It’s in China’s Interest to Fight Corruption on the Belt and Road

The Belt and Road Initiative (BRI), first proposed by Chinese President Xi Jinping in 2013, is a program through which China will spearhead the funding and construction of new infrastructure and trade networks across Eurasia and Africa. The centerpiece of the BRI is hard infrastructure: roads, railroads, ports, pipelines, and power plants. The scale of the proposed investment is immense: $1 trillion for projects spanning 75 countries.

The risk of corruption in such large-scale infrastructure is also immense, but at least initially, the BRI ignored corruption. When China’s National Development and Reform Commission (NDRC), the powerful government organ in charge of economic planning, issued the first comprehensive statement of the principles and framework undergirding the BRI back in March 2015, anticorruption principles were nowhere mentioned, nor did the published framework include any anticorruption measures. A later, more detailed policy document, published in 2017, also failed to include any mention of anticorruption. This posture is generally consistent with China’s traditional “non-interference” foreign policy, which makes Chinese authorities reluctant to go after overseas corruption.

More recently, though, Beijing has begun to respond to the BRI’s corruption risks. President Xi himself urged greater international cooperation on anticorruption at the June 2017 Belt and Road Forum. In September 2017, China’s Central Commission for Discipline Inspection helped organize a symposium called “Strengthening International Cooperation for a Clean Belt and Road.” And last December, the NDRC and other regulatory bodies issued new rules governing overseas investment by private Chinese companies, including a prohibition on “brib[ing] local public officials, or personnel from international organizations or related enterprises.” That same month, China’s State-Owned Assets Supervision and Administration Commission issued new guidance that requires state-owned enterprises to strengthen their anticorruption compliance procedures.

These are steps in the right direction. The question is whether the government’s newfound focus on corruption in the BRI is serious. Skeptics point out that Chinese authorities have never prosecuted a Chinese company or official for foreign bribery. Others suggest that the new regulations are more about controlling Chinese outbound investment than combating overseas corruption. I’m somewhat more optimistic, though, that Chinese authorities are serious about tackling corruption in the BRI. In my view, taking BRI corruption seriously is in the Chinese government’s interest for four reasons:

  • First, a clean BRI is a more effective development program. Corruption is expensive. (See, for example, reports that Chinese officials expect to lose 80% of their investments in Pakistan.) A clean BRI means more Chinese money is used to build roads rather than bribe bureaucrats. More roads mean China’s trading partners develop faster, which in turn means larger markets for Chinese goods. Less corruption in the BRI, then, translates directly into greater economic gains for China. Additionally, a clean BRI has security benefits for China. China sees poverty and economic stagnation as a cause of unrest and extremism, especially in the countries that border Xinjiang in China’s northwest. A more transparent and efficient BRI means greater economic opportunity for China’s neighbors and, therefore, less cause for extremism and instability.
  • Second, corruption undermines the BRI’s contributions to China’s soft power. The BRI’s success as a soft power initiative depends on the goodwill generated among local populations by new, useful, Chinese-built infrastructure. When a Chinese-built railroad breaks down because of construction defects born of corruption, China itself is liable to get the blame. And no goodwill is generated by vanity projects built for political elites that the public can’t access. These problems are only exacerbated when such projects leave a country saddled with debt. Additionally, international news outlets sometimes pick up BRI corruption stories (see, for example, recent Daily Mail and South China Morning Post stories about a Chinese company bribing a Bangladeshi official), and bad press can spread quickly across borders, tarnishing the reputation of President Xi’s signature foreign policy initiative. To the extent that the BRI aims to influence the hearts and minds of ordinary people, rather than just political elites, the effectiveness of that program is undermined by corruption.
  • Third, efforts to stymie corruption overseas and at home are complementary. Tackling corruption in the BRI would link President Xi’s most high-profile foreign and domestic policy programs—the BRI and the anticorruption campaign—and would make the two rhetorically and substantively consistent. On the domestic side, it’s been argued on this blog that combating corruption abroad would lead to less graft at home, helping achieve one of the goals of the anticorruption campaign. Simultaneously, the domestic fight against corruption would magnify the effects of any active overseas anticorruption enforcement. Even a few enforcement actions brought against overseas bribery, seen in light of the domestic campaign, might dissuade Chinese corporations from offering bribes overseas and provide a compelling excuse when local officials seek bribes from those same companies.
  • Fourth, a clean BRI will have greater international legitimacy. To date, the BRI is largely a Chinese project. This Chinese dominance has in turn fueled suspicion that the BRI is a mask for Chinese expansion or neocolonialism. Greater international participation in BRI projects might allay those fears, and implementing international best practices on anticorruption might encourage such participation. Companies based in countries that enforce foreign bribery laws would feel that they were competing on an even playing field and would be more likely to invest in BRI projects. Moreover, other governments would be less likely to take diplomatic exception to a development program that benefitted businesses back home. China’s experience with the Asian Infrastructure Investment Bank (AIIB)—which major economies such as the U.K., Germany, and Australia joined over U.S. objections—is instructive here. The AIIB example demonstrates that Chinese-led initiatives that adopt international best practices on transparency and accountability can garner widespread international support.

