

For Andres Bermudez Lievano, the relationship is both the cause and consequence of inadequate reporting about China’s involvement in the continent. As a veteran China reporter from Colombia, Andres has been following China’s footsteps from Beijing, where he ran a news service for Latin American publications, to Bogota, where he tracks Chinese companies and bird watchers to help readers make sense of a China presence that they hardly understand.

Besides being a reporter, Andres also spent two years working in the government office in charge of negotiating one of the world’s most historic peace deals, between the Colombian government and an armed rebellion group (FARC), that ended a half-century armed conflict. The experience equips him with particular insights into conflicts and how they should be covered by media. A great number of China-related stories in Latin America are conflict-filled, from communities resisting Chinese extractive industries in areas devastated by violence to countries caught in the crossfire of US-China trade disputes. These social and environmental conflicts often lend themselves to simplistic, dramatic presentations that Andres has a bone to pick.

Panda Paw Dragon Claw recently interviewed Andres on the side of a workshop in Yangon, Myanmar, another country grappling with conflicts complicated by a large inflow of Chinese interests. Andres shared his views on how to better tell stories about Chinese overseas footprint in Latin America and offered invaluable advice to peer reporters around the world who are trying to cover the expanding Chinese presence for their own readers and audiences.

Andres
Andres (right) with villagers of Caquetá, a conflict-stricken department of Amazonian Colombia where the activities of Chinese oil companies have stirred up controversies.

Panda Paw Dragon Claw (PPDC): Could you give us an overall picture of Chinese involvement in Latin America, particular in relation to the Belt and Road Initiative?

Andres Bermudez Lievano (A): Latin America has not had a historically significant relationship with China, beyond maybe one or two immigration booms more than a century ago and some ideological connection in the 1950/60s. It’s only since the early 2000s that the relationship started to warm up again due to China’s growing appetite for resources and commodities that Latin America could offer in large quantity.

Now everybody has to face the political and economic reality that China is already Latin America’s second largest economic partner, leading the third by a wide margin. And it has already become the number one partner for significant economies like Brazil, Chile and Peru. Despite the closer economic bond, you still have that simple understanding of China reduced to clichés, in government, academia, civil society and in media. This is made worse by the fact that there is almost no presence of Chinese actors on the ground, except for a couple of Confucius Institutes.

This is characteristic of a commodity-centered relationship which is transactional by nature. You don’t have a long-term China presence that people can relate to. Therefore, we have a big gap between close economic ties and true understanding.

BRI in LatAm

PPDC: How is this reality manifested in media coverage about the BRI and Chinese involvement in Latin America?

A: There are generally two prevalent frames adopted by media reports on China. One is the perception that China is a dangerous actor, that they are taking away everything, they are so strange, you never know what they are really here for.

The second frame is more of a fantasized China. One common argument among many businesspeople who want to do business with China from Colombia and wider Latin America is “there are so many millions of them, it’s obviously a good deal”. But when they come to China, they immediately hit the wall. They do not understand the market and the Chinese consumers. They have never figured out Chinese taste and what ticks the Chinese people. Our understanding of China does not go far beyond the fact that “it has many people”.

This results in a very simplistic coverage about China. It’s already not very often that media in Latin America cover China. Even when they do, they often get it wrong or they get it in a very black and white way. You have a lot of stories about social conflicts distilled into very simplistic narratives (e.g. small communities against monstrous Chinese corporate giants). You have a lot of reporting about trade numbers without even explaining what those numbers mean. When media report on “trade deficits with China,” for example, nobody bothers to explain why it exists or what goods are being traded both ways, leaving the impression that China is invading with cheap imports. However, deficit is not a problem in itself: it’s the nature of the traded goods that matters. Costa Rica manages to sell value-added products like computer microchips to China in large volume. And that tends to be an underreported story.

As the US relationship with China sours there is a new trending coverage, which is how our relationship with China can affect our ties with the US, which it shouldn’t. Unlike a marriage, you actually can have mature relationships with two different countries. Serious countries like Chile, Costa Rica and Peru would argue that they have successful and well-negotiated Free Trade Agreements (FTAs) with both the US and China. Why not?

