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The Belt and Road Initiative Is a Corruption Bonanza

Despots and crooks are using China’s infrastructure project to stay in power—with Beijing's help.

BY WILL DOIG | JANUARY 15, 2019

Malaysian Prime Minister Najib Razak (left) shakes hands with Chinese President Xi Jinping during the welcome ceremony for the Belt and Road Forum in Beijing on May 15, 2017. (Kenzaburo Fukuhara-Pool/Getty Images) 

When former Malaysian Prime Minister Najib Razak was ousted from office in May 2018, it’s possible that no one was more dismayed than officials in Beijing.

After all, Najib had granted China extraordinary access to Malaysia. Across the country, huge China-backed infrastructure projects were being planned or breaking ground. But as China’s presence in Malaysia swelled, a scandal was engulfing the prime minister’s office. Najib was accused of massive corruption linked to the development fund known as 1MDB. As the election neared, his opponent, Mahathir Mohamad, alleged that some of the Chinese money pouring into Malaysia was being used to refill the fund’s graft-depleted coffers.

Now, Malaysia’s anti-corruption commission is investigating those claims. And last week, an explosive Wall Street Journal report exposed the most damning evidence yet: minutes from a series of meetings at which Malaysian officials suggested to their Chinese counterparts that China finance infrastructure projects in Malaysia at inflated costs. The implication was that the extra cash could be used to settle 1MDB’s debts. According to the report, Najib, who has denied any part in corruption, was well aware of the meetings.

If true, the report puts tangible proof behind widely held suspicions that China exploits corrupt regimes to propel its Belt and Road Initiative (BRI). The BRI requires China to build infrastructure in other countries—a process that’s fraught with official approvals, feasibility studies, stakeholder engagement, and other bothersome procedures. In corrupt countries, however, many of these obstacles can be bypassed with bribes and back-room dealing—in fact, some of the red tape exists primarily to extort money from businesses. For this reason, it’s easy to understand why China might prefer working with corrupt regimes.

But not just China benefits from corruption in BRI projects. In many cases, the leaders of BRI-recipient countries see the projects as opportunities to sustain and legitimize their own corruption, as well.

Many countries that receive BRI investments suffer from high levels of corruption. On the TRACE Bribery Risk Matrix, most rank in the lower 50 percent, and 10 are among the riskiest 25 countries in the world. They often have opaque legislative processes, weak accountability mechanisms, compliant media organizations, and authoritarian governments that don’t permit dissent.

For politicians in these countries, the BRI offers an array of tools for enabling corruption: injections of easily diverted cash, dazzling infrastructure to placate the citizenry, and the imprimatur of a cozy relationship with one of the world’s most powerful nations—all of it wrapped up in a virtual guarantee that their wealthy benefactor will, at the very least, look the other way if any improprieties should surface, so long as the project in question gets built.

Malaysia has come to embody this dynamic. The new government has unearthed what it says are numerous abnormalities embedded in the previous administration’s deals with China. For instance, a Chinese state-owned enterprise was paid $2 billion in advancefor two Malaysian pipeline projects that it had barely started construction on. Another BRI project, Malaysia’s East Coast Rail Link, was so expensive that authorities suspect its cost was artificially inflated. All of these projects have been suspended while the new administration reviews them.

The excess money generated by these projects was allegedly siphoned off by the Najib administration to pay down 1MDB’s debts. But while Chinese largesse may have kept these deals in the dark for a while, Malaysian voters were ultimately able to hold their prime minister accountable at the ballot box.

Not every country has that option. China’s investments in oil- and gas-rich Central Asia have allowed autocratic regimes in that region to flourish. A prime example is Kazakhstan. The Kazakh government, a veritable kleptocracy, is extremely corrupt. On Transparency International’s 2017 Corruption Perceptions Index, Kazakhstan ranked in the bottom third of 180 countries.

Not only have BRI projects financed this government, but they’ve helped make its leadership genuinely popular as ordinary Kazakhs interpret the flashy newinfrastructure as a symbol of progress. This has been crucial for the country’s rulers, since the health of the Kazakh economy is highly dependent on oil prices and economic fluctuations in Russia. In an analysis of Chinese investment in Kazakhstan, a study from the George Washington University foundthat “Chinese aid, loans, and partnerships … enhance the Kazakh leadership’s ability to stay in power.”