Of course, there are many reasons why Chinese authorities might not tackle corruption in the BRI. Psychologically, it may be difficult for a traditionally secretive Chinese state to embrace the transparency measures often used to fight corruption. Practically, there are ways in which corruption aids the BRI, rather than undermines it. Bribes to government officials grease wheels and may lead to more BRI projects overall. Additionally, to the extent the BRI is an attempt to provide an outlet for Chinese overcapacity and to pull established regimes closer to China, corruption helps accomplish these goals by paying entrenched officials to approve a larger number of infrastructure projects. Yet on balance, if China is serious about using the BRI to create a new set of Chinese-led international norms for the 21st century, it’s in China’s long-term national interest to make anticorruption one of those norms.

10 thoughts on “It’s in China’s Interest to Fight Corruption on the Belt and Road

  1. Jason, really interesting and well-written article here. One thing I think is also worth mentioning is the converse of your fourth point. That is while a “clean” BRI would lead to greater Chinese legitimacy internationally (as you mention), it also stands to reason that a “dirty” or “corrupt” BRI could de-legitimize China and (and its other initiatives) internationally. I agree that the AIIB stands as an exemplar for Chinese international initiatives. Natalie Lichtenstein, who was the first GC for the AIIB (and the primary drafter of its charter), actually spoke to one of my classes last year (whihc was really awesome). What I think has been critical to the AIIB’s success and legitimacy is Article 26 of its charter, which provides for legitimate oversight to the AIIB by the Board of Directors.

    • Thanks for this, Ross. The point about independent oversight at the AIIB is a good one. If I’m remembering correctly, I believe many of the folks on the AIIB’s board are internationally-recognized leaders in the world of finance and development, bolstering the governance capabilities of that board and the legitimacy of the institution. Of course, how that model would translate to the sprawling collection of projects that fall under the BRI umbrella is another question. It is possible to imagine other development institutions getting more involved on a project-by-project basis (particularly if the BRI gets cleaned up), but it’s hard for me to envision a scenario in which a multilateral group took on some kind of broader coordinating role. Even the Chinese government’s management of the BRI today seems somewhat ad hoc and flexible.

  2. Jason Kohn comment is a very thorough, timely and relevant analysis of why it is in China’s best interest to fight corruption on the Belt and Road Initiative. Mr. Kohn’s comment posted on November 19, 2018 foreshadowed the Baluch Liberation Army’s deadly attack on the Chinese Consulate in Karachi, Pakistan on November 23. The Baluch Liberation Army (BLA) claimed responsibility for the attack that took the life of two Pakistani civilians, two police officers and the three assailants, saying it was fighting “Chinese occupation.” The most recent attack by the BLA is troubling because the China-Pakistan Economic Corridor (CPEC) to date has received the largest amount of Chinese funding under the BRI. Pakistan like many BRI countries have problems with corruption. In fact, in 2017, Pakistan ranked 117 out of 180 countries on the Corruption Perception Index. If what is happening along the CPEC is any indication of what is to come, then China must address corruption on the BRI to secure its own interests and the survival of the initiative.

    Reducing corruption on the Belt and Road Initiative will not only lead to a more effective development program but secure a greater return on Chinese investment in the project for the future. As Mr. Kohn stated a less corrupt BRI will allow more money to be allocated for infrastructure projects that benefit the ordinary citizen and less money to line the pockets of bureaucrats. The more the ordinary citizen feels the benefit of Chinese money in his daily life, the more invested in the BRI’s success that citizen becomes. This in turn will lead to the greater economic growth, reduction in poverty, economic and political stability, and ultimately, less extremism. Less corruption on the BRI will also lead to economic and political stability, and overall give China a greater return on its investments in the long run.

    On the other hand, unchecked corruption on the Belt and Road Initiative will lead to China effectively flushing money down the drain and then having to spend more money in the future securing its interests. As Mr. Kohn noted China is expected to lose 80% of its investment in Pakistan due to a variety of reasons including corruption. Widespread corruption leads to the creation of a very wealthy ruling class, while saddling the masses, ordinary citizens, with an enormous debt to pay back for generations to come. Unchecked corruption keeps the benefits of Chinese investments on the BRI from reaching the ordinary citizen. This in turns leads to unequal economic development and a widening gap between the haves and have not. In the end, there will be more economic instability leading to political instability and a rise in extremist behavior, like the BLA attacks against Chinese that threaten Chinese investments and vision of “a community of shared destiny for humanity.”