PPDC: What is the consequence of such simplistic coverage of Chinese footprint?

A: The consequences are manifested on a conceptual level. First of all, we have no nuanced view of the socio-economic or environmental footprint of the Chinese presence. China’s involvement in the continent is complex and multi-dimensional. For example, I have reported on how wealthy Chinese bird watchers create opportunities for conservation efforts in Latin America. And yet a very respected conservation biologist that I know simply couldn’t wrap his mind around that idea as he has been so deeply influenced by the image –which is sometimes also true- of China as a biodiversity “bulldozer”.

When our analytical framework of China is entirely oriented towards commodities, we cannot understand China on a more complex level. We focus our attention on selling oil, soybean or beef to China and think little about value-added products or a more evolved relationship. Moreover, we tend not to see the impact behind the trade numbers. An increase of soybean exports can have a direct or indirect result of deforestation in Latin America. The interactions between those two factors are already complicated and usually there are more factors in play. But in a commodity-driven analysis these other factors do not come in.

Equally importantly is the pervasive inability to understand the internal complexity of China and its many players that are active in Latin America. Lately there has been a lot of discussion in Ecuador about problems with the Coca-Codo Sinclair hydroelectric project funded by China and built by a Chinese company. When cracks appeared in the structure soon after its completion, one major newspaper ran a story titled “Chinese company Harbin will weld cracks in dam”. They didn’t know that Harbin is a city in China, different to state-owned Harbin Electric International Company. This was a story about THE most important China-related project in Ecuador and they couldn’t get the company’s name right.

This is not restricted to Ecuadorian media. We confuse the China actors all the time. Very few major economies have such an intertwined web of companies and government. To understand the entire State-owned Enterprise (SOE) system is not easy. But without that we easily confuse the Chinese government, SOEs and Chinese private companies. And that affects how reporters cover a situation. Contrary to what many believe, Chinese private companies are sometimes more obscure than an SOE when they operate abroad. And they face LESS public scrutiny. A Chinese SOE blundering abroad is a much larger story as they are better known economic players back home and dispense with what’s considered publicly-owned funds. Knowledge like this will help a reporter gain a nuanced understanding of the vulnerability and strength of key Chinese players in their stories.

PPDC: What does your experience with researching and covering conflicts tell you about reporting on Chinese projects in Latin America?

A: You know conflict is one of the areas that I cover the most, so I tend to reflect more on this. Social conflict or socio-environmental conflict caused by infrastructure and extractive projects is an area we are not reporting properly. Seeing the conflicts after they erupt is already a bit too late. But at least we are seeing them. What reporters really need to do is to lift the rug and look underneath.

There are fundamental social fabrics to the conflicts in our societies that aren’t necessarily created by China, but tend to emerge when Chinese-invested projects go wrong. For instance, respecting the rights of ethnic minority groups is an area we are not doing very well. Non-compliance with such rights, especially the right to free prior informed consent (FPIC), is a major issue. Colombia struggled with it. But when I went to Ecuador, I found that many projects literally never complied with it. You can see how in a series of Latin American countries they end up going around rights that are constitutionally protected. Chinese companies can exacerbate this existing situation in our societies because this is part of China’s reality: China has a complicated relationship with its own ethnic minorities and this probably make Chinese companies less sensitive and less likely to understand the importance of compliance.

Another common problem underneath those conflicts is the scarce availability of public records in many Latin American countries. Everything from contracts, relocation plans to environmental impact assessments (EIAs) are very difficult to access, leading to a strong sense of secrecy and mistrust among affected communities. And even when they are available, we as journalists and civil society have another challenge of not having the skills to read many of these documents properly. For example, in an infrastructure deal between China and a recipient country, is it really better for that country to have more equity share in that project than letting China have more? What is the risk-ownership ratio that will bring the most benefit to the country? These are not issues we can properly interpret for our readers unless we have access to the files and can digest them properly.

