How can recipient countries ensure that foreign investment is beneficial to their economic goals and their people?
The BRI Monitor is a venture by five think tanks from Southeast Asia and the Pacific to track the transparency of projects funded by China’s Belt and Road Initiative (BRI). Initial findings from BRI Monitor indicate the importance of transparency and good governance to ensure countries achieve people-centered development.
At a recent panel at the “China in the World Summit,” partners from Cambodia, Papua New Guinea, and Malaysia discussed findings from each of their four case studies, what they reveal about governance gaps in their countries, and what steps their countries could take to close those governance gaps moving forward.
All three countries have had very different experiences with the BRI and Chinese investment, the panelists noted, with all participants stressing that their goal is not to end Chinese investment, but to ensure Chinese investment is sustainable and beneficial to all parties.
Initial findings from BRI Monitor indicate the importance of transparency and good governance to ensure countries achieve people-centered development.
Tricia Yeoh, CEO of Malaysia-based IDEAS, noted that, “for the Malaysian public, there is no way to avoid an economic and trade relationship and investing relationship with China. However, we can negotiate it to ensure that the public good is on our side.” At the same time, she argued that Chinese investors, “could also take on some role to increase transparency on their end. They could release more information to the public by default, without having to wait for the host countries.” According to Yeoh, this would be particularly beneficial in Malaysia, where under the official secrets act government documents are classified by default.
In Cambodia, where the side-by-side “Japan-Cambodia Friendship Bridge” and newer “China-Cambodia Friendship Bridge” provide a visual representation of the shift in primary donors, the spike in Chinese investment sparked fears among many Cambodians that they were losing their country – a perception that China has since sought to address. Virak Ou, founder of Cambodia-based Future Forum, observed, “it’s in both countries’ interest to work out how to move… from being corrosive capital towards constructive capital. And I think all of us would be extremely happy to receive more constructive capital from anywhere.”
In Papua New Guinea, the uptick in Chinese lending driven by China’s interest in PNG’s mineral resources came with a “string of MoUs (memorandum of understanding) covering every topic under the sun,” according to INA Executive Director Paul Barker. The resulting increase in debt has renewed concerns about the financial viability of State-owned Enterprises that have received these loans, driven in part by “unrealistic expectations” about the level of financing available, “and some lack of accountability and governance within some of the PNG institutions.” However, some projects have achieved better conditions through sustained pressure from local partners, suggesting that given strong accountability mechanisms, Chinese investment can provide a useful source of funding for much-needed infrastructure projects in a country historically disconnected by geological features.
At the same time, partners acknowledged that the unique characteristics of state-driven Chinese investment risks exacerbating existing local governance gaps. Partners identified five key governance gaps: 1) lack of justification for project feasibility; 2) lack of publicly available environmental and social assessments; 3) issues regarding financing structure, including unjustified loan guarantees and failure to account for the impact the projects may have on the debt burden of recipient countries; 4) transparency gaps, including lack of freedom of information legislation; 5) insufficient governance and oversight.
Yeoh noted that these governance gaps are not unique to Chinese-funded projects. “In many of the other Malaysian infrastructure projects, we have regularly seen the costs of these public infrastructure projects balloon sometimes double or triple the amount that was originally slated. So it is important to look at our own country’s governance and procurement.” The BRI Monitor’s heatmap was particularly useful in highlighting these issues: “If you look at the heat map… you can see that a lot of the red marks have got to do with the similar areas. For Malaysia,” she remarked, “everything to do with procurement is [red]… it stares you in the face.”
All partners stressed the fundamental importance of transparency in addressing these governance gaps. For many of the case studies covered in the BRI Monitor, basic information about the projects was unavailable, severely curtailing people’s ability to hold their governments accountable and ensure projects are beneficial. Ou especially stressed that younger generations, who will be the most affected by these projects in the long term, “deserve to know so that they can be the judge and can make decisions on their own for the fate of their own country.”
Moving forward, partners expressed their hope that projects would be designed, evaluated, and implemented in a way that is transparent and responsive to the needs of the people. As both Ou and Barker noted, “if any of these projects have the people in mind… people-centered strategy and policies should always be first and foremost our priority.”