The presence of China in Africa is widely speculated upon (and wildly misunderstood). Joining us today to speak to the truth of the matter is Sinologist-Africanist Professor of International Development at Johns Hopkins University School of Advanced International Studies, Deborah Brautigam. Deborah is also the Director of the China Africa Research Initiative (CARI) and the author of Will Africa Feed China? and, more famously, The Dragon’s Gift: The Real Story of China in Africa. In this episode, she shares her nuanced perspective on the Chinese development model and aid program in Africa and how the rise of NGOs has shifted the nature of aid, in general. We discuss the role of aid as a geopolitical instrument and the differences in the ways China and the West approach the funding of infrastructure in Africa. We learn about Chinese loans versus commoditized loans, the lessons China has learned through its various endeavors, and the lessons Deborah suspects it is yet to learn. Tune in to hear more about China in Africa, the balance of ensuring sustainability and respecting sovereignty, what’s causing the decline in Chinese infrastructure lending, and where China’s focus has turned since the pandemic.
Key Points From This Episode:
- Deborah Brautigam’s interest in the Chinese development model and aid program in Africa.
- The argument of her first book, Will Africa Feed China?
- The problems Western aid projects have faced.
- How the rise of NGOs has shifted the nature of aid.
- The accountability structure of China in Africa.
- Aid as a geopolitical instrument.
- The two primary sources of finance for infrastructure in Africa: China and the bond markets.
- The Japanese Goa formula and its impact on Chinese aid practices today.
- How Chinese commodity-backed aid differs from that of Western entities.
- Zambia’s privatization of their copper mines.
- Why commoditized loans have a bad reputation.
- The advantage Chinese loans have over commoditized loans.
- Competitive bidding and external supervision of Chinese infrastructure in Angola.
- China’s reasons for supporting the developing world in the 60s and 70s: to support socialism and wrest diplomatic recognition away from Taipei and towards Beijing.
- The lessons China took from undertaking the Tanzam railway project in the 70s.
- Tazara Syndrome: the pride of funding projects nobody else wants to fund.
- The art of project appraisal and how to minimize risk in demand projections.
- China’s Belt and Road Initiative (BRI).
- The balance between ensuring the sustainability of aid projects and respecting sovereignty.
- How political interests undermine the ability of state-owned enterprises to be sustainable.
- The specialization and division of labor between China and the West.
- The Western profit model of new urban agglomerations.
- The misguided New Yorker report on debt-trap diplomacy in Sri Lanka.
- Reasons for the recent decline in Chinese infrastructure spending.
- China’s plans to focus on local infrastructure.
- Various views on China’s motives amongst policymakers.
- Deborah’s book recommendations pertaining to Chinese issues.
Kurtis: Welcome to the Charter Cities podcast. I’m Kurtis Lockhart. On each episode we invite a leading expert to discuss key trends in global development in the world of cities, including the role Charter Cities and innovative governance will play in humanity’s new urban age. For more information, please follow us on social media or visit chartercitiesinstitute.org.
Kurtis: Today on the podcast, we have Deborah Brautigam. Deborah is a Professor of International Political Economy at Johns Hopkins School of Advanced International Studies. She’s also the director of the China Africa Research Initiative, or CARI, also at Hopkins. Deborah is a leading expert on China in Africa and has authored many books, papers and articles on this subject, including the book, The Dragon’s Gift: The Real Story of China in Africa, which is about the history of Chinese aid, infrastructure building and engagement with the African continent from post-World War Two to the present. Enjoy the show. Hi, Deborah, welcome to the show.
Deborah: Thanks, Kurtis. Good to be here.
Kurtis: Okay, so Chinese aid and infrastructure building and the belt and road initiative, all very hot topics in recent years. I think, it’s fair to say that you’ve been writing and researching about this space for a long time, much longer than is usual. You first went to West Africa, I think in 1983 to research Chinese aid in Liberia. You actually wrote your book, The Dragon’s Gift about Chinese aid and infrastructure in Africa back in 2009, which was before it BRI and everything, was announced in 2013. So let’s begin here. Why was this an interesting question to you in the early 1980s when I don’t think really anyone else was paying attention to it?
Deborah: Yeah. I’d like to think that I was really prescient, but I knew one day this would be a really hot topic. But I have to say The Dragon’s Gift was actually my second book or my third really, but the first book that I wrote about China and Africa sank a stone. Nobody was interested in that topic at all, but I was, because I was a student not only of China, I was a sinologist, I studied Chinese and lived in Taiwan and Hong Kong for a year and a half, did intensive Mandarin.
I was interested in China’s development model, and I was interested in how they had gone through this whole Cultural Revolution period and then had started to move to the market. I wanted to see what aspects of that, if any, were reflected in their aid program. I wanted to know if they did things differently than the way the West was doing aid in Africa. So that’s what I went off to study. At that point, I was looking mainly at agriculture.
Kurtis: You go off to study for your Ph.D. research in the early 1980s. What were the biggest key takeaways, the biggest learnings from this early fieldwork in West Africa? I think was more than Liberia, right? You went elsewhere?
Deborah: I was in Liberia, Sierra Leone, and The Gambia. I wanted to pick three different countries with different experiences. I think the main takeaway is and that was the argument of my first book, was that even though the Chinese started out the same in all three countries and they started the same, because and all three countries, well, in two of the three countries, they picked up projects that Taiwan had abandoned when the country concerned switched diplomatic ties from Taiwan to picking for Beijing.
The Taiwanese went home and these agricultural projects that they were also doing there. They all started out the same, but they all ended up very differently. So my argument was that it really was not so much what the Chinese were doing, but what the African governments did that determined the outcomes of these projects. I think that finding is still very salient today. It’s not so much what the Chinese do, it’s what their partners do that really determines what happens and the fate of what happens overseas because it’s much more influential. A host government because they’re on the ground. They’re the ones that have the wherewithal to make or break these projects.
Kurtis: This gets back to a theme from your 2009 book, which is Feeling the Stones, really tailoring to local context and responding and being adaptive over time, which will get throughout a conversation here, but first, you have this great bit in the Dragon’s Gift, the 2009 book where you go over the historic trends in aid over the decades. You started in post-World War Two with President Truman’s 1949 inaugural address where you stressed the need to give assistance in developing countries as part of this battle between democracy and communism, putting aid in a Cold War context.
Back then, the Truman administration saw aid as aiming to increase industrial activity and boost production and you have a good Truman quote in your book, where you said greater production is the key to prosperity and peace, and the key to greater production is a wider and more vigorous application of modern scientific and technical knowledge. I think this is generally correct.
Then I look at, for example, the World Bank today, and most of their projects have shifted from infrastructure projects and factories pre-seventies to largely health and education and more social welfare projects today. Then on the other hand, you have China, the ostensible communists in the room, and now the Chinese seem to be the ones focusing on these Truman-type projects that boost industrial activity and production. So it’s a big irony to me, a reversal of roles. So in your view, what happened to bring these shifts about?
Deborah: Well, there were a few things that happened in the West. I think with regard to the Chinese, they didn’t really shift. They’re applying their thinking in China, which was that industrialization adding value to raw materials. This is how you move up the value chain. They would think of this as structural transformation. So that’s, for them, what development is about, it’s about moving up the value chain. It’s about increasing the application of science and technology to production processes, becoming more sophisticated in those areas.