Another reality that is fundamental to understanding many confrontations surrounding projects is the sophistication of community resistance. Across Latin America, communities have understood that it’s better for them to fight cases legally, as we have relatively serious legal systems, with strong constitutions and well-respected constitutional or supreme courts. Communities are currently winning major cases in courtrooms. This has caught many governments and corporates unprepared. Communities are more legally empowered than before and sharing their legal strategies with peers.

PPDC: On a micro level, what do you look for in a conflict situation? What exactly lies “underneath the rug”?

A: Relationships among different actors involved in a controversial project are entangled. More often than not, it is not the simple equation of A vs. B. Sometimes projects are approved on a national level, but even local governments are kept in the dark. So in a conflict seemingly between a company and a town, there might be a hidden central government and a sympathetic local government involved, let alone a set of secondary players: public “ombudsman” institutions, private security companies, military or police forces, legal and environmental NGOs, indigenous organizations…

Plus, people don’t usually understand that conflict is a process. They don’t just happen in one specific moment but over a long period of time. Part of doing good reporting on conflicts is to understand how they really began and how they play out over time. If you look carefully, you will find that there are usually a lot of myths around the origin of a conflict. All of this helps us understand how tensions escalated and what are the future possible scenarios. 

A good piece of journalism about a social conflict or an environmental conflict should be able to show all the sides involved, the different things at stake, and whether there is space for real dialogue. Actors involved in a tense conflict situation often have a “race-horse syndrome”, limited by a narrow tunnel vision. Our reporting is supposed to render a more complete picture of the problem, and it can potentially, one would wish, enable actors to better reflect on how to deactivate a social crisis.

PPDC: What would be your advice to peer reporters who are keen to shed light on some of the same dynamics around Chinese projects in their own regions?

A: For stories specifically related to Chinese interests, it is important to incorporate the Chinese actors’ point of view.

And in this regard we are oftentimes guilty of not making enough of an effort to contact them. Even though we know they are not likely to answer or they have to refer the request to headquarters in China, it’s important we continue seeking answers from them. If anything, doing so builds pressure on them. And ultimately, the Chinese side need to realize that it does them more harm to not have their side of the story reflected in the coverage.

We need to enhance skills for reporters to understand key documents such as project contracts and loan deals. And we should also be able to fact-check claims from all sides, including the affected communities themselves. I have encountered communities instrumentalized by NGOs and radical groups that shout slogans like “they take our water!” without any specific facts that proves it. Often groups in conflict will emphasize more extreme positions (thinking these are more convincing), when in fact the more interesting nuggets of information emerge when you get past these simplistic and crowd-pleasing soundbites.  

And finally, we reporters need to follow up on projects over time, understanding them as evolving processes. There is a large Chinese mining company in Peru that carried out a huge, ambitious and well-publicized relocation of a local community which was considered a successful case in the industry. For many that was the end of social conflicts and of the journalistic story. At the exact sixth anniversary of the relocation plan we teamed up with a Peruvian outlet to revisit the place. What the reporter discovered on the ground was completely unexpected: instead of a poster child relocation case, it had developed into two different conflict situations. On the one hand, some people still refused to relocate, which meant the original conflict was still there. On the other side, the new town turned out to be not functional. It looked beautiful on photos, but shop owners did not have customers and their living stand had diminished, meaning a new conflict had emerged.

In infrastructure projects we tend to only follow up when something bad happens. “The Chinese built this road or bridge which now has a crack”, we realize. But few journalists come back to check if the bridge is actually being used or if the dam really provides as much energy as the developer says. Going back to check the utility of the infrastructure project is as important as checking the problems it is having.

