China's Belt and Road Cracks Down on Corruption in Image Revamp
Chinese President Xi Jinping’s grand Belt and Road Initiative is getting a makeover to tone down government rhetoric and tighten oversight, after allegations of corruption and a lack of sustainability dogged some of its highest-profile projects.
Beijing is taking a range of steps to exert more control over the program, officials and participants said, including a more muted publicity drive, clearer rules for state-owned-enterprises, restricting use of the BRI brand, and building overseas auditing and anti-corruption mechanisms. It’s also stepping up efforts to get developed nations to join in to spread the risk of building projects in poorer nations and to counter allegations that BRI is just an attempt to build China’s political influence.
China’s Foreign Ministry referred questions for comment to the National Development and Reform Commission. The State Council Information Office and NDRC didn’t reply to faxes seeking for comment about the Belt and Road Initiative.
"The Chinese government had a great sense of frustration as the latest criticisms not only come from developed but also developing countries," said Zhu Feng, dean of the Institute of International Relations at Nanjing University, "The international pressure is working to compel China to move forward."
As global leaders gather in Beijing this week for Xi’s second Belt and Road Forum for International Cooperation, China is having to defend its image in the light of the trade war with the U.S. and growing concern about Beijing’s political and economic influence in Asia and Europe. Authorities have purged terms in state media and official statements that have driven anxiety of China as a menacing power, from its "Made in China 2025" campaign to the decade-old "Thousand Talents" program to encourage talented Chinese workers living overseas to come back home.
"Since the trade war erupted, China faced domestic and international resistance and encountered setbacks in several countries which made the party rethink the publicity, especially on an international image," said Suisheng Zhao, director of the Center for China-U.S. Cooperation at the University of Denver’s Josef Korbel School of International Studies. "But I don’t think changes in the tone will make a difference. China’s international image has changed fundamentally from a moderate China to an assertive China."
The evolution of BRI also reflects a need to ensure more robust standards expected by developed nations as China works to extend the initiative into Europe. Italy’s announcement this year that it will participate in BRI -- the first Group of 7 country to sign up -- was a big win for China. But negotiations with other major European Union nations face major hurdles over regulations and standards, said a person familiar with the discussions. Stumbling blocks include the request that financing meet the standards of the International Monetary Fund and EU, the person said, without providing more detail.
“Extending cooperation with developed countries means it has to keep up with Western standards," said Zhu Feng. "China is increasingly emphasizing third-party cooperation so as to increase compliance and transparency.”
Third-party market cooperation -- signing up a developed nation to help build infrastructure in one of the Belt and Road countries -- is the focus of the next phase of BRI, according to a government official involved in China’s overseas development. This is a way to depoliticize the BRI and China will sign documents with Britain, Switzerland and Austria on this kind of cooperation during the forum, following similar agreements with France, Spain, and Australia, said the person. That official, like other government bureaucrats, did not want to be named because they are not authorized to speak publicly on the matter.
Austrian Chancellor Sebastian Kurz said last week he will take part in the forum in Beijing but won’t sign a formal accord to cooperate like Italy. The Swiss government said it will sign an agreement to help Swiss banks and insurers finance projects in some Central Asian countries, while U.K. Trade Secretary Liam Fox said Britain would only sign a pact with China that met its “ethical parameters.”
Some observers say the changes China is proposing may not go deep enough to fix major issues of concern. To really clean up the program, China should terminate projects that have generated significant problems, forgive debt to countries that are in a precarious financial position due to Chinese lending, and reduce China’s ownership of projects to below 50 percent by bringing in high-quality international partners, said Daniel Kliman, senior fellow in the Asia-Pacific Security Program at the Center for a New American Security.
That’s unlikely to happen because it would undermine the Belt and Road’s ability to advance Beijing’s geopolitical ambitions, he said. "China recognizes the growing backlash, and is now trying to rebrand the Belt and Road," said Kliman, who thinks that any changes China did announce would be just cosmetic.
One area that China has targeted is corruption. Xi’s six-year-old domestic anti-graft campaign has rebuilt the political atmosphere at home, with over one million officials punished. Now officials are trying to find a mechanism to grapple with corruption linked to BRI projects overseas.