To do that, you need some basic things. You need roads, you need ports, you need electricity. So all this is energy-intensive, it’s infrastructure intensive, so that’s what they do and that’s what they think that, that’s worked for them. Although there are debates about people study China, about whether they invested in infrastructure at the early period or a later period, I think it’s clear that even though there are some disputes about that, they did invest in infrastructure and if you just look at their development of roads, highways, railways, whatever, you look at ports, it’s quite dense.
When you look at the African continent, we see a paucity of infrastructure. It’s extremely sparse, paved roads, access to electricity, even the quality of ports, railways, it’s poor, it’s weak. What’s there, much of it is left from the colonial period. So what happened in the West was that there was an emphasis on going into these projects in the 1970s and then they had problems. Part of it was problems with maintenance, part of it was problems with corruption, part of it was that a lot of the companies that were trying to get these projects going were accepting or giving kickbacks to the governments and the governments themselves were weakly able to maintain the projects.
The infrastructure investments that went in, there was a feeling among the donor community that they weren’t necessarily good uses of that money, but then there was a second thing that happened, which was the rise of non-governmental organizations, NGOs, that lobbying activity pushed the way that we were thinking of aid into different sectors. So aid into basic human needs for example, that started to get big in the seventies and into the eighties. There was also a whole thrust of aid into policy reforms. So trying to get countries to have better policies and later that turned into better governance.
It’s really been a shifting recipe, I would say. I make that argument, The Dragon’s Gift to with the West has had a shift always a belief that we know what Africa needs to do and poor countries need to do. We’re quite sure what they need to do, but that surely shifts over time. It’s the recipe keeps changing. So it moves away from infrastructure. I think there were some good reasons to be critical of what happened. I think the Chinese are running into some of the same problems with maintenance and with some white elephant projects and not always careful feasibility studies and the lack of follow-through by the host governments and there are a number of cases where the host governments have not been able to keep the projects going or take them and run with them the way a Chinese entity would be able to do in China.
The West went too far in the other direction. They basically abandoned infrastructure. There are some who say that the kinds of things that we’ve gone into in the West for example, health and education are things that perhaps local governments should be doing more of for themselves. We have cases where there are some – I remember some counties in Kenya where they had more services being provided by Western NGOs than were being provided by the Kenyan government. Some might argue that this takes away from the pressure on governments, from their citizens to provide those services themselves, if foreign aid is providing that on a regular basis.
Kurtis: Yeah. We had Sebastian Mallaby on our podcast earlier this year, who’s a journalist. He wrote a book on the World Bank, and he mentioned something similar about the rise of NGOs and especially their influence on the bank and what it focuses on in their ability to, if not gum up the bank’s ability to act decisively and at least shift focus from its historical focus on infrastructure to these other sectors. One of the things they’ll never forget, I was — this was in Ghana. This is in Ghana in 2010, I think. I went up north and there’s a city in the north of Ghana called Tamale.
It’s basically just a town full of Western NGOs. It’s an NGO town that’s just a bunch of foreigners that dominate this town. It was the weirdest, strangest thing I remember. What I took from that afterwards was a lot of people criticize the Chinese for these projects not being accountable to the locals or the host countries, but you could make the same critique of a lot of these NGOs, but they’re not technically accountable to the locals or the host country. They’re accountable to their poured into their donors, so, yeah, that was one of the takeaways for me.
Deborah: I think a lot of people in developing countries appreciate the services and the help that NGOs are providing. There is that feeling also that they are operating extraterritorial. The Chinese, it’s an interesting thing about accountability. I think they do tend to be accountable to the host governments, but maybe not to the parliaments or not even to all the different parts of the government. They’re always accountable to the presidents, so when the president wants them to do something, they’ll hurry up and do it quickly. So they really have this fine-tuned sense of who’s running the country and who they need to be accountable to.
Kurtis: Yeah. I read this study. I think it was AidData at the College of William & Mary where they found that when it’s a Chinese aid project, it gets a little skewed towards the president’s home district relative to World Bank-run projects.
Deborah: They would have no problem at all doing that. I’ve even seen Chinese news reports saying, “Oh, yes, we put these little schools in the president’s hometown and, yay, it was not a good move.” That’s a good thing from them.
Kurtis: This conversation so far, hints at this model of the aid sector that crystallized to me reading for your book and I want your thoughts on this. So basically, maybe what I see this model as is aid as a tool of maybe foreign policy and an instrument of realpolitik. These swings in NGO politics over time is why perhaps you see swings in what’s in vogue in the aid sector during any given year or decade.
The part in your book that spoke to me about this was, there was this transition from Truman’s boosting industrial activity and production in the 1950s towards this more integrated rural development, IRD in the late sixties, and that lasted a decade or so under McNamara at the bank. Then this could be seen as a way to stem off the red scare at that time, prevent rural areas who were the most susceptible to communist propaganda from being wooed by communism. Then there’s the side point that the fact that McNamara, who before he became president of the bank in 68, he led the bank’s transition of world development. He was actually secretary of Defense and in charge of the Vietnam War.
This fits in with this more geopolitical model of aid and then you fast forward a bit and in the sixties when international competition or I should say the 1990s when international competition was reviewed reduced with the end of the Cold War and the dissolution of the USSR, you had Western aid agencies perhaps get a little complacent. There was no other competitors or suppliers of aid. In every other market when you’re the sole monopolistic supplier, there was a lack of inventiveness and maybe innovation in aid. Fast forward again to today, with China’s rise, you have this increasing international competition again. There is increasingly another aid option, another aid supplier on the table.
Some, perhaps Western aid agencies have to get more creative. They have to shake off this complacency and get a little more competitive to be attracted to recipient countries. So I guess is what I’m saying is perhaps China’s increased foray into the aid world could have some indirect benefits by just waking up some of these Western aid agencies after a pretty long stupor. That was long-winded, but does this more geopolitical model of the aid sector resonate with you?
Deborah: Well, I think aid is a geopolitical instrument. It comes from governments, except if we’re talking about the non-governmental sector, but what we’re talking about, the US government and other governments and the aid they provide, it is about geopolitics. Aid has to be voted on by Congress, so Congress is subject to influence by different stakeholders. So I haven’t studied this back in the 1960s and seventies, but I do know that back in that period, construction firms and the kinds of businesses that would benefit from that infrastructure projects were much more powerful in the United States. There were just more of them.
If you look at how the top 100 firms in the engineering and construction sector have changed over time, it’s really been quite remarkable, even in just the past 20 years. There used to be a number of US companies in that top 100 that are just not there anymore. Instead Chinese companies have taken their place essentially. So this creates these constituencies that are the domestic pressure for spending. You can see that now it’s consulting firms and NGOs so that our money is going into health and into mainly health if we look at Africa. It’s about 70% into health.
There are a whole bunch of – I’m saying this at my university, Johns Hopkins University, our School of Public Health gets a huge amount of money from this because we’re sending teams out there. Bloomberg gets the money from Bloomberg, but we also get it from the US government to support things like PEPFAR and the other health programs that are out there. So we’ve got teams out there that are monitoring all this. A number of my former students who are working for those entities, but these are the ones that then keep that pressure going, because it’s their interest now, and that they believe that’s important and it is important. But it’s no longer that Bechtel and the other construction firms that are they’re lobbying for projects.