China, of course, struggles with its own share of corruption. In fact, some of China’s own infrastructural marvels have been built through means that were less than scrupulous. President Xi Jinping’s anti-corruption purges have frozen some of that at home. In its construction projects abroad, however, Beijing’s approach seems to be “whatever works.” In no part of China’s lengthy declarationof the BRI’s principles is any attempt made to discourage corruption. And according to a report by Transparency International, no charges have ever been brought in China against a company, citizen, or resident for corrupt practices committed overseas.

If anything, the BRI has revealed that, for Chinese officials acclimated to corrupt environments at home, executing overseas projects through unsavory means comes somewhat naturally. Like many undertakings in China, BRI projects are subject to the slippery Chinese concept of guanxi—systems of mutually beneficial relationships that grease the wheels of many a business transaction. In China, bringing a sprawling, unwieldy infrastructure project to completion without guanxi can seem an impossible task.

But without proper policing, these mutually beneficial relationships are ripe for corruption. A recent study found that “guanxi has profound influence on almost all social interactions in China, whether it is in the government or in business. As such, it blurs the line between normal guanxi relationships and corrupt practices, making corruption an intrinsic characteristic of the Chinese government, as well as the Chinese society.”

While Chinese corruption at home doesn’t threaten to bankrupt the government, Chinese corruption in smaller, poorer countries sometimes does. For some of these countries, China’s BRI project is the biggest infrastructural endeavor they’ve ever attempted—a high-stakes gamble collateralized with mountains of debt. When such projects are approved by local leaders more interested in enriching themselves than in weighing the cost for their country, locals can find themselves crushed beneath the weight of white elephants.

Laos may face this fate. At China’s behest, Laos is building a railway from its northern border to Thailand with a large loan from a Chinese bank. The $6 billion project was championed by the country’s former deputy prime minister, Somsavat Lengsavad, a fluent Mandarin speaker with close ties to Beijing. Somsavat almost single-handedly ushered the project through the Lao bureaucracy, despite warnings from the International Monetary Fund that it threatened the country’s ability to service its debts.

Why Somsavat was so keen on the railway remains unknown, though corruption is rife in Laos, and bribery in foreign-built Lao development projects is common. One foreign diplomat working in Laos says the regular visits to Vientiane by Chinese emissaries “don’t just flatter Lao officials—concrete things get exchanged between Chinese and Lao delegates at these meetings.”

Laos should look to Sri Lanka, where Hambantota Port was built by China under former President Mahinda Rajapaksa. When Rajapaksa faced an electoral challenge in 2015, money earmarked for the port’s construction somehow found its way into the president’s campaign coffers. In the end, Rajapaksa lost the election, and the port proved so unprofitable that the new government was forced to hand it over to China in a debt-for-equity swap.

Deals such as this are a reminder that, for China, the BRI is as much a foreign-policy instrument—and sometimes a domestic political move—as it is an economic program. BRI projects that are aimed at advancing China’s strategic goals, or that are launched by party officials chiefly interested in signaling their loyalty to Xi, will often not produce the kind of economic returns that would pass muster in a cost-benefit analysis. This is why China needs leaders like Najib, Somsavat, and Rajapaksa to get such projects approved, despite their dubious value to the country they’re built in.

But just as China needs these politicians, they need China, too. The relationship between China and corrupt BRI partners is symbiotic and, often, more complex than simple bribery. In Malaysia’s case, it increasingly appears that the Najib administration’s defining aspect, the 1MDB fraud and its subsequent cover-up, relied heavily on infusions of BRI cash. Indeed, if Najib had not been voted out of office last May, his alleged rerouting of Chinese investments might be ongoing to this day. But the problem with leveraging BRI projects to enable homegrown corruption is that once you’re caught, you’re on your own, and China is on to the next big thing.

Will Doig is a journalist covering urban development, transportation, and infrastructure. He is the author of "High Speed Empire: Chinese Expansion and the Future of Southeast Asia."


https://foreignpolicy.com/2019/01/15/the-belt-and-road-initiative-is-a-corruption-bonanza/

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