Bribery helps China buy new friends overseas [incl. Hun Sen's regime]

Crooked construction? (Photo: AP)

April 26, 2007
Michael Backman
The Age (Australia)

Last year, China offered Cambodia $US600 million in loans, again with no strings attached. Cambodia awarded China oil extraction rights at about the same time.

NOT long ago China had almost no investments abroad. Today Chinese companies are big foreign investors, particularly in developing countries in Africa, South America and Asia. How do they do it?

One factor is that China now has a lot of cash and is happy to pay top dollar, particularly for resource investments. Another is that Chinese officials and business people do business in the way that they do it at home: they pay bribes. In fact, evidence suggests they behave even more corruptly abroad.

China has ratified the UN's Convention Against Corruption — China routinely ratifies such conventions and passes legislation but often it is for international consumption.

China's Government enforces laws only when it is expedient to do so. It is very good at enforcing rules that restrict the media, for example.

But when it comes to intellectual property protection laws, they are barely enforced at all.

It is the same with the UN Convention Against Corruption.

So, when it comes to paying bribes abroad, out of the 30 countries that Transparency International surveyed last year, China ranked second only to India as being home to the companies most likely to pay bribes overseas. Most Chinese companies that do invest abroad are state-owned. Not only does China invest in highly corrupt markets where China has an advantage over Western investors, it invests in places that many other investors won't touch politically.

These are countries such as Zimbabwe under Robert Mugabe, Burma under its military regime, and Sudan, whose particularly odious and murderous Government China has essentially helped to prop up. Indeed, when US and Canadian oil companies could no longer tolerate Sudan's regime and left the country, China stepped in.

Before China's arrival, Sudan was a net oil importer. China helped in building wells, refineries and a huge oil pipeline. Now, Sudan exports oil, mostly to China.

In Ecuador, when US and European companies, tired of the persistent corruption at state oil company Petroecuador, left the country, China entered. Its state oil companies have spent more than $US100 million ($A120.8 million) on oil drilling and exploration in the country, apparently untroubled by the working environment.

Nigeria is one of the world's most habitually corrupt countries. It is oil rich but its people are poor. Last year, the China National Offshore Oil Corporation paid $US2.3 billion for a 45 per cent stake in an oil and gas field, one of the largest acquisitions abroad by a Chinese company.

An Indian oil company had earlier won the contest for the field, but the Indian cabinet blocked the deal because it was not obvious who the local Nigerian partner would be.

The Chinese were not so fussy.

Aid and soft loans have become part of China's trade and investment strategy. All countries do this to some degree. But China's approach is a little different. Its loans and aid come with few or no strings attached.

That seems like a good thing on the face of it. But World Bank and other aid usually is tied to reform. Future lines of credit, for example, are contingent upon anti-corruption and other measures being put in place. If the World Bank finds that funds for a project are being misused, then the bank might suspend the project, for example.

Not so with China. Its loans and aid come with no provisos or penalties. Some governments now solicit Chinese assistance ahead of help from the World Bank, the IMF or the Asian Development Bank because the governments do not need to agree to governance reforms. This undermines the good work these institutions try to do.

For example, in 2005 China offered Gabon in Africa an aid package that came "without any political conditions", as President Hu Jintao explained in a speech to Gabon's Parliament. Last year, China offered Cambodia $US600 million in loans, again with no strings attached. Cambodia awarded China oil extraction rights at about the same time.

Last year, China's Exim Bank announced it would give the Philippines $US2 billion in loans each year for the next three years. China has even given financial assistance to Burma, when every other aid and multilateral lending agency is no longer willing to lend to it on account of human rights concerns.

On top of this, aid bodies complain that China is secretive about the aid that it gives. The recipients of China's largesse don't mind. From their perspective, China is not patronising or intrusive. To them China adopts the position of an equal rather than a patron or conqueror.

Of course, China is not an equal. Aid packages nearly always are followed by the recipient giving China investment concessions.

In this way, China is forging a common economic community built on poor governance and a tolerance of corruption.

michaelbackman@yahoo.com