In China it’s not like that, it’s the construction firms that are lobbying. They’re the ones that want that aid money to be sent into infrastructure projects. The Chinese see this as a win-win because they do have overcapacity in these sectors and they need to move it offshore. It ebbs and flows. If they need a stimulus back home, which is the case now, they’re going to be emphasizing infrastructure back in China again, because that creates a stimulus for growth at home and there’s less finance available. We’re seeing a collapse of the overseas development finance.
That’s one more thing, Curtis. We’re talking about this in terms of aid, but for the Chinese, really, if you look at their finance that’s coming out of China, that’s going into infrastructure. By and large, more than half of it is commercial. Quite a bit more than half, I would say. The subsidized portion is really in Africa. It’s only about 15 to 20%. The rest of it is commercial finance. Then we get into some very interesting comparisons because you’re not really comparing with USAID anymore, which gives grants. You’re comparing with the bond market because that’s the other big source of money for infrastructure. If the bilaterals and the multilaterals are not providing money for infrastructure, but you can issue a bond, then you can use that bond money to build your roads and pay for infrastructure. So that’s the other source aside from the Chinese, the other major source.
Kurtis: This is good, because this takes us back for a second, because in the book you write about China’s early experience with aid. This early experience is really China’s experience as an aid recipient. You say that this early experience is the key to understanding China’s current practices around its infrastructure building today. So you talked about Japan’s foray into India first in 1958. I think this Goa formula, which was then used as the model to establish an aid relationship where it’s really more of a mutually beneficial relationship non-aid relationship with China in 1973. So can you talk about this Japanese Goa formula and its impacts on Chinese practices today?
Deborah: Well what the Japanese did in Goa was to provide finance for coal. I think it was a coal mine and there may be an infrastructure associated with that. Then they allowed India to repay that with coal exports. So that was a way of securing the loan in a risky country, building something that could then create revenues out of I don’t remember all the details of that, but I think it was coal-related because I remember just the visuals of the devastation around that.
Kurtis: I think it was iron. I probably read the book more recently than you did. Okay.
Deborah: Okay. So it was iron ore, but they secured that loan with exports. So it was iron ore and not coal.
Deborah: Okay, because in China it was coal. Coal and oil. They developed the same approach and they did this in the 1970s before China was a member of the World Bank, before other international banks were operating in China. It was a highly risky place. It was actually the Chinese government and the Japanese government got together and negotiated this deal which involved commercial banks from Japan, but it was brokered by the government and it was said they would provide a $10 billion line of credit and China could use that to have Japanese companies develop ports and other kinds of important infrastructure and it would be repaid by oil exports and coal exports that were already going to Japan. They set this up with escrow accounts, so their relationship began, and it was only later that they started providing foreign aid. The first relationships were these commercial loan relationships.
Kurtis: Basically just to sum up, the Japanese financing came not just with aid money, but with the needed equipment and the technical training. It wasn’t given in exchange for nothing. In return from India in the first case, and then later China, Japan was guaranteed imports of important raw materials from India, iron from China, oil and coal. I think, the ending India gave Japan something 2 million tons of ore, per year for ten years to repay the loan.
My question is, I guess other than China today. Do Western countries engage in this commodity-backed aid? For example, what I first thought of when I read this bit of your book was the DRC and Zambia with lots of the minerals needed in the production of new batteries increasingly important in the rise of solar. So other than China, are any Western actors going in and saying, Hey, Zambia, hey DRC in exchange for X amount of these battery-related minerals will not only give you the money needed to extract these minerals, but also state of the art equipment and if needed, technical training and management. Does this happen or is this just China?
Deborah: Yeah. In the DRC of course, China is doing this and its Chinese state-owned companies, mainly in the construction area, and they’ve gone into mining. So they have an iron ore export. It’s the revenues actually from exports that have secured these infrastructure lines of credit in the DRC. What we see and the Chinese have not done this in Zambia for a very important reason, which is that Zambia privatized all of their copper mines. So they don’t really have assets that they could use that the government controls so they could use to partner with the Chinese in this area. This has not happened in Zambia at all.
It did happen in the past, but not with the Chinese. Zambia had mortgaged its copper exports for these kinds of deals in the past, but that was many, many decades ago. So when they privatized their minds, they weren’t any longer able to do that. They have since bought or they’re buying on a timeshare deal. They’ve re-bought back one of their mines, so they’re paying for it, but they’re going to have to use those copper exports to pay the owner, I think with Glencore for that mine that they purchased, so that they can have a lot of extra, at least for quite a while, until they pay off that loan, essentially, the loan that they used to buy the mine.
You ask our Westerner or entities in the West, and I would say absolutely, entities in the West are doing this. What’s happening is, it’s the commodity traders that do this. So they provide much shorter-term lines of credit, but they don’t link them to infrastructure. So these are lines of credit that are then repaid by these exports. The term of the loans is much shorter than what the Chinese provide, which is usually around ten, 15, even 20 years. But do Western governments do it? The answer there is no, they don’t. These kinds of commoditized loans have a bad reputation, I would say in the West. The World Bank and the IMF don’t like them.
The reason why they don’t like them is that, what happens when you have a loan like this is that you have exports going off through a contractual relationship to a buyer, and then part of those exports go into an escrow account that is then used to repay those loans. It could be Glencore, Trafigura, these Swiss-based commodity traders are big at using this, and they’ve been using these to sell Sudan and Republic of Congo, DRC and other places. But that means that other lenders, they don’t really have these are not very transparent. They don’t know what’s happening with these export revenues that the countries should be earning. They’re not really coming back to the country until they aren’t available for other lenders who may have also made loans to this country.
It’s an untransparent way of doing lending. The World Bank and the IMF, the IMF in particular, would really like countries not to do this anymore and just to set things up in to a straight where the government, the central government, pays for the loans out of their general balance of payments the way they would do with others, but the lenders say, well we’re not willing to lend that, because the cost of lending them, because the risks go up so much, if you don’t secure the loan somehow. The country wouldn’t be able to really afford the external credit. It’s not like a lot of other countries are lining up to provide infrastructure finance in a place like the DRC.
What’s different about the Chinese loans and why I think that they have a huge advantage is these commodity traders, as I mentioned, they don’t link their loans to infrastructure and the Chinese do. There are lots of challenges with that, for example, is the infrastructure going to be well supervised? Are they going to have bidding, competitive bidding on it? The way Angola set it up was actually quite clever. They ensured that there were at least three Chinese companies bidding on every project, so there was competition. So that was one way they tried to ensure that they got better prices.
They also hired a German engineering company called Gulf to supervise all of the infrastructure that the Chinese companies were building in Angola. As a result, you really don’t hear, of course,` Angola is not a very open country in terms of news media, but you don’t hear that much about problems of the infrastructure it seems to be being built and holding up and so on.