Special Monthly Round-up: BRI 1.5

The 2nd Belt and Road Forum in Beijing ended with a set of software patches to BRI 1.0

The 2nd Belt and Road Forum ended on Apr 27 with one message that everyone watching seemed to have picked up: change is needed. In the official parlance of the Chinese government, change is expressed in terms of traditional Chinese painting: from a big stroke, impressionist approach (大写意) to a style of precision and craftsmanship that focus on minute details (工笔画). In the words of Christine Lagarde, the head of IMF, change means “BRI 2.0”, with a focus on increased transparency, open procurement with competitive bidding, and better risk assessment in project selection. And in the words of Pakistan’s Prime Minister Imran Khan, a recipient country leader, change points to a new phase of the signature China-Pakistan Economic Corridor (CPEC) that places “greater emphasis on socioeconomic uplift, poverty alleviation, agricultural cooperation, and industrial development.”

BRF2

International coverage of the high-profile event depicts such rhetoric as a sign of China “allaying fear” of the BRI or “rehabilitating” the initiative’s image. Indeed, President Xi’s keynote speech at the forum indicates that China is responsive to external views of the initiative and its policies in general. In fact, the second half of his speech was widely read as sending messages to the West on key trade-related issues. In that sense, the shift can be regarded as an operational system upgrade responding to customer demand. But rather than a major upgrade as Lagarde’s 2.0 metaphor suggests, the changes made are far from a complete overhaul or reinvention.

For one thing, contrary to what leading BRI pundits and think tank experts have been advocating, there is still no sign that China is going to develop an actual “operating system” (permanent institutional structure with explicit mandates/rules) for the trillion-dollar initiative. Those advocates argue that the “under-institutionalized” BRI will be too easily hijacked by narrow economic interests of players involved. And the only thing close to an institutional upgrade coming out of the Forum is a set of recommendations made by the international advisory board to the Belt and Road Forum, which suggests China to consider turning the liaison office of the Forum into a full-blown secretariat for the BRI, or following the examples of G20, OECD or the Financial Stability Board to set up inter-sessional mechanisms to ensure coordination and continuation during intervals of the biannual Forum.

Absent of a major shift of the BRI’s modus operanti, the dozens of initiatives announced at this year’s Forum are more like patches to fix “bugs”. Below are some of those patches.

Framework for debt sustainability

Among the outcomes of this year’s Forum, the Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative published by China’s Ministry of Finance is probably the most obvious attempt to fend off criticism of the BRI, in particular accusations of it pushing excessive debt burdens onto other developing countries.

The new analysis framework was developed based on the IMF and World Bank’s Debt Sustainability Framework for Low-income Countries (LIC-DSF). It rates a country as low, moderate, or high in terms of its risks of being in debt distress, taking into account its debt coverage, macroeconomic projections, debt carrying capacity, among other factors.

Despite being modelled on the IMF-World Bank framework, the MoF tool applies some customization to the methodology that carries a distinct “BRI signature”. For example, when it comes to the relationship between public investment, economic growth and debt, the MoF framework is distinctively bullish about the potential for productive public investment to drive up economic growth in the long run, “while increasing debt ratios in the short run.” In comparison, the IMF, in a 2017 Guidance Note about the LIC-DSF, sounded more cautious on that same topic:

“Proponents of scaling up public investment maintain that productive investment, while increasing debt ratios in the short run, can generate higher growth, revenue, and exports, leading to lower debt ratios over time. At the same time, high economic returns of individual projects do not always translate into high macroeconomic returns. DSF users should therefore carefully assess the impact of a scaling-up of public investment.”

The view that large-scale debt-driven infrastructure investment is “worth the buck” is at the center of a Chinese developmental model that is being promoted through the BRI. And it is not without its value as Bretton Woods institutions like IMF and World Bank moved away from large-scale infrastructure building, leaving a gap in the developing world. And China’s engagement with established multilateral financial institutions is in fact less antagonistic than conflict-filled news reports tend to depict. In April 2018, the People’s Bank of China launched a capacity building center in collaboration with the IMF, providing training for leaders and officials from countries involved in the BRI. One of the training courses the Center offers is on managing debt sustainability. According to the People’s Bank’s website, countries responded very positively to the course, in particular those that are already using the LIC-DSF: Bangladesh, Cambodia, Ghana, Ethiopia, Djibouti, Tajikistan, Uzbekistan, Myanmar and Vanuatu.

