Tuesday, July 14, 2015

China, Debt, Development Finance and Human Rights (2)

Third International Conference on Financing for DevelopmentThis week, tens of thousands of people are gathering for the development finance summit in Addis Ababa, Ethiopia, in the largest conference Addis has ever hosted. As one of the newest "big overseas lenders," will Chinese banks be represented? My initial scan of the program suggests not. Not a single Chinese entity or individual is listed in the provisional Roundtable program. China's Minister of Finance, Lou Jiwei, will be involved in the third Plenary session, yet there is not a single Chinese representative at any of the official side events. This suggests that there is some way to go before Chinese financiers see themselves as part of the framework of development finance as it has evolved. Is that a good or a bad thing? It depends on how you view that framework and is effect on development, so far.

My post last week on China, Debt, and Human Rights -- inspired by a Voice of America story -- generated some interesting discussion (through emails) suggesting that the Voice of America reporter had not done justice to the material released by Juan Pablo Bohoslavsky, the International Expert on Debt and Human Rights, at his press conference in Beijing. I was urged to read the expert's end of mission statement (preliminary report) itself, released on July 6. It makes interesting reading, for several reasons, including the degree of cooperation from the Chinese government.

Bohoslavsky notes that he received an official invitation for his mission, and that during his week's visit he met with officials in the ministries of Foreign Affairs, Education, Finance, Public Security, Human Resources and Social Security, Housing and Urban-Rural Development, Commerce, the State Council Information Office, the National Health and Family Planning Commission, the People’s Bank of China and the China Banking Regulatory Commission and representatives of the China Development Bank, EXIM Bank China, and the Chinese Enterprises Confederation, including the China Chamber of Metals, Minerals and Chemical Importers and Exporters.

Bohoslavsky also stated that he phrased the dilemma of human rights protection like this:
I posed this question in almost every meeting during this visit: how to reconcile the principle of non-intervention in domestic affairs with the idea of protecting and promoting human rights abroad [emphasis added]? There is in China a sense that this is a delicate, complex but much needed task to be carried out. In my view the solution should be to stress local ownership and the own development priorities of partner countries to achieve social inclusive and sustainable development in line with international human rights standards.
Bohoslavsky got the first part of this exactly right. Yet his solution is problematic. Ironically, Chinese banks -- like other export credit agencies and multinational commercial banks -- already stress local ownership and development priorities of partner countries (read: governments). They take a "hands off" approach, providing the finance and expecting the borrower/owner to manage resettlement, compensation, and other thorny issues. Thus, it is very often weaknesses and shortfalls in the borrowers' own systems--under local ownership--that results in aggrieved citizens, who have lost homes and livelihoods without an adequate response from their governments.

The mission was able to pose some tough questions to people in responsible positions. Bohoslavsky noted that on paper, Chinese companies and lenders are supposed to apply standards, for example, on green credit. But he was "informed that so far no sanction has been applied by the Chinese authorities to Chinese lenders and corporations for overseas investments that may have contradicted the Green Credit Guidelines."

It is tough to do interviews on these issues in China. Chinese banks are unlikely to provide examples of their responses to environmental/social issues because they would consider these highly sensitive matters not for discussion with “outsiders” and seen as the internal affairs of the borrowing country. If these issues arose and were dealt with, they would (as Bohoslavsky noted) have been viewed as the borrowing country’s “internal affairs” and this is not something that can be discussed in public. Yet there are some examples in Africa where it appears that Chinese lenders have halted loans, or Chinese companies, adjusted their approaches to mitigate environmental concerns.

According to a fascinating case study published in 2007 by the World Wildlife Fund, engagement among local and international NGOs, Gabon ministries, and a Chinese oil company that was prospecting for oil in a Gabonese national park led to a collaborative effort to mitigate impact.

Peter Bosshard at International Rivers, an activist NGO, wrote an optimistic post in 2010:
… we have witnessed progress on the ground in Gabon. With support from China Exim Bank, Chinese investors plan to develop a huge iron ore deposit in this West African country, complete with a hydropower dam, railway line and port. Brainforest, Gabon’s inspiring environmental NGO, sent a letter to the Exim Bank pointing out that the dam was proposed to be built in a national park, and would violate its environmental guidelines. In due course, Brainforest learned from the Gabonese government that China Exim Bank had suspended the project over environmental concerns. In a separate development, Sinohydro agreed to work together with the Global Environmental Institute, a Chinese NGO, in an effort to address the social and environmental impacts of the Nam Ngum 5 Dam in Laos. 
Environmental and social impact of Chinese lending overseas is an important area, but not my own research focus -- so I welcome other case studies, if anyone has them. 

Friday, July 10, 2015

Will China Provide $1 trillion in finance to Africa by 2025? NO WAY

Will China provide $1 trillion in finance to Africa by 2025? No way. 

I really wanted to avoid analyzing this silly story, even when I was bombarded by colleagues sending me the link to the November 2013 South China Morning Post story quoting China Eximbank' chief country risk analyst as saying that China will provide $1 trillion in finance (investment, soft credits, commercial loans) to Africa by 2025, i.e. over the next 12 years. I wrote about it in another post on Zimbabwe, but never tackled it head on.

