Contagion of Chinese Corruption Will Threaten Post-Pandemic Recovery In Developing World

Eventually, the COVID-19 pandemic will end. When it does, the economic devastation the pandemic has left behind will become the overriding concern of governments worldwide.

Today, China is working to burnish its image by providing medical assistance to countries stricken by coronavirus. When the pandemic subsides, Beijing will likely present itself as a partner for economic recovery.

Yet just as Chinese medical equipment has often turned out to be faulty, its approach to economic recovery in the future may come with unseen risks of waste, corruption and political manipulation.

For seven years now, China has been promoting its Belt and Road Initiative (BRI), a trillion-dollar network of loosely connected infrastructure and economic projects around the world. Beijing likes to argue that it is a better partner than Western governments or multilateral institutions such as the International Monetary Fund, since the BRI dispenses with a variety of typical investment conditions, including those designed to prevent graft and facilitate responsible spending.

China’s no-strings-attached policy has resulted in waste, opacity and bribery on a dizzying scale, destabilizing the countries that hoped to benefit from China’s largesse.

While BRI programs have included construction of new rail lines, upgraded ports and modern power plants, these projects are often white elephants that benefit mainly the companies who build them and politicians who allow them to proceed. In Sri Lanka, BRI funds were used to build “the world’s emptiest airport,” along with a new seaport that is operating at two percent capacity, and a cricket stadium that has more seats than local residents.

While China claims “non-interference” policy in local politics, BRI projects funneled millions of dollars into the election coffers of then-president (now prime minister) Mahinda Rajapaksa.

In Malaysia, $100 billion in BRI deals were sweetened with bribes and the facilitation of kleptocracy. A billion dollars found its way into bank accounts controlled by former Prime Minister Najib Razak. China volunteered to shield the ruling party from international investigations into its corruption scandals and to help identify sources providing information to journalists.

In Kenya, opacity and corruption led to massive waste in the procurement and construction of a Mombasa to Nairobi railway and, ultimately, undermined China’s vision for a region-wide rail network to connect landlocked areas of Africa to coastal seaports.

While Beijing has promoted the BRI in hopes of spreading Chinese influence, widespread corruption is also fueling anti-Chinese backlash. Beijing has begun to talk about creating a “clean BRI,” although it has taken no meaningful steps to rein in overseas corruption.

The shortcomings of BRI present an opportunity for the U.S. and its partners to promote a new strategy for infrastructure investment that prioritizes transparency and anti-corruption measures.

A robust post-pandemic recovery in the developing world will only exacerbate the need for massive investments, including capital from the private sector. But attracting private capital is less likely if governance risks remain too high. By supporting greater transparency and responsible governance, the U.S. can bring together public and private sectors as part of a new framework for global infrastructure development. Congress has already laid the foundation for such a policy via the BUILD Act of 2018, which created the new U.S. International Development Finance Corporation (USIDFC) and authorizes the federal government to make equity investments in overseas projects.

One promising USIDFC-led initiative is the new Blue Dot Network, which will lay out certification standards for infrastructure projects that are “open and inclusive, transparent, economically viable, financially, environmentally and socially sustainable and compliant with international standards, and regulations.” This will help private firms to identify sound investments and bring in other partners, with Japan and Australia already on board.

Transparency and anti-corruption standards level the playing field for Western firms, which, unlike Chinese state-owned enterprises and private firms, are already subject to laws that prohibit foreign bribery. Any extension of a common set of standards and governance norms would starkly contrast to China, which has never brought charges against any of its companies or citizens for foreign corrupt practices.

COVID-induced recessions will likely reduce demand for Chinese exports, and BRI may decelerate. However, China may still have resources to extend its influence—especially with partners already indebted to them—and there is no guarantee that its behaviors will shift. U.S. success will depend on exposing the risks inherent in the BRI model while showing alternatives that offer a better way of doing business at home or abroad.

As stimulus and aid packages are pumped into the global economy to counteract the economic devastation of COVID-19, this moment merges with the lessons of the BRI for integrity, transparency and good governance as the real foundation for addressing the critical infrastructure needs of millions, including our own.

Ms. Dezenski is on the Advisory Board of the Foundation for Defense of Democracies’ Center on Economic and Financial Power. She is the author of a new report on BRI called Below the Belt and Road: Corruption and Illicit Dealings in China’s Global Infrastructure.