Kurtis: Yeah. One thing that leapt out at me about China’s early aid experience, this is going back to seventies, eighties, I guess. Was that it was between 67 and 76, you said, Chinese aid, which was at that time China was very poor. At that time, I think incomes per capita were around $115, so very, very poor. Yet between those years, 67 and 76, you said they averaged around 5% of government spending each year, went towards aid and this is under Mao during the Cultural Revolution. China was giving away 5% of its government expenditure every year and I was like, this is even way more than the typically less than 1% of government spending that now really rich countries give. How was this possible? How was this justified? I just couldn’t wrap my head around that when I saw that figure.
Deborah: It was a time when they were really trying to build alternatives and support in the developing world for two reasons. One was the support for socialism. This was aid money that went to North Korea. It was aid money that went to this huge Tanzam railway in Tanzania and Zambia, and it was money that went to other socialist countries. So the Chinese were trying to create this alternative or bolster this socialist alternative to what the West was doing, but the other thing that was really important is that some of this money and I wouldn’t say it’s the lion’s share by any means, but there was this full-court press to try to wrest diplomatic recognition away from Taiwan, because in the 1960s up until 1971 more countries recognized Taiwan as the government wall of China.
It’s just the one-China policy, Peking or Beijing was completely out and Taiwan sat in the United Nations, they sat in the Security Council and this was the Republic of China or Taipei. There was just they ignored that there was another part, that there was this whole government in charge of the mainland that didn’t have any representation anywhere. So the Chinese were using aid as part of the thank you package and or part of the lure to get companies to break off ties with Taipei and recognize Beijing, so that was happening at the same time. That was an investment, but it wasn’t really the big money. The big money was much more North Korea.
Kurtis: Yeah. You mentioned the Tanzam railway. Let’s go there. Tanzam is the Tanzania-Zambia Railway. I think you said it was the largest Chinese aid project undertaken at that time. It was built between 1970 and 1975. The World Bank turned this project down. They said it was not feasible. I think other richer governments turned it down as well, but China built this railway anyways and at the time I think it was some 2000 kilometers long, the longest railway on the continent that went from the copper mines in Zambia’s north to the port of Dar es Salaam in Tanzania and the Indian Ocean. What lessons did China and this is in its early phase of aid giving, what lessons did China take from this huge, gargantuan Tanzam project?
Deborah: On the one hand, they did learn a lot of lessons and one of the important ones was the problem of building something and then turning it over to the host government, then hoping that it will be sustainable. Jamie Monson, who’s a professor at Michigan State University and the head of the African Studies Program there, has done a lot of research on this railway.
She show us how well they tried to train people. During the Cultural Revolution, when the universities were shut down in China, they opened up the Jiao Tong University, the railway and transport universities so that they could bring people from Tanzania and Zambia to train them in China.
They were training them on all these different aspects of railway engineering. When those people went back to those countries, they were well trained, they were engineers, and they got jobs somewhere else. They didn’t necessarily get jobs on the railway hub. They couldn’t actually ensure that well-trained people were keeping these railways maintained. Then the countries were very poor, so just keeping up with the spare parts and what it costs to run a modern big railway like that was hard for them, and they were also mismanaged. So here were these big State-Owned Enterprises, and they could shovel in supporters and provide jobs for them, so they all had multiples more people working for them than were really needed. So it was hard to keep them afloat in terms of just the operations and maintenance, let alone repaying the loan.
They sent people back to help. They sent Chinese technicians to help keep it running. That has gone on, sometimes they’re there, sometimes they’re not there. It went on for many decades, but there was a lesson that I think they didn’t learn, and that was why I sometimes use this phrase more recently to talk about Tazara Syndrome. I think Tazara Syndrome, is almost this pride that the Chinese banks and the Chinese funders and the government get from funding a project that nobody else wants to fund.
Kurtis: Money mentalism, right?
Deborah: Yeah. That’s one way to put it, money mentalism, but they have this idea that these projects can stimulate growth. They can have a multiplier effect. They can have externalities beyond the project itself. All those things are probably true, but I think they’re over-optimistic about it. So they have to say, oh, the World Bank’s analysis says that this won’t be cost-effective. Well, we think that this looks like something that has a lot of potential anyway. It’s almost like the field of dreams. I know one of my colleagues has written about a train that’s been built in Southeast Asia by the Chinese. It’s partly a direct investment by them. He has a field of dreams approach to build it and they will come.
They don’t always come up. That’s part of the problem. So I think they’ve overdone it in a number of cases. You could look at Hambantota Port and Sri Lanka. We could talk about that, but that’s one where there was a lot of optimism. I think even the feasibility studies that were done for that were quite optimistic. They had Danish and there was a Canadian feasibility study, but when Sri Lanka got, when the port was built and the Sri Lankans were running it, they couldn’t generate business. It was a lot harder than they thought to bring in the traffic.
Kurtis: Yeah. Just so everyone knows, Tazara there is another synonymous name for Tanzam, the railway project. This is interesting on this topic of the Chinese could have this tendency or B charge to have this inclination to be a little pie-eyed and optimistic in their initial scoping of a project. I was reading some early documents around Shenzhen SEZ, and there was a, I think the World Bank had looked at the project and saw that some of the Chinese projections and they were this is ridiculous.
The World Bank projections, I think the population in early in the early 1980s was around 100,000 people, a loose collection of fishing villages in Shenzhen and they were projecting that I think by 2000 or the late nineties that there would be 800,000 folks in Shenzhen. Of course, you and I know the story that in fact, that was not optimistic at all. There are 7 million people in Shenzhen by 2000. So I totally understand the pie-eyed thing that they can be a little overly optimistic and perhaps that allows them to greenlight a project that maybe should not have been greenlit. At the flip side, a lot of projects have overshot expectations a lot as well and I’m cherry-picking here, but Shenzhen is a clear example of that.
Deborah: I think, the analysis and I’ve done this professionally myself, but project appraisal is really an art. It depends on your assumptions and assumptions are inherently you’re guessing about these things. So you can make your guesses and more optimistic way or you can make them in a more pessimistic or realistic way, but we don’t really know what, for example, we’ve been looking more recently at the standard gauge railway in Kenya, and we don’t really know what’s going to happen.
What is the competitive environment going to be in East Africa? Is Tanzania going to get their railway built before the Kenyans get theirs into the DRC? Who’s going to be able to bring the minerals out, which are really going to help pay for these railways? It’s — a lot depends on a lot of factors that you don’t have control over.
Kurtis: Have you seen interesting this just your standard gauge railway fact prompted this. Have you seen any interesting ways to minimize risk around those demand, especially demand projections in these project appraisals? Because that’s really where it becomes an art, like you’re throwing a dart at a dartboard.
Deborah: Well, just to have a sensitivity analysis to the different assumptions, I think with the SGR, the demand analysis is pretty sound. It was not optimistic that the SGR would be able to repay the loans out of its revenues. It could meet its operating costs, but it wouldn’t be able to repay the loan. I think that’s what our analysis showed, too. It doesn’t. It doesn’t able to repay the loans. I think that there’s more when you look at what the railway has done for other parts of Kenya and what it could do, it’s increased the value of Mombasa port because they’re not just now they have the smooth transition. It’s from the port to the railway to the inland ports.
