Is China the new World Bank?

Friday, 01 April 2011
Teresita Cruz-del Rosario & Phillie Wang Runfei
BusinessDay

The Chinese are everywhere. Or, more accurately, Chinese money is everywhere, thanks particularly to the China Development Bank (CDB) and the China Export-Import Bank. As the two institutions responsible for all Chinese overseas financing, they are making waves around the world.

According to The Financial Times, Chinese lending in 2008-2010 surpassed World Bank assistance by approximately $10 billion. By the end of 2010, the CDB's reach extended to more than 90 countries, whose total indebtedness reached $141.3 billion.

So, is China reshaping the landscape of development assistance? In a nutshell, yes.

Consider the following: Chinese investment in Zambia's rich copper and coal reserves accounts for 7.7% of the country's GDP. In Saudi Arabia, the state-owned China Railway Construction Corporation built the Al-Mashaaer Al-Mugadassah light-rail project to ease traffic pressure during the annual Hajj pilgrimage to Mecca. There are even said to be plans for an Arctic highway to facilitate trade throughout the polar region.

Closer to home, a Himalayan railway project to link Tibet to Khasa, at the border with Nepal, is currently under construction, with plans to extend the line all the way to Kathmandu, the Nepalese capital. In Cambodia, China contributed $260 million in assistance in 2009, replacing Japan as the country's largest aid provider and overtaking both the World Bank and the Asian Development Bank's lending portfolios. Last year, China signed 14 bilateral agreements with Cambodia, totaling $1.2 billion, to finance every conceivable item, from irrigation canals to uniforms for the Cambodian military.

Recipient governments are reportedly pleased with China's aid approach. For one thing, there is a notable absence of expensive consultants folded into so-called "technical assistance" packages, a practice that has been a key focus of criticism directed at many funding agencies.

Second, Chinese aid does not require pre-project "missions" by bureaucrats who arrive from distant headquarters for a sort of development tourism that wreaks havoc on the routines of the local counterparts who must accompany them on their poverty excursions.

Third, Chinese aid is dispensed rather quickly and unceremoniously, lacking the burdensome fanfare of lengthy negotiations and voluminous project documents, a practice many scholars and practitioners term "checkbook diplomacy."

Fourth, China dispenses aid without compliance conditions such as environmental protection measures or community-participation exercises. Excruciatingly laborious "stakeholder" consultations - of the type that lasted nearly ten years to construct the World Bank-funded Nam Theun 2 hydroelectric power plant in Laos - are not required of Chinese aid.

China's unique aid model is one of the main pillars of what the Chinese scholar Sheng Ding calls the country's "soft power" strategy. Beyond the provision of cheap credit and concessional loans is the global export of China's way of doing business.

As economic relations deepen, cultural relationships develop. Confucius Institutes are sprouting from Sri Lanka to Nigeria to promote the study of Mandarin. Alongside these linguistic programs are seasonal performances by touring Chinese acrobats. Call it global courtship by an avid Chinese suitor.

But worrying signs about China's seemingly benign lending practices are emerging. Chinese financial assistance is tied to the extraction of natural resources, particularly oil and minerals. Environmentalists worry that without a more conscientious "green" component to Chinese lending, unchecked exploitation could lead to resource depletion.

Moreover, Chinese assistance packages often come with Chinese technology and laborers, implying limited employment opportunities and capacity-building for local people. For example, 750 Chinese workers were shipped to Indonesia, along with 630,000 tons of steel, to construct the five-kilometer Suramadu bridge linking Surabaya to Madura.

The need for disclosure and transparency mechanisms has been emphasized time and again. There is no Chinese counterpart to the Development Assistance Committee, which publishes annual reports on global aid flows from OECD member countries. Nor is there an overarching mechanism, as called for in the 2005 Paris Declaration on Aid Effectiveness, that would align Chinese aid with national development strategies, or establish a forum for coordination with other bilateral and multilateral donors. Fears abound that Chinese aid is beginning to run amok.

Concerns such as these are likely to increase as China emerges as a formidable development player. Yet, by and large, Chinese assistance is welcomed rather than feared.

Those who promote equitable and inclusive development wish to see Chinese aid as part of an integrated international community of providers that is governed by responsible co-ownership. This entails fair and open rules, mutual accountability practices, and sustainable development objectives, all of which require active Chinese participation.

In a world weary of the limited effectiveness of most development programs in curtailing endemic poverty, China's growing role in countries around the world provides ample opportunity to reconstruct the landscape of economic aid and financing. But reaching that goal requires a plan, and China must play its part in formulating it.