But like other patches that are offered at the Forum, the MoF’s framework is a voluntary tool. It is not clear how the analysis can be integrated into lending decisions in the future, except for the possibility that a Multilateral Cooperation Center for Development Finance might adopt it.

Environmental governance of the BRI

Another area where the Forum is clearly responding to external pressure is how it handles the BRI’s massive environmental footprint. “Green” elements were given very little attention two years ago at the first BRI Forum. But the situation is noticeably different this time, as “green” elements were reflected in both the leaders’ speeches and the final ‘list of deliverables’. While criticism of China “lacking real will to address the challenge of climate change as it relates to the Belt and Road” still abounds, climate factors are being incorporated into initiatives announced at the Forum, albeit (again) on voluntary basis.

The “Green” updates rolled out this time include the formal launch of the International Coalition for Green Development on the Belt and Road and the signing of the Green Investment Principles.

The controversial Coalition, first conceived by the Chinese Ministry of Ecology and Environment in collaboration with the UN Environment, was one of the green highlights this year. Consisting of 26 countries, 8 international organizations, 65 non-governmental organizations and academic institutions, and 30 businesses (as of Apr 2019), the Coalition is an “open, inclusive and voluntary international network” to ensure that the Belt and Road brings “long-term green and sustainable development” to all concerned countries, according to the UN Environment’s description.

China’s environmental policy for the Belt and Road has been criticized for being vague and rhetorical. The formal launch of the Coalition at least provides some articulation on what aspects of “green” is China considering for the BRI. According to a Terms of Reference (ToR) circulated to participants of the Forum, the Coalition’s main mission consists of the creation of 3 platforms: a platform for policy dialogue, a platform for environmental information, and a platform for green technology transfer. The activities (divided into core and thematic) are mainly facilitative in nature: policy dialogue workshops, sharing best practices, publishing regular “BRI green development reports”. The structure of the Coalition, with its 10 thematic partnerships, opens a channel for external stakeholders to influence the environmental governance of the BRI on issues from climate change to biodiversity. After all, China’s Minister of Ecology and Environment is its co-chair. But actual mechanism for it to give policy inputs or affect project decisions is unclear. As one participant puts it: “All the measures will probably lead to more green projects, but not necessarily less bad projects.”

BRIGC
Structure of the International Coalition for Green Development on the Belt and Road, from the Coalition’s Terms of Reference

The Green Investment Principles, co-developed by the China Green Finance Committee and the City of London, and signed at the Forum, follow the same facilitative style. According to a People.cn report, the initiators of the Principles will establish a secretariat that offers services for the signatories, which has the China Development Bank, China Exim Bank and Silk Road Fund among them. The services include a database for green projects under the BRI, a carbon emission calculator for development and investment projects, and a knowledge sharing platform.

Project portfolio

One of the most direct tests of all the upgrades and safeguards would be an examination of the actual portfolio of projects that China is supporting in the countries involved. The 2nd Belt and Road Forum provides a glimpse of where BRI is heading in this regard, even though it is understandably too soon for all the initiatives announced at the Forum to translate into tangible influence on project decisions.

Wang Yan from Greenpeace’s China office created a nice list of project deals signed during the Forum. Not surprisingly the list tilts heavily towards conventional infrastructure, comprised of mostly energy projects (concentrated in coal and hydro), railway and urban complex development. It is worth pointing out, though, that within the full list of outcomes, items do show renewable energy projects in the pipeline (e.g. a trilateral cooperation agreement signed among China, Ethiopia and Sri Lanka on renewable energy development).

The thing with infrastructure is that their long shelf life means projects built today will have long lasting effect for decades to come. Well-intentioned policy initiatives and safeguards are only useful if they kick in as early as possible in a project’s lifecycle. Five years and hundreds of projects into the BRI, we are getting a major update from the App provider that will likely only fix bugs of future features if components of the update get activated in a timely fashion.