Let's unpack that a bit. For 2011, the SAIS China Africa Research Initiative has confirmed around $9 billion in Chinese loans (and loan commitments) in Africa. These are still mostly from China Eximbank, although China Development Bank is increasingly active. Chinese FDI in 2011 was $3.17 billion by official figures. According to Derek Scissor's China Investment Tracker, FDI was over $10 billion in 2011 (this only includes deals valued at $100 million and above).  So if we figure that Chinese finance in 2011 was about $20 billion, is it likely that we will see an additional $1000 billion ($1 trillion) by 2025?

No. As the article points out, this would mean $83 billion per year, on average. The China Eximbank official said that China Eximbank will provide "70 to 80 percent" of this amount. The entire continent's infrastructure deficit is estimated to be about $93 billion annually, but absorptive capacity and bankable projects are far below that figure.

Perhaps this another example of bad translating. How many times have I seen a translator struggling to convert Chinese numbers (based on 10,000 or "wan" where one million is 百万(or "a hundred ten thousands") into the system we use of thousands, hundred thousands, and millions? Although many stories have now spun this as a "pledge" or "commitment" of finance to Africa, I haven't seen a retraction, but I also haven't seen the figure repeated again by any Chinese official.

Update, July 28, 2015. A reader, Xiao'ou Zhou, commented that in fact China Eximbank did issue a denial of this story (in Chinese) on December 5, 2013.  They also noted that there is no such position as "chief country risk analyst" at the Eximbank. Thanks for the good research, Xiao'ou.

Wednesday, July 8, 2015

China, Debt and Human Rights

Photo:  C. Chappat / Biblioteca de la ONU en Ginebra
Not long ago I received an email about a visit to Beijing being planned for Juan Pablo Bohoslavsky, the United Nation's Human Rights Council's independent expert on debt and human rights. It unfortunately got buried in my inbox as I was finalizing the new book and then heading off to Ethiopia for a conference and some research. Now I see that he has completed his trip to China. His report will be finalized soon.

A story in the Voice of America website, "UN fears Rights Violations in China-Backed Projects" suggested that the UNHRC was concerned because their research suggested some patterns in Chinese finance. 
Investigations by the UNHCHR [sic] show Chinese companies and financing institutions have little concern about human rights violations surrounding projects promoted and financed by them across different countries, including some in Africa.
This concerns the United Nations because Chinese institutions and companies are funding more projects globally than the World Bank, the U.N.’s independent expert on finance and human rights said at a press conference Monday in Beijing.
Whenever I see claims about what China is doing abroad, I'm curious about the evidence. I looked on the website of the UNHCR to see if they had published their investigations and found a stack of interesting studies here. What a great resource. Systematic research on these issues is clearly growing, with environmental issues receiving the bulk of the attention.

Do Chinese institutions and companies fund more projects globally than the World Bank? "Funding" has a lot of meanings. Since the special expert's mandate is to consider debt, we can focus on loan-financed projects. Let's look at Ethiopia, since they are one of the largest clients of both the World Bank and Chinese banks. The table below is drawn from the Debt Management office at the Ethiopian Ministry of Finance and Economic Development. It compares Chinese official debt disbursements with World Bank (IDA) disbursements, over the last five fiscal years. All figures are in millions of USD.

         2009/10     2010/11     2011/12     2012/13     2013/14

IDA         525            394            551            773            851
China      169            299            372             743         1324

Source: Ethiopia Ministry of Finance and Economic Development

Commentary:   Disbursements allow us to see the figures that are actually in play, rather than commitments that might not come to pass. The Chinese figures here probably do not include disbursements of several very large supplier-financed, non-government guaranteed credits to the Ethiopia Telecoms Corporation from Huawei and ZTE for telecoms projects. Commitments made to future projects and funds disbursed after mid-2014 (for example on the Addis-Djibouti Railway) are also not included.

Without accounting for inflation, the World Bank had disbursed $3094 million in loan credits since 2009, while the Chinese government has disbursed $2907 in official lending -- but their growth rate is a lot steeper. So if there are higher levels of official finance from the World Bank side, this is likely to change very soon.

What about numbers of projects financed by each? The World Bank's website says that they have financed 25 projects in Ethiopia between 2009 and 2014 (this does not include "additional financing" for existing projects). According to the Ethiopians, since 2009 there have been 21 separate loan-financed projects from China, including those financed by suppliers' credits. So, more projects financed by World Bank credits than by Chinese loans. I expect this to continue, as the Chinese have very limited manpower to develop projects: hence, fewer but larger projects.

And human rights? It is ironic that the focus on human rights and debt at the UNHRC has its origin in concerns about "the effects of structural adjustment and economic reform policies and foreign debt on the full enjoyment of all human rights, particularly economic, social and cultural rights."  The World Bank, of course, was often criticized for its role on these issues (along with the IMF). It is a sign of how things have changed that the World Bank is now seen as more progressive and helpful, while the new bankers in town -- Chinese bankers -- are seen as the new threat.

Note: This story was updated on July 14 after I received the Independent Expert's statement.