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Thursday, August 18, 2022
The Manila Times: Beijing's big bust
Ben Kritz

BACK in 2016, in one of his first official trips abroad, then President Rodrigo Duterte famously made obeisance to the government of Beijing, declaring a "separation" from the US and in return, bringing home a reported $24 billion in investment pledges. The promise of Chinese funding was a welcome boost to the president's "Build, Build, Build" infrastructure drive, and was advertised as the ticket to a new golden era of more jobs than the country would know what to do with and riches for everyone.

At the time, supporters of the president hailed the $24 billion windfall — even though it was in the form of noncommittal IOUs — as tangible proof of the wisdom and practicality of the Duterte approach to policy. His few critics, on the other hand, felt that he had set himself and the country up to be made fools of by Beijing, and that if there were any positive gains from his eager adulation of the Xi regime, they would not come anywhere close to adding up to the grand promises.

By now we all know how that turned out; as has been reported many times over the past few months, the $24 billion in investments turned out to be largely imaginary, resulting only in three minor bridge projects in Metro Manila, an irrigation project along the Chico River in Northern Luzon, and the ill-starred Kaliwa Dam-New Centennial Water Project, which remains on hold due to a variety of legal and technical challenges.

Even in the private sector, Chinese investment has had results that have been dubious at best. A boom in online gambling operations led to a serious real estate bubble and wave of criminal activity before the onset of the pandemic and pressure from the Beijing government mercifully put a stop to most of it. The most successful of China's recent big-ticket private sector investments, the joint venture that resulted in a DITO Telecommunity, is currently on life support, beset by serious financial woes and potential regulatory and legal problems.

As if to underscore, albeit unintentionally, just how big a flop Chinese promises have been, in a bit of last-minute tidying up his office before handing it over to the incoming administration, former Finance secretary Carlos Dominguez 3rd canceled three inactive Chinese loan contracts for rail infrastructure projects. The Marcos administration has since said that it is amenable to renegotiating those deals, but that might be viewed as diplomatic politeness at this point, as it is difficult to see how China can compete with more established and reliable development partners. Between them, the Asian Development Bank and the Japan International Cooperation Agency have already run rings around Beijing in terms of putting their money where their mouth is; the two have already sunk more the $7 billion into two rail projects being built north and south of Metro Manila, and at terms that are far more affordable than China has ever offered.

To be fair to Duterte, his fault lies only in misplacing his trust. If he or his advisers had been more objective and thorough in analyzing the prospects for productive Chinese investment from its record elsewhere in the world, the enthusiasm with which he visited Beijing in October 2016 may have been curbed a bit. Beijing's efforts to buy its way to superpower status have left a trail of failures and unsatisfying results that stretches around the world, and as the regime's 20th Communist Party congress approaches (it will reportedly be held in November), the question is not if Beijing will alter its strategy, but how.

That is not mere wishful thinking on the part of critics of Xi Jinping's government, but the view of key insiders such as Gong Chen, who advised the government on the launch of the Belt and Road Initiative (BRI) in its early days in 2012-2013, and now runs the Beijing-based economic think tank Anbound. Interviewed recently by Nikkei Asia, Chen said that over the past couple of years, Chinese state-owned enterprises have clearly reduced their risk appetite, and are no longer talking about exporting growth. "State-owned companies are mentioning less and less about financial expansion along BRI, and what they are mentioning more now is, will you get your money back for this project?" Chen was quoted as saying.

They are probably right to have second thoughts. The examples here in the Philippines are tame compared to some others that have been detailed in various news reports.

In Pakistan, so far the biggest beneficiary of BRI investment, the Gwadar Port in the country's unstable Balochistan province, which was supposed to be the western anchor of the BRI and provide China with an Indian Ocean gateway, remains undeveloped 20 years after its construction was begun, with few locators and even one major Chinese business leaving the area due to security concerns and the "economic unviability" of the port.

In Sri Lanka, the troubles of the Chinese-funded and now Chinese-controlled Hambantota Port have been well-documented, but it is not the only Chinese project to have had unspectacular results.

As Nikkei Asia recently reported, Sri Lanka's Mattala Rajapaksa International Airport "opened to much fanfare in 2013 but has barely been used since," and was for a while derisively dubbed "The World's Emptiest International Airport." Part of the problem is that the airport was built across an elephant migration route, which makes it dangerous to use. A former CEO of Sri Lankan Airlines explained: "The airport has a serious problem with elephants, wild boar, peacocks ... all of which can seriously damage an aircraft." Likewise, bankrupt Sri Lanka is struggling to find a way to manage the $190 million loan from China Exim Bank for the airport.

In Africa, at least two countries, Congo and Kenya, have canceled multibillion-dollar Chinese infrastructure and mining investments due to corruption and unfavorable financial terms. In Nicaragua, a $50-billion deal in 2013 between the now-disgraced Chinese ex-billionaire Wang Jing and the Nicaraguan government to build a sea-level canal across the Central American country famously resulted in the construction of several kilometers of dirt road and nothing else. Closer to home, a grand scheme to create an industrial and trade hub in Cambodia's coastal city of Sihanoukville has gone the way of Pakistan's Gwadar, with lack of substantial development blamed on the volatile combination of shady private sector investors from China and corruption in the Hun Sen regime.

The one area in which Sihanoukville did see some expansion of activity was in the same sort of online gambling operations that plagued the Philippines for a time, until Hun Sen banned online gambling in 2019. As of the end of last month, there are reportedly about 1,000 unfinished buildings and other construction projects in Sihanoukville, and it is said to have become a haven for criminal gangs and human trafficking operations.

Media Link: https://www.manilatimes.net/2022/08/18/opinion/columns/beijings-big-bust/1855047

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