Two years after the Chinese state-owned construction company Sinohydro completed the Coca Codo Sinclair Hydroelectric Dam in Ecuador, the dam barely functions.
The massive project has been a millstone for the small South American country since the prior administration approved its construction. From the outset, locals were troubled because project leaders ignored warnings about the potential for environmental harm. As work got underway, the Chinese firm building the dam disregarded safety and quality standards. And because of poor construction, downstream farms periodically flood.
The Coca Codo Dam reflects some of the challenges of China’s “Belt and Road Initiative,” concludes a new report from the Center for a New American Security, a research organization. The report lays out seven challenges for countries considering Chinese infrastructure investment, ranging from addressing environmental concerns to ensuring local communities are engaged.
On one measure — financial sustainability — the Ecuador dam offers a cautionary tale. The terms of China’s loans require Ecuador to turn over 80% of oil exports for at least five years as payment. The $1.7 billion loan from the Chinese Export-Import Bank to build the dam, alone, costs Ecuador $125 million a year in interest payments. All told, Ecuador contracted over $20 billion in Chinese loans since 2010 and is looking for international assistance to pay off or buy out Chinese debt.
Evaluating Chinese deals
The report, Grading China’s Belt and Road, looks at 10 specific Chinese-investment projects ranging from a space complex in Argentina to the Haifa Port expansion in Israel. Each is a part of China’s “Belt and Road” Initiative, aimed at re-creating and expanding the famed Silk Road trade routes that connected China to the world. The report contrasts Chinese-backed projects to a port project in Vanuatu backed by Japan, Australia and the Asian Development Bank:
“China’s Belt and Road infrastructure opportunities are alluring for countries around the globe, but they often come with a significant cost,” said Ely Ratner, of CNAS. “It is essential for world leaders and observers at all levels to understand the consequences of partnering with Beijing.”
Many of these projects have costly overruns that leave the host countries in debt. In Hungary for example, a high-speed Belgrade-Budapest railway will cost the government $2.66 billion, up from the $1.95 billion original price.
Though China promotes its “Belt and Road Initiative” as economic development, the report notes that “liabilities for host countries — loss of control, opacity, debt, dual-use potential and corruption — are often strategic assets for Beijing.”
A project in Argentina exemplifies this. The Chinese government financed and built a $50 million satellite-and-space mission control center in Patagonia. The report says China negotiated with the prior administration largely in secret, excluding local firms for some aspects of the project. The deal gives China a 50-year, rent-free “lease” on the land. Since construction, the site has been run by the Chinese military.
A better alternative
Economic development should not involve opaque, debt-driven loans. The report cites a better model in its examination of the Port Vila Wharf in Vanuatu, which was developed by the Japan International Cooperation Agency, Australian Aid and the Asian Development Bank.
The majority of the loans for the wharf carry interest rates of less than 1%. Local workers constructed the wharf. At completion, the investors turned control over to the Vanuatu government.
For its part, the United States offers development aid that doesn’t leave countries saddled with debt. Furthermore, the United States’ focus on free, fair and reciprocal trade leads to billions of dollars in private-business investment, which benefits both U.S. and partner countries.
“We don’t drown our partners in a sea of debt,” Vice President Pence said at the 2018 Asia-Pacific Economic Cooperation Summit in Papua New Guinea. “We don’t coerce or compromise your independence.”
[Editor’s note: The report, funded by the U.S. Department of State, looks at these 10 Chinese-backed projects: Ecuador’s Coca Codo Sinclair Hydroelectric Dam; Argentina’s Space Complex; Hungary’s Budapest-Belgrade Railway; Zimbabwe’s facial recognition project; Israel’s Haifa Port; Pakistan’s coal plants; Tajikistan Chinese-Turkmen Pipeline Line D; Burma’s Kyaukpyu Port; Indonesia Jakarta-Bandung High-Speed Railway and Vanuatu’s Luganville Wharf.]