It’s not hundreds of hundreds of trucks that are all jostling there and a really inefficient, old-fashioned system. In Europe, they’ve made a decision in 2011 to move all of their freight was more than 300 kilometers. They were going to move to moving it by 30% of all the freight should move either by rail or by water by 2030 and by 2050 it should be 50% and this is for environmental and congestion and safety reasons. It’s not just that it makes sense economically in fact it doesn’t, but trucks and roads don’t have the externalities that they cause, the pollution, and the congestion. They don’t pay those prices themselves. I mean they might in the gasoline taxes and things like that, but there’s a lot of they aren’t necessarily paying for it directly.
Kurtis: I saw this in my research, but on the Tamzan Rail Project, a fun fact that I found was it turns out when Beijing hosted the Summer Olympics in 2008. The Olympic torch, they started in Tanzania at the Grand Terminal of the Tanzam Railway. There you go. Decades later and it was still this huge point of pride. So to your point about money mentalism word to Tazara syndrome, it’s alive and well in the 21st century, but this is a good transition to I think the BRI today, because you just talked about the standard gauge rail, for example. China didn’t build a railway in Africa after Tanzam for another 41 years until it had announced to this new BRI, Belt and Road Initiative.
When it did start building railways again, it seemed to have learned from its experience with Tanzem from some of the things that you brought up. So it was only in, I think 2016, 2017 trying to get back into the African rail building business, which I believe was three different lines in the standard gauge rail that you mentioned, but also one in Nigeria, the Abuja-Kaduna Rail, and then one in Ethiopia and Djibouti, the Addis Djibouti railway line. What I was reading was that there were two main differences. One is while in Tanzam, Tanzam was 100% financed by interest-free loans, and these new lines were funded through interest-bearing loans and they required, I think, a matching by the African governments, so their skin in the game. Number one.
Then number two, while Tanzam was, you said, immediately hand it over to the Zambian and Tanzanian governments, these new railways today, they were actually instead concession, I think, to a Chinese operating company for the first, I believe, five years or so. So what were the key ways in which Chinese aid has morphed and evolved from those early years till today?
Deborah: Well, the three railways that you’ve mentioned, none of them are financed, as far as I know, by Chinese aid. These are all commercial projects or they have a preferential export buyer’s credit, which is also not a foreign aid, not what we would call official development assistance. So that speaks to an important aspect of this, that these projects are really projects that Chinese companies lobbied hard for. The governments wanted them, but the Chinese companies that built them also worked really hard and they started working toward these projects long before the BRI was ever mentioned.
The Nigeria project that goes back to the first decade of this millennium, while the Chinese started building portions of that and it’s rolled out very slowly, whereas the one in Ethiopia and the one in Kenya were much more rapid, but they were all started before the BRI became a thing. They all represent Chinese companies taking advantage of desires by the borrowing governments, the host government. So for example, in 2004, the East African community made a decision that they were going to redo their railways and they were going to make it all standard gauge railway. This then created consulting firms coming in and doing studies. There were engineering firms coming in who wanted to do these projects and we’re cozying up to the host governments. Like what happened in Kenya was a Chinese construction company said, “We can, if you give us a contract for this. We can work really hard to get you finance.”
They went with a no-bid arrangement. It was a single source contract which just ended up being politically quite contentious. In fact, it was even ruled to be illegal by a Kenyan court to procure the railway in this manner. The west railway is already they. Nothing’s happened, because they can’t ship it home, again. That’s a common thing that Chinese companies do, if they say, if you give us an EPC, an Engineering Procurement and Construction contract plus finance, then our responsibility is to go out and get the finance. So they will lobby the bank, the China export Credit Agency or China Development Bank. In this case, all of these were China export credit agency, EXIM Bank. They lobbied that bank to support the project.
Kurtis: You mentioned management in your answer. This was and continues to be, I think, a key point to me. You said it was, I think, first premier Zao in 1982 and 83 on his tour of Africa, where you started to, I guess, update or change the early Chinese aid model a bit, because one of the problems at the time was that when an aid project in Africa was finished, as you mentioned, and the Chinese managers left, the project would pretty quickly start to head south. So Zao, in order to address this, proposed that then Chinese managers should be embedded in these projects over the longer term to ensure proper maintenance and management of the projects such that the initial investment was recouped.
This is interesting because this is one of the things that a lot of Western aid gets criticized for is being overly project-based. The project is approved, money flows in and the project completes. When money stops and the Western aid workers transfer the project to the recipient government and then leave, or like you said, it’s outsourced to this NGO community. When I read this, I saw this in some of the villages that I’ve worked in for example, in Sierra Leone. I was working with this agricultural social enterprise, the West African Rice Company. It was a bunch of Argentinean farmers who had this rice company and other aid workers, and they actually owned multiple farms and they live in the country and they’ve been there for many, many years.
Then on the way I remember this, we were driving to the farm and we passed this World Vision Project sign in one of the villages, and one of the Argentineans basically scoffs World Vision, what a waste. They get money for a project, they do the project, and then they leave and then everything just goes back to the way it was. Here’s my question. How do you balance the need for being managerially embedded in some of these projects to make them sustainable over the long term, on the one hand, with the need to respect sovereignty and local ownership, on the other?
Deborah: You know, Kurtis, it’s such a good question. I think the entire aid community really grapples with this, because this question about sustainability of a project’s benefits is a really hard one to guarantee. I remember back in Liberia, I have a friend there was running an agricultural project for USAID, and he was asked to write out a plan for how the project would be sustainable after aid funding ended. So he wrote, well, it will happen this, this, and like that. Then the aid mission director said, “No, no, it’s not going to work that. Do it over again.” So he said, “Okay, it’ll happen that, that, and this.” She said, “No, no, that doesn’t look like it’s going to work.”
Then he pondered and they said, “There will be a miracle and the project will become sustainable.” It’s so sad because Liberia at that time in the 1980s it was right before the civil war hit and it was none of those projects were sustained. Not that people knew the civil war was going to happen in 1989, but it is really tough because part of the challenge is actually what the aid community does in that we keep coming in with new projects. So all of those personnel and the people that were trained, first of all, we tend to hire them into our projects. Someone’s been nicely trained, we take them out of the government and we have them work for us or an NGO. So they’re –
Kurtis: The Tamale NGO organizations.
Deborah: Yeah. Then we also just spend a lot of government’s time trying to just meet all the requirements that we have, all the accounting requirements, let alone all the different ways that we do projects. So we make it harder for some of these governments to actually pay attention because we shift our attention onto the next thing, so they don’t necessarily have the capacity to both the next new thing and keep the old thing running. So the Chinese saw that this was happening. They did try it. It’s part of the way they approach foreign aid, not necessarily their commercial projects, but the foreign aid once they do put a lot of emphasis on training people, but they saw – I saw two things that were happening back when I was looking more closely at the aid projects is that they would sit there and all the Chinese experts would be there. They kept saying, would you please give us our counterparts? Send the counterparts and the counterparts would just not be assigned because there just wasn’t anyone to send out there or anyone that was ready to go out there. Or they would be assigned when the project was almost ready to be finished, so it was really hard for them to just pick up the pieces and make it keep going.
They developed this way of having Chinese experts come in and they didn’t come for free, so they actually had to be paid. I remember in The Gambia they had to be paid something $500 a month to pay for their salaries and their housing and all this to keep the stadium running because the Gambian government wasn’t able to just take it over and keep the lights on and so on. So that was really debated in China because they looked at it at first as being interfering in the internal affairs of the host government to actually be running these government-owned projects once the aid finished and completed.