Monthly Round-up: The Summit

What we know about the second Belt and Road Summit in April 2019?

On Jan 7, a note appeared on an obscure website for exhibition-related information saying that the National Conference Center in Beijing would clear its schedule for the entire April. Events that had booked the Center for April dates would have to give way to a major one associated with “the Party and Nation’s economic and diplomatic strategy.” The 2nd Belt and Road Forum for International Cooperation (hereafter “Belt and Road Summit”) is finally coming.

Dubbed the most important “home-field diplomatic event” of the year, the Belt and Road Summit has sucked up much oxygen from China’s diplomatic and propaganda space as soon as clock started ticking for 2019.

On Mar 8, at a press conference held during the annual National People’s Congress sessions, Foreign Minister Wang Yi highlighted three features of the Summit: higher level (more heads of state compared to the first one); bigger crowd (thousands of participants from 100 countries) and more activities (12 sub-forums and a gathering for entrepreneurs).

While the Summit will certainly be presented as a huge success domestically, the world would probably judge it with a difference set of standards. The information that is available so far can provide some guidance as to what to expect from the Summit.

BRIForum
The Belt and Road Summit’s official website still displays information from 2017. No information of next month’s Summit is available yet.

Roll call

As Wang Yi’s press conference has shown, the number of leaders attending is a key indicator of the global political support the Belt and Road Initiative (BRI) has garnered and will be keenly watched by observers around the world.

29 heads of state (and heads of government), not including President Xi himself, attended the 1st Belt and Road Summit in 2017. This year’s Summit will very likely beat that record given the fact that in the 2 years since 2017, more countries have signed up to the BRI. At the time when the 1st Summit was held, 39 countries or international organizations were on board. According to the National Development and Reform Commission (NDRC), now 123 have formally reached understanding with China with regard to their involvement in the BRI. A portion, if not all, of the new sign-ups will certainly translate into head-of-state participation in the Summit.

But quantity is one thing, some guests are more equal than others. For a BRI that has been dogged by negative media coverage internationally on its setbacks and a “hidden agenda”, high-level participation by certain countries has the narrative busting effect that would define how the Summit is viewed from outside.

Based on existing Chinese language media reports, the leaders who have confirmed attendance include Russian President Vladimir Putin, Philippine President Rodrigo Duterte, Ethiopian Prime Minister Abiy Ahmed, and Kyrgyz President Sooronbai Jeenbekov. While these “old friends of China” can be seen as usual suspects and do not change the dynamics of the Summit, other participants are more interesting. Malaysian Prime Minister Mahathir Mohamad, for example, has accepted the invitation despite his rollback of China invested pipeline projects. The Prime Minister’s renegotiation of Belt and Road deals that his predecessor had reached with China was widely interpreted as an indictment of BRI as pushing unsustainable debt burdens onto other developing countries. His presence at the Summit will help assuage some of the concerns that Malaysia is backing out of the BRI.

Another interesting guest is Italian Prime Minister Giuseppe Conte, whose government’s recent decision to formally endorse the BRI with an MOU drew pressure from Germany and the United States for undermining a Western united front, particularly the G7 group. Italy was reportedly frustrated with the EU’s inaction about its trade deficit with China.

It is worth noting, however, that both Mahathir and Conte’s predecessors were represented in the first Belt and Road Summit 2 years ago. Their appearance this time help to consolidate the BRI’s reception by their respective countries. But at this time of increasing global questioning of the BRI, particularly from the US, what China needs more is probably a breakthrough that resembles Britain’s surprising signing-up to the China-led Asia Infrastructure Investment Bank (AIIB) in 2015. But a polarized us-versus-them atmosphere around on the initiative would make such a breakthrough extremely challenging.

An evolving agenda

Beyond the political symbolism, what the Belt and Road Summit can actually achieve is another question that observers will be asking. For example, Will Mahathir use the occasion to determine the fate of the controversial East Coast Rail Link project that has been hanging in balance ever since his election?

