Experiences of the South in Chinese LendingSome Notes and Analysis

7th Asia Europe People’s ForumWorkshop on Alternative Financing for Development

October 14, 2008

James Matthew MiraflorResearcher

Freedom from Debt Coalition

The View from the South

Chinese loan transactions are generally seen to lack in transparency and process integrity.Africa [Huse & Muyakwa, 2008], Philippines [FDC,

2008]

Chinese loans, while there are no attached policy prescriptions, are strictly tied (like Japan).Chinese firms are eventually selected as contractors,

no competitive bidding

Chinese financing goes to strategic industries.May present security and sovereignty problems for

countries receiving loans (e.g. RP’s Transmission Corp., Water Systems, National Broadband Network)

Political Ramifications

Chinese loans are tapped into by factions of the local elite for rent-seeking purposes – opportunities for corruption In some cases, these factions directly collide with

entrenched factions dependent on the United States for patronage.

From geopolitical to national-political conflict.

Prescription-free Chinese loans serve to ease pressure to Southern governments to restructure the economy and political structures in order to access credit.True whether the regime is corrupt and undemocratic or

progressive.

Possible Motivations - AfricaProjection of Chinese lending as a South-

South solidarity endeavorVis-à-vis Western image of a “benefactor” or

“oppressor”Geopolitical and Economic Interests

Control of strategic industries – financing of Tanzania-Zambia Railways

Extraction of natural resources – Chambisi Copper Mine (also in Zambia)

Securing future marketsAccording to Beijing Action Plan, part of the

objective is to “establish three to five trade and economc cooperations zones in Africa.

Possible Motivations – South East Asia

Increasing geopolitical influence on ASEAN on the advent of ASEAN+3 (Japan, India, China).Competing with Japan in market share and

trading partners, neutralizing the entry of IndiaClaim on the Spratly’s group of islands –

believed to be oil-rich. In the Philippines, some experts noted that the

recent hike in Chinese ODA is a “bribe” for the signing of a “Joint Marine and Seismic Exploration project” on the islands

Neutralizing Taiwan’s growing influence.

The Philippine ExperienceIn the Philippines, the Chinese Export Import

Bank funded three anomalous projects, the political repurcussions of which almost toppled down the Arroyo regime.The $329 million National Broadband Network (NBN)

project contracted to Zhong Xing Telecommunications Equipment Limited (ZTE).

The $503 million North Luzon Railways Project contracted to China National Machinery and Equipment and Equipment Corporation (CNMEC).

China is also financing its way towards owning agro-fuel industries and vast tracks of land for food production in the Philippines via the creation of a dedicated ECA, the Fua Corporation.as part of the RP-China agreements

If China desires to be seen as a counter-force to American hegemony, then it should present itself as a palatable alternative. It should refuse to play the same game the International Financial Institutions (IFI) played on Southern nations. The rhetoric of solidarity among the South must be backed-up by lender responsibility and refusal to play the power game.

Given the crisis of American capitalism, there is no more opportune time than now.

Thank you.

Freedom from Debt Coalition. #11 Matimpiin Street, Brgy. Pinyahan, Quezon City, Philippines 1100. http://www.fdc.ph. mail@fdc.ph. +63(02)9246399 (telefax). +63(02)9211985.