In order to keep the benefits rolling, that’s what they did. So you can see fast forward to today, that’s exactly what happened in Kenya with the Standard Gauge Railway. In fact, the initial contract was for ten years and it had within it, they said after five years, both parties can reconsider this, but it was part of the contract that there should be a ten-year contract given to a Chinese company for ten years. They were training people. They had people off in China going and doing master’s degrees in engineering and all of this, but they’re facing some of the same challenges, so you can’t force those people to come back and work for the railway. But the Kenyans, we’ll see what happens. They decided after five years that they would take it over. So we’ll see how it works under Kenyan Management. I hope it’ll work really well. If they have the capacity to do it for sure, but then political interests can really undermine these State-Owned Enterprises and their abilities to be sustainable, that’s a challenge.
Kurtis: Yeah. This point about management is interesting, because it came up recently when Chris Blackman was on the podcast a few weeks back to talk about his book in some of his research on factories in Ethiopia. He makes the point that a huge constraint and challenge that the owners of these big factories have is finding middle managers and managerial talent that can actually administer these large factories effectively over time. This was this was one of the key binding constraints. I think Chris said, “If I could go back sometimes in another life, I think I may have chosen to be a business consultant or management consultant or a banker M&A guy in some of these countries because that’s the big talent or managerial gap in a lot of these places.”
Deborah: That’s so interesting because we’ve been training people and we’ve been putting a lot of money into for people to work for NGOs and health and things like this. Really, management talent is huge. The ability to engineers and managers, those sorts of skills are pretty weak.
Kurtis: Okay, so you probably get asked to compare Chinese and Western aid models all the time. So I’m going to do something similar here, but hopefully, it’s a little different than what you typically get. If we step back a bit and we’re told in economics that each party, whether it’s an individual or business or a country, each party should pinpoint its comparative advantage and specialize in that compared advantage. If I look at Chinese and Western aid models, they’re actually to me in a lot of ways pretty complementary. China builds things quickly and cheaply, but they lack transparency and are weak on other safeguards. The West takes a long time to build things and it’s more expensive, but they are transparent, typically safer, follow more standard good governance practices.
I’m thinking there’s room for specialization and division of labor to work their magic here, where China perhaps does the building and Western aid agencies do a lot of the advisory services in governance around the actual project. Are you in favor or not? What are your thoughts?
Deborah: You know Kurtis, that’s actually happening right now at the World Bank because the World Bank is pretty much a Western organization and the US has a veto there. Their infrastructure projects, the majority of those projects, at least in Africa, are carried out by Chinese companies that’s not necessarily the majority in terms of over 50%, but they’re the largest single country companies from China win those contracts. When they’re running the World Bank project, they’re doing it in a much more sustainable way. Those projects are only financed if the World Bank’s analysis shows that the net present value will be positive and they’ll have total return that can repay the loan.
Environmental and Social sustainability analysis are all carefully done. We actually do have a model, so that’s coming from the contributions of members like us. It sounds like National Public Radio or something, but for the contributions of members, the contributions, the United States, China, Germany, all these other countries that contribute into IDA, which is all funded by donors. So could we do that outside of the World Bank? Well, one possibility is actually expanding what the World Bank does and doing more infrastructure.
Another possibility is having something like the Asian Infrastructure Investment Bank, which was set up by the Chinese as a majority shareholder. This is a very well-run bank. It’s got membership of all the major players except the United States and Japan, who both stayed out even England, jumped in, the UK is a member, Australia, all these others, France. So the AIIB is a good example also of how you can use best practice and fund infrastructure. This is a Chinese-dominated institution, so having that expand.
What you’re not going to get is projects that are going to be a fast. You’re not going to get the ones that are questionable in terms of they have great externalities, but it’s really hard to fit those into the model, but they might be better for a country’s debt profiles because we are seeing, it’s not as bad, I think, as many people think in terms of the Chinese role in the current situation in a lot of African countries, but in a number of countries it is pretty bad. Like Zambia, for example, Ethiopia, the Republic of Congo, those are all places where Chinese lenders are the problem, of course, the borrowers, the ones that borrowed it, but the Chinese are the number one creditor in those countries, and that’s for infrastructure projects that are not carefully assessed.
Kurtis: Basically, you’re saying that this specialization that I asked about is happening already. I think, that I remember from CSIS’ Reconnecting Asia data set on Chinese-backed projects across the world. I think they found that they said Chinese financed projects contract with Chinese firms about 90% at a time, but multilateral finance projects like the bank that you talked about, actually contract with Chinese firms to a surprising degree. I think their number was about a third and it was 29% of projects are contracted with Chinese firms. But to your point, again, the World Bank isn’t doing a lot of infrastructure projects anymore.
Ideally, they would shift a little bit to these much-needed infrastructures and filling this huge infrastructure gap in deficit a little more. Then they have that specialization already in place. One of the things that I obviously want to talk about is we are the Charter Cities podcast. One thing that we’ve been thinking about a lot at CCI is about what has happened historically when these huge infrastructure-building initiatives occur like BRI. We now have Build Back Better World.
Looking back at some of the big historical infrastructure projects, they often result in urban agglomerations or new cities forming around the nodes of these projects. We can look at the Erie Canal, which basically created Buffalo and Chicago and Detroit, Saint Louis. Same — similar situation with Panama and the Suez and even the interstate highway system during Eisenhower Post World War Two resulted in this huge growth of the Sun Belt cities in the US. I’m curious if you were anybody else that CARI or other BRI scholars you know of our, looking into this part of BRI and Build Back Better World.
Deborah: Well, the short answer is no. No one, that CARI is looking at this, but I do know that there are people in geography who have been looking at some urban impact of Chinese infrastructure engagement. Mostly these are scholars in Europe, so either in the UK or in Germany, other places where they’ve been looking at that. I know this David in France, he was one of the early people looking at that. The Chinese have, for example, in Angola. One of the things that was financed was the city, Kilamba Kiaxi. A100,000, I think, was inhabitants for 100,000 people. Luanda, which is the capital of Angola, it’s one of the most expensive cities in the world.
I remember one of my colleagues was doing research for her dissertation there. She lived in somebody’s garage and she paid $1,000 a month for this, living in a garage on somebody’s property. It’s just, there’s no housing. So they built this city and at first, it was called a ghost city and it was really derided for being a terrible boondoggle. But then it filled up. It’s one of those ironies where the Ghost City fills up and it’s prospering and doing well. It’s because the Angolan government was supposed to bring the water there and the sewage lines and so on. They hadn’t done that yet. That’s why it’s a lag and people being able to move in. But then it turned into a thriving city, but the reporters never went back.
Kurtis: That’s always the case.
Deborah: Still out there. People think, “Oh, yeah, the big ghost city in Angola.” These scholars have made the argument that there are places where the skyline is being transformed by Chinese-built buildings. Even though I’m not doing research and none of us are on that at CARI. I’ve seen this in Dar es Salaam, for example, you drive around Dar, and there are these Chinese-built buildings that are private, that companies have asked the Chinese to build them, and they really have reshaped the skyline. They’ve got some very innovative architects there, too. That is happening with the railways.