That’s not going to be easy. Most BRI projects are in junk-rated countries, often with poor reputations for financial transparency. A report from the Washington-based Center for a New American Security said that "in countries that already have a high level of kleptocracy, Belt and Road projects have involved payoffs to politicians and bureaucrats."
Xi initiated a "Clean Belt and Road" drive in 2017 during the first BRI Forum and called for stronger international cooperation against corruption. That campaign is being led by Li Shulei, deputy party chief of the party’s Central Commission for Discipline Inspection, said a person familiar with the matter.
Li, 55, is a former academic who entered Peking University when he was only 14, and first worked under Xi back in 2008 when he was the head of the Central Party School. The CCDI has teamed up with World Bank to train representatives from state-owned-enterprises.
A big part of the effort to clean up the BRI are new rules being formulated for overseas investment and operations of SOEs, which are by far the biggest investors in BRI projects. Central SOEs have undertaken 3,116 BRI investment and infrastructure projects, according to the State-owned Assets Supervision and Administration Commission. SASAC and the CCDI separately issued two guidelines in 2017 and 2018 which required state enterprises to increase supervision of overseas units and personnel.
“China is trying to rethink a little bit of this," said former World Bank President Robert Zoellick, referring to the governance of BRI projects. “Chinese technocrats are very capable people and they know that some of these debt problems will explode at some point, so it’s better to be transparent about the debt going forward.” he told Bloomberg News on the sidelines of an event in Washington on April 11.
China has stepped up auditing of overseas projects and investments by SOEs, according to an official familiar with the matter. Regulators now require companies to do better due-diligence early on to prevent them from jumping into projects without proper evaluation of risks that might "leave loose ends and bury landmines," the person said.
Belt and Road projects overseas have exposed a lot of issues in the past few years and SOEs have been identifying and summarizing the shortfalls, a person who drafted the internal compliance rules for a major central SOE told Bloomberg. The focus in the future will be placed on overseas compliance.
One of the critics of the BRI projects in his country was Malaysian Prime Minister Mahathir Mohamad, 93, who demanded a renegotiation of the China-backed East Coast Rail Link. That had been approved by the previous government and Mahathir eventually reduced its scope and cut costs by a third. In a speech on April 16, his Deputy Minister for International Trade and Industry, Ong Kian Ming, spoke of the “backlash and global scrutiny” caused by some BRI projects, and the accusations of “inflated prices” that created a financial burden on governments.
Challenges for Belt and Road Projects: Bloomberg Intelligence
"There’s been an unrecognized freeze on SOE investment,” according to the American Enterprise Institute’s Derek Scissors, and part of that is due to the BRI’s political problems. “This is an undeclared rectification campaign, to last at least through the April summit. The corruption in BRI countries hasn’t changed, only now China finds it embarrassing,” according to Scissors, who’s an economist at the Washington-based policy research group. He recorded no large SOE investments in February.
That’s backed up by official data showing China’s non-financial overseas direct investment in BRI countries grew 4.2 percent in the first quarter of this year, the lowest since the initiative began and well below the 22.4 percent expansion a year earlier.
But while SOEs may be getting more scrutiny, private companies remain largely unchecked, said one Chinese official. The government has no immediate solution to this and a systematic method of supervision is too difficult to implement in the near future, the person said.
One clear change is that China has adopted a much more nuanced approach to publicizing Xi’s initiative. A month before the first summit two years ago, the Communist Party mouthpiece, The People’s Daily, launched two new columns and a special edition as part of what it called “unprecedented” coverage of BRI in the run-up to the event. This year, it ran only about 10 BRI stories in the first half of April.
State-owned media are no longer being ordered to pull out all the stops in covering the forum, which is the highlight of China’s home-based diplomatic events this year, three people familiar with the matter told Bloomberg. The government acknowledged that the previous media campaign was too high-profile and portrayed China and BRI as too aggressive, one of the people said.
Even if China’s efforts to clean up its flagship international program end up being largely cosmetic, Beijing’s lessons from its economic relations with the U.S. and Europe may have wider consequences for Xi’s effort to build the nation’s international status.
“China is accumulating experience of engaging with the world,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing. “The lessons it has drawn from the trade war and the BRI made its foreign policy smarter in the short term.”
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