Infrastructure project managers have been wrongfooted by local controversies
The Ituango dam in Colombia. The project was given the go-ahead despite warnings of potential landslides. This year a landslide forced the evacuation of 26,000 people © AFP
July 9, 2018 1:58 pm by James Kynge
The projects are half a world apart — in Malaysia and Colombia — but their miscarriages are linked by an association with China and the controversies stirred by Beijing’s opaque approach to development finance.
In Malaysia, about $23bn in China-linked infrastructure undertakings were suspended this month as Kuala Lumpur ramped up its investigation into corruption surrounding 1MDB, a scandal-ridden state investment fund. In Colombia, a huge hydroelectric dam partly financed by Chinese state funds is in danger of collapse, forcing evacuations downstream.
The worst of it — for Beijing — is that these are by no means isolated incidents. The instances of Chinese infrastructure schemes overseas running into publicly-reported “trouble” are proliferating, besmirching the reputation of the Belt and Road Initiative, a grand programme to finance and build infrastructure around the world championed by Xi Jinping, China’s leader.
A new study by RWR Advisory Group, a Washington-based consultancy, shows that some 14 per cent, or 234 out of 1,674, Chinese-invested infrastructure projects announced in 66 Belt and Road countries since 2013 have hit trouble so far. Most of the problems encountered — public opposition to projects, objections over labour policies, performance delays, concerns over national security — derive from poor administration.
Lack of governance is to blame, according to Mikko Huotari, deputy director of the Mercator Institute for China Studies, a Berlin-based think-tank: “There is a relative disregard for local conditions, country risks and . . . a general lack of transparency.”
Some such flaws appear baked in. Analysts say the agreement of big China-financed infrastructure projects is often accompanied by a thumping political soundtrack that makes it hard for the recipient country to raise objections if feasibility studies throw up problems.
In the case of Malaysia, Mr Xi lavished his praise upon Kuala Lumpur in 2016, describing ties between the two countries as being as “close as lips and teeth” while Najib Razak, Malaysia’s prime minister at the time, called China a “true friend and strategic partner”.
Mr Najib was arrested this month and charged in a corruption case. The fate of the suspended Malaysian projects, including the $14bn East Coast Rail Link, hangs in the balance as all Chinese projects and “unequal treaties” are reviewed. Ground has already been broken on the rail link, which is 85 per cent financed by the Export-Import Bank of China, an agency of the Chinese state.
The Ex-Im Bank and its sister organisation, the China Development Bank, are the most powerful global forces in development finance, lending more internationally than the six western-led multilateral development banks combined. Nevertheless, their approach to infrastructure could hardly be more different from the MDBs.
The two institutions resist open, competitive tenders for contractors. This has almost always meant that lucrative contracts were awarded to members of a charmed circle of Chinese state-owned enterprises little incentivised to take local concerns on board. Senior management teams are appointed by the Communist party, says Yu Jie, head of China Foresight at LSE Ideas, a think-tank. They may be well equipped with industrial expertise, but not sophisticated management skills or knowledge of host countries.
This means China-financed projects often go ahead in spite of strong local opposition. The $4bn Ituango dam in Colombia, which was part funded by the China Co-financing Fund for Latin America and the Caribbean Region, is a case in point.
In spite of a well-known propensity towards landslides — mentioned in the dam’s environmental impact report — repeated warnings of local activists since 2010 have been brushed aside. This year heavy rains triggered a landslide, forcing the evacuation of 26,000 people while authorities plan for a “worse case scenario” of the dam breaking under pressure.
None of these issues were caused by the funder. Nevertheless, in many countries where controversies over China-funded infrastructure flare up, Chinese officials and executives find themselves ill-prepared for disputes in societies utterly different from their authoritarian home market. Some say Beijing is now intent on learning lessons from past mistakes, even if it takes time. It is a recognition, says Ms Yu, by some Belt and Road companies of “the damage brought about by their sense of Sino-centrism”.