The idea is that these will stimulate towns and other development and it will make it a lot easier for people to access their own products, agriculture products, and things like this. I don’t know if that’s going to happen. You gave examples of how it happened in our history, and it’s possible. We do know that the absence of that infrastructure across the African continent, you know that the potential for that is there.
Kurtis: One of the patterns that when we talk about this at CCI and read into it that we noticed was the infrastructure builder doesn’t usually make its money back on just the user fees or the charges for the actual infrastructure like a road builder doesn’t usually make all its money from tolls. What has been the case historically is that the infrastructure developer actually recoups most of its investment by owning the underlying land rights underneath or around the infrastructure.
Then when people or economic activity is attracted to the area, because of the new infrastructure, the land values appreciate. So that’s the model we’ve been seeing throughout history around this new urban agglomerations around these infrastructure nodes.
Deborah: It’s absolutely the case. These could be real estate investments. It’s curious to me, I know that in Southeast Asia, the Chinese rail, one of the things that I’ve read about that is that they wanted to get access to land along the rail as part of the whole package for the investment package. It’s a different model, not predominantly loan finance. There’s a lot more FDI going into it. I have not seen anything like that in the African cases. It’s curious because I agree with you, this is how if you bring in rail, it’s a new transport and they’re actually shifting the place of the SGR, The Standard Gauge Railway is going it’s just outside of these major centers.
It’s creating opportunities. The same in Ethiopia with Addis Ababa, the main terminus for the railway is it’s not right in the middle of the city because you can imagine how expensive that would be to bring that in, and all of the people that would have to be moved and resettled. It’s outside of the city, but then you can see already there’s construction going on, the housing and commercial activities building up around there where there was nothing before. But the Chinese have not nailed any of that for themselves. They haven’t tied that into the loan repayment, which is probably a missed opportunity.
Kurtis: I mean, these places you mentioned, Addis Ababa and I think Kenya were the two you used. These places are urbanizing really, really, really rapidly anyway. So there’s going to need to be a buildup in urban infrastructure regardless of what happens. So there’s a huge opportunity here. One of the places that came up was Hambantota in Sri Lanka. I’ve read about this, and the reading spanned the spectrum from these dire sky is falling things to, oh, it’s not that bad. Here’s what happened. Do what actually happened in Hambantota? Because I’ve read both, and it’d be great to get your insight.
Deborah: It’s a complicated project, but this is the poster child for the accusation of debt-trap diplomacy, which I think is a misnomer, but in 2017, the Sri Lankan government had difficulty in repaying this loan. This was a port that was not making money, so it was a money-losing port. So they concession the port to a Chinese investor, the Chinese government help them do this. Then the Chinese investor paid $1.1 billion and they got a 99-year lease. It’s a joint venture, actually, with the Sri Lankan Ports Authority. So they have this port now with this 99-year lease in this joint venture, and the Sri Lankan government got the $1.1 billion.
There are a number of different things that are problematic about the story, as it’s been told. The first is that the New York Times, I’m just going to bail them for this, because they wrote a story about this, and the headline was “How China Got Sri Lanka to Cough Up a Port”. The first person that wrote this that came up with the idea of debt-trap diplomacy didn’t even do any research for this just wrote an opinion piece about it.
The New York Times went there. They couldn’t get anyone in the government to talk to them. They couldn’t get any of the Chinese to talk to them. It seems like all they got were the people who were critical of the project to speak with them. They repeated some of these things that people have been saying which are not actually true. So for example, they said that the feasibility studies said the port would never work and that isn’t true. My colleague Meg Reitmeyer at Harvard Business School and I have looked at these feasibility studies, and they’re both of them were very positive.
One done by a Canadian company, one done by a Danish company that later got a contract to actually build out the plan, the master plan for the port. So they’re both really positive. The mistake that the Sri Lankans made and the Chinese made in supporting this was that they decided to accelerate the rollout. The first phase was done and they should have just waited until they got the business and worked out the kinks, but instead, they decided to go ahead and fund the second phase of it early.
That’s why it wasn’t making enough money yet because it takes time. Just think of it in terms of an airport. You want to build a second airport in an area where all the planes are used to going to Heathrow. So you build Gatwick and nobody wants to go to Gatwick because they’re used to going to Heathrow and they’ve all got their relationships there. So you have to have a marketing campaign. You’ve got to have really cheap prices to bring them in. That’s how eventually you build up.
For a new port, you’ve got a plan to run at a loss for at least ten years. You have to have deep pockets and keep it going and the Sri Lankans, they couldn’t do that. It wasn’t making money that Loans said about a five-year grace period. Suddenly they had to start repaying. It wasn’t making money yet, so they said, they basically came to the Chinese and said, “Take it back. We don’t want it anymore.” The Chinese bank says, “We can’t just take it, but let’s see what we can do in terms of getting an investor to come in and provide an infusion of equity there. So that’s what happened and then the way Meg Reitmeyer puts it, she said it’s how Sri Lanka got China to cough up a port because they basically got this new port in the poorest region of Sri Lanka, which is the president’s hometown.” So there’s this whole political vanity project aspect to this as well. It is an area that, just about ten miles off of the major shipping routes that go across the Indian Ocean.
There is a lot of opportunity for transshipment, so that would be ships coming in, unloading part of their cargo onto other ships. Then part of that goes off to different parts of South Asia, India, South East Asia, and so on. No other port is doing that in that region. There were a lot of people that said we’ve got to invest in the port to do that before somebody else does it because then we can start developing the business. They were trying to take the business away from Singapore. So they were really thinking big.
Kurtis: Maybe the same journalists who went to Hambantota were the same ones that went to Columba, Angola, and wrote about the ghost city. Maybe, just maybe.
Deborah: Well you see what you want to see sometimes or what you’re already preprogrammed to see. There was another part of that article that really was wrong. They said that the loans started out cheap and then they kept getting more and more expensive. That’s the exact opposite. The very first loan was 300 million, and it was at a commercial rate. Then the loans after that were at 2% of fixed rate. So they just they kept getting more and more concessional. It’s just wrong. We are making the loans better and better and more affordable.
Kurtis: There’s been a recent decline in Chinese infrastructure spending or BRI-related spending. I think the peak was in 2017 or 2019 I believe. You can correct me if I’m wrong. Do you think this decline has something to do with President Xi’s so-called crackdown on corruption? Put another way, do you think this crackdown on corruption will affect China’s infrastructure building in places like Africa, or is it purely a domestic thing? Because I’m thinking of the construction sector and it’s not known as the cleanest of sectors, so this is why I’m making the link.
Deborah: Now, construction is all around the world. It’s known as a sector that’s rife with kickbacks, associate government-sponsored infrastructure. The anti-corruption campaign is pretty much a Chinese campaign. In 2011, the Chinese did pass a law inside China that made foreign corruption illegal. I think it’s in their criminal code. I think it might be Article 60 written down somewhere, but I’m not sure exactly which article it does, but they’ve never enforced it. I don’t think that there’s been any connection of the Chinese anti-corruption campaign at home and the BRI.
What’s making the infrastructure lending slowdown and in our data for Africa. We actually if you take Angola out, which is a special case there’s some refinancing that went on made loans peak in 2015, 2016, but if you take Angola out, the lending actually peaked in 2013.