China has its own criteria to gauge success. Dialing back to 2017, the first Belt and Road Summit produced two key documents, a Leaders’ Joint Communique and a List of Outcomes that contains 5 categories, 76 items and 279 action points. NDRC has apparently been tracking the completion of those action points. By Jan 22, 2019, 96.4% of them had either been completed or incorporated into the routine workstreams of the Chinese government.

The List of Outcomes provides a framework of understanding how the Summit’s substance is conceived and organized. The five categories (strategic and policy coordination, infrastructure connectivity, investment & trade expansion, finance cooperation, and people to people connection) correspond to the “5 Pillars” of the BRI. And the 76 items help translate those grand ideas into concrete, measurable steps:

BRIoutcome

Reuters recently got hold of a draft of the MOU that is being negotiated between China and Italy, which illustrates with a concrete example how “strategic and policy coordination” is being formalized at bilateral level. The draft is notably broad stroke but gives a prominent nod to sustainability, Paris Climate Accord and environmental cooperation, invoking an image of “high quality Belt and Road” that Beijing has been touting. While the basic framework of the MOU follows the 5 categories above, Environmental Cooperation is remarkably given a standalone place in the document, no longer a part of the “people to people connection.” The green message is more salient when compared to earlier MOUs China signed with other countries. A 2015 MOU with Poland, for example, was much more rigidly modelled on the “5 Pillars” with a heavy emphasis on infrastructure/investment and no sustainability component.

Some recipient countries have also been pushing to redefine BRI on their own terms. Indonesia, for one, recently laid out four conditions for its BRI projects, which include use of environmentally friendly technology, maximize hiring of local labor, technology transfer and added value for local industry. It is a sign that countries are maturing in their approach to BRI by voicing their own demands and conditions, which may find their way into the BRI agenda reshaped by bilateral and multilateral interactions.

Minister Wang Yi’s press conference also indicates that this year’s Summit might run with an “evolved agenda” by going beyond the original “5 Pillars” and providing more air space for topics that were grouped together before. At the first Summit, 6 parallel sessions corresponding to the 5 Pillars plus one on think tank collaboration were organized. This year, besides the main forum and the Leaders Roundtable which Xi will preside over, 12 sub-forums plus one entrepreneurs convention will also be offered. Information from the Ministry of Ecology and Environment seems to suggest that an ecological sub-forum is definitely being planned. Other topics of sub-forum might emerge in the coming weeks. The general trend appears to be for the Summit to go more granular on issue topic discussions.

Green Belt and Road?

The general elevation of green issues in official rhetoric, MOUs and forum agenda begs the question if any concrete outcomes on the green governance of the BRI will come out of the 2nd Summit.

At the beginning of this year, Minister of Ecology and Environment Li Ganjie announced that the International Coalition for Green Development on the Belt and Road (hereafter “Coalition”) would be formally launched in 2019. The Belt and Road Summit will be an ideal occasion to do that. The Coalition has been at the center of a controversy involving the United Nations Environment Program (in particular its former head Erik Solheim who was forced to resign for violating UN codes of conduct), the United States and China. The UN agency was questioned for its appeared coziness with the strategic initiative of a single member state. Whether China will successfully rollout the Coalition despite the setback is worth watching at the coming Summit. According to Solheim’s vision for the Coalition, which he laid out just before his departure, it should take up the roles of promoting green finance, creating basic principles and standards, and bringing in third parties to help countries along the Belt and Road achieve green development.

It is unclear at this moment whether specific environmental issues will be given a spot in the agenda. For example, China’s involvement in fossil fuel projects along the Belt and Road has received much global spotlight lately. Any institutional development under the BRI on climate change beyond a rhetoric nod will be significant progress toward harmonizing the initiative with the Paris Climate Accord. We have seen some concrete developments on the issue of desertification, where Chinese institutions have mobilized finance, technology and civil society support for afforestation projects along the Belt and Road. The Belt and Road Summit can benefit from an articulation of China’s commitment to “ecological civilization” in the implementation of the BRI.