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Is the Belt & Road Initiative based on unequal treaties?

Is the Belt & Road Initiative based on unequal treaties? In May 2018, just after being elected, Malaysia’s Prime Minister Mahathir Mohamad stated that ‘China has a long experience in dealing with unequal treaties and China resolved it by renegotiation. So, we feel we are entitled to study, and if necessary, renegotiate the terms’. He was referring to the terms of a Chinese loan for East Coast Rail Link (ECRL), a US$20 billion project which is 85%-financed by the Chinese Ex-Im Bank. The China Communications Construction Company is the lead contractor for the construction work. As is reported by the South China Morning Post, there is considerable confusion regarding the current status of this project [Malaysia’s ECRL: US$20 billion rail deal still ‘being negotiated’, says Mahathir Mohamad]. However, it is clear that the current Malaysian government regards the terms of the loan unfavourable.

The term ‘unequal treaties’ is closely associated with the history of imperialism in Asia. By making this statement Mahathir Mohamad not only started the renegotiation process, but he also implicitly accused China of behaving like an imperialist power. The scholar Matthew Craven has argued that the historical unequal treaties in Asia combined three main elements of inequality. First, their contents included limitations on sovereignty. Second, they were non-reciprocal. And third, coercion played a role in the bargaining process that produced the treaties. Unfortunately the ECRL loan contract is not public so we cannot be certain whether it includes limitations on Malaysian sovereignty. However, the current government’s main objection to the deal seems to be related to the interest rate and the project’s economic viability, rather than any infringement on sovereignty. Lack of reciprocity could apply in the sense that major infrastructure projects in China are not similarly open to Malaysian companies, but this does not appear to be an issue for Malaysia. Also there is no indication that China coerced Malaysia into accepting the loan. Still, rather than coercion, corruption might have been a factor that played a role during the pre-contract negotiations. Officials of the current government have said that they believe that the previous prime minister, Najib, accepted an unfavourable ECRL deal in return for Chinese companies buying assets from 1MDB, a Malaysian development company. Allegations that Najib transferred funds from 1MDB to himself are being investigated.

The notion of unequal treaties, in the original sense, cannot easily be applied to BRI. However, the role that corruption plays in BRI deserves more attention, regardless of whether or how this applies to the ECRL case. The bribe of officials or politicians by companies is a serious problem but not necessarily or uniquely tied to historical instances of imperialism. However, if it should turn out that China uses its financial power and state-owned enterprises to systematically exploit weaknesses resulting from corruption in developing countries, and if the Chinese government does this knowingly in order to achieve long-term influence in those countries, then it becomes a different matter. If this would be the case then perhaps some elements that existed in 19th-century imperialism do play a role in BRI. A crucial factor in establishing whether this applies is whether or not the Chinese government takes serious efforts to keep Chinese companies from engaging in large-scale corruption in developing countries.

Frans-Paul van der Putten
Clingendael institute


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