Kurtis: In the first year?
Deborah: In 2013. Yeah. Yeah.
Deborah: Yeah. That was the year that the Ethiopian and the Kenyan railways were signed. So those are the years of signing of loans. It’s been going down in 2019 was, I think it was about 9 billion that we saw and then this past year about 2 billion, but that’s during the pandemic. I mean for 2020, we don’t have 2021 data yet.
Kurtis: I think at the beginning of the chat you mentioned that perhaps things might be looking up, because of the problems with the domestic Chinese property market and companies, construction companies might therefore be lobbying the government a bit to be able to build more get more loans for building abroad to help froth things up a little bit. Is that what you expect the trend to be then or?
Deborah: Well, what we’re seeing is the very, very recent announcements just a few days ago about infrastructure. There’s going to be an emphasis on infrastructure back in China, because they need to stimulate the economy. Just like after the global financial crisis in the United States, what the Obama administration did was infrastructure. They built roads and they fixed bridges and all of this because that stimulates economic activity and has great multiplier effects. So that’s what the Chinese are going to do, which is not great news for overseas infrastructure. We’re not actually expecting that this will be happening outside, because the stimulus effect of that is going to be negligible. Some demand for factory goods and things like that, supplies of steel and materials. But what they really need right now is to stimulate that back in China. They’re looking now to really keep economic growth rates high.
Kurtis: Build Back Better World, B3W, this new G7 initiative as anything actually happens other than some vague G7 statement, I think last year. Is this in any way proportional to China’s BRI?
Deborah: No. So far is pretty much still messaging. Of course, the Trump administration set up the Development Finance Corporation under the Build Act. That’s been in place for a few years, just a couple of years. So we’ve seen, they’ve had one annual report. We’ve seen some results from what’s happening. It’s an assembling together of our old Overseas Private Investment Corporation or OPIC, and then some other aspects of different parts of some parts of USAID that are now put into this Development Finance Corporation.
I actually think it’s a great idea to set that up, but it’s not that clear to me yet what they’re going to do. They’re trying to have some magic of bringing in foreign investors that they can maybe do blended finance where there would be some subsidies, and that would help offset some of the risks me of the commercial finance. It’s really, it’s not that clear yet how it’s going to work as it is challenging. Now the Chinese are finding it’s challenging. You could do a lot of infrastructure, but now it’s challenging to get the pandemic was a black swan event. Of course, no one expected that, but already it was even by 2018, it was clear that there were a number of countries.
It was still a couple of handfuls at that point that were having trouble generating the revenues to repay these infrastructure loans. I don’t know who is actually going to be doing this investment. It’s going to be challenging. Under the Trump administration, the big project that when the US Exim Bank got refunded. Their great big project was to put it was almost $5 billion into a natural gas project off the coast of Mozambique. So this was a big multibillion-dollar project are Exim Bank-funded part of it. Then there were the US companies, I think ExxonMobil, maybe others that were involved in that. That’s really competing with the Chinese. I suppose they had a separate project. I think that’s also still going forward, but then Mozambique ends up terribly unstable and there have been terrorist attacks and separatist movements in that area where the natural gas reserves are very risky. It’s really not something that we can look at as a development project. It’s fossil fuels cleaner than oil, but that’s something we can look at and say, look, we’re doing a lot better than the Chinese.
Kurtis: Yeah. You run CARI at Johns Hopkins here in DC. You’ve testified on China before Congress. I’m sure you speak to a lot of policymakers here in DC privately. First I wanted to ask, what are the biggest differences between the public actions and public comments of policymakers and your private conversations with these same policymakers when it comes to China-related issues?
Deborah: It’s hard to group everybody together like that. There’s a group of people who are maybe too busy to do much reading, who still have a lot of the headlines of what they think the Chinese are doing, and they don’t really have the details. So they’re the people who still buy into this idea that the Chinese are deliberately trying to get countries to borrow for things that they can’t possibly repay. Then so they could seize those assets. So there’s that kind of aspect.
Then there are others who think that the Chinese are trying to export their model overseas. Usually, again, these are people who don’t really have a deep knowledge of China or what they’re doing. Again, they’re just looking at these headlines. Then there are others that and by this idea of them exporting their model, that they’re trying to actually foster this idea of authoritarian capitalism or non-democratic development model. That’s not what I see. I think whenever people actually do research on something or read what the people who go into the field to look at these projects, what they’re doing, they tend to come up with a much more nuanced perspective, much more balanced.
People are busy in Washington. Especially the top-level policymakers, they only have time to get fed, just tiny bits of things. It’s sometimes hard to shift into a more nuanced perspective. I do see, compared to the Trump State Department, for example, our State Department now under Biden. It has a much more balanced perspective from what the Chinese are doing. I think they’re better informed.
Kurtis: If you had to give or assign, because you’re your professor, some of these high up the State Department or whatever, any type of policymaker across any department interested in Chinese issues, what book or article or reading would you assign?
Deborah: One of the best books that’s come out recently is by a colleague of mine who’s retired recently, Mike Lampton, who is a professor of Chinese studies and two of his former students. It’s called Rivers of Iron: It’s called Railroads and Chinese Power in Southeast Asia. This is an example of it’s far deeper, really interesting book about how these railway projects were designed and how they are being rolled out in Southeast Asia and how differently it works in places like Indonesia, Laos, Thailand, Malaysia, and how the local politics really do affect and determine the outcomes.
Local governments have a lot of agency on this Rivers of Iron, I would put in a big plug for that There’s another book by a colleague who’s teaching in Australia. He’s also American, Jamie Reilly, and he has a book called Orchestration. It’s also about the BRI, but it’s about how Chinese government and companies and the provinces, this way of like an orchestra, like someone’s conducting an orchestra, but it’s more a jazz orchestra in a way. It’s how they work together in a more coordinated fashion than the way we do it here, but it’s not as though it’s all directed as the person conducting the orchestra controls it all. So that’s really helpful. Both of them are based on a lot of deep fieldwork. They aren’t just people who sailed in for a week or two to get some local color into their books and then shot away again. There are a number of books out there like that.
Kurtis: Yeah. Yuen Yuen Ang came out with one on China, How China Escape the Poverty Trap, and she came up with a similar type of model to this Jamie Reilly’s Orchestration, she called it Directed Improvisation, but it was basically you have this CCP, which is the director, but the director doesn’t tell the actor everything to do. The actor has some leeway to bring their own thing to any performance, or at least a good director does. So that was model. It sounds very similar to what your colleague Jamie Reilly was getting in.
Deborah: Well, I would recommend anything that Yuen Yuen Ang writes. She is she’s wonderful. I mean, her focus has been on China, not so much how China operates overseas. I was trying to focus on those.
Kurtis: Well, that’s all the questions I had for our conversation. Deborah Brautigam. Thank you very much for the chat. I very much enjoyed it.
Deborah: Kurtis, this is so much fun. Let’s do it again.
Kurtis: Thanks so much for listening. We love engaging with our listeners, so please always feel free to reach out. Contact information is listed in the show notes. To find out more about the work of the Charter Cities Institute, please follow us on social media or visit chartercitiesinstitute.org.
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