    One-way China seems to try to control corruption spending on the BRI is by bringing in its own workers to construct infrastructure projects. When the Chinese bring their own workers for BRI projects, they do not have to deal with corruption at the micro level which could add up to be even more costly. This strategy insures that the Chinese get the most bang for their buck, using Chinese money to secure more BRI projects rather than greasing the wheels of many small-time players. Bringing its own workers means China can stay true to its policy of non-interference and avoid dealing with its own internal corruption. However, employing mostly Chinese workers to construct projects on the BRI instead of engaging local workers creates resentment and plays into locals’ fears of Chinese imperialism. In a recent statement related to the attack on the Chinese consulate the BLA said “The objective of this attack is clear: we will not tolerate any Chinese military expansionist endeavors on Baloch soil.”

    The way China decides to tackle corruption on the BRI depends on its end goal, and if it views this end goal as feasible given current circumstances within countries along the BRI. The Chinese may ideally view the BRI as “a great undertaking that will benefit people around the world.” However, given China’s own foreign policy stance of non-interference, the difficult leap from a secretive society to a transparent one, and the deep seated structural corruption in many BRI countries, China may have to settle for secure strategic economic areas in lieu of development for all. The question remains, how deeply does China want to get involved in the internal affairs of other countries, especially when it comes to corruption. In fact, how deep does China have to get involved in order to achieve its economic goals or aims? Is securing a 99-year lease of a strategic port a victory? These are some questions China will have to grapple with as it takes a closer look on the impact of corruption on the BRI.

    Sources
    https://www.bbc.com/news/world-asia-46313136

    https://www.apnews.com/21ddd4d9863f4f7995d22043ebc3e2a8

    https://www.merics.org/en/blog/bri-pakistan-too-big-fail

    https://www.transparency.org/news/feature/corruption_perceptions_index_2017

    https://dailytimes.com.pk/291886/five-years-on-the-bri-is-still-being-perceived-as-a-debt-trap/

    https://www.ft.com/content/d4a3e7f8-b282-11e8-99ca-68cf89602132

    https://www.aljazeera.com/news/2018/11/shots-heard-china-consulate-pakistan-karachi-181123051817209.html

    https://www.scmp.com/news/china/diplomacy-defence/article/2093960/comment-time-china-come-clean-its-goals-belt-and-road

    • Thanks for this thoughtful comment. The point about BRI projects using Chinese as opposed to local labor is an interesting one. While creating its own public relations issues, that approach might mitigate corruption risks to a certain extent (greater management control over and understanding of workforce; no need to work with local stakeholders in labor market). One the other hand, importing Chinese labor might contribute to local petty corruption as Chinese workers interact the communities (and officials) with whom they’re working. This petty corruption by low-level employees might be harder to detect and control than grand corruption by the company boss. (The boss has more to lose and is operating on a larger scale). I’m not sure exactly where I end up on this tradeoff, but I do wonder if it might not make more sense from a corruption standpoint to use local labor. At the very least, using local labor would seem to inoculate Chinese companies against the appearance of contributing to petty local corruption (when an construction worker bribes a police officer on her or his way to the local market, that worker will be local, not Chinese).

  3. This is interesting. I keep catching news how China is cracking on corruption inside China (not sure to what extent that is actually effective, but the PR part is rather impressive), but had no idea how limited this is outside the country. I am actually wondering if there is an official version of why the government has been rather inactive on this for so long. Are they allowing for “some” corruption in the markets that are known to be corrupt (something that to some extent many Western countries used to do not so long ago by allowing the facilitation payments)? Is it a way to expedite the development projects that they find strategically and politically important? I suppose it may be a combination of many factors, which then raises a question of why that changed now…

  4. Ruta, thanks for these questions. My sense is, based on my research, that there isn’t any official line from Beijing on why the government hasn’t focused on overseas corruption. Until the recent developments I describe above in the post, most of the official statements I looked at simply ignored the issue of transnational corruption. My own personal view is that there’s been little effort on the part of the Chinese government to tackle overseas corruption because, until recently, there’s been little political imperative to do so. This is the converse of the domestic anticorruption campaign, which from the beginning President Xi saw as necessary to the legitimacy and even survival of the CCP. Additionally, as I try to describe above, I suspect the idea of targeting corruption overseas runs against the grain for many Chinese officials because it feels incompatible with China’s long-held policy of taking other countries as they come. Lastly, as you say, I also suspect there’s a sense that corruption may actually expedite development in some ways. After all, the two went hand-in-hand in China for so long and it’s hard to argue with the results of development policy there. But this is all primarily speculation on my part.

    As for what’s changed in the past year and a half to spur Chinese officials to start focusing on international corruption—and this is also speculation—I’d guess that the growing narrative surrounding corruption in BRI projects changed the calculus for Beijing. There have been several high-profile cancellations of projects in the past year or two, and some of the reasons cited by local politicians involve corruption concerns. I’d guess that that public response convinced Beijing that, in order for the BRI to be successful, they’d have to start taking overseas bribery more seriously. Obviously, these decisions are never simple and there are likely other factors at play as well.

  5. Jason, thanks for such an interesting post. As I read, I found myself wondering whether your arguments are aligned with how Chinese leaders view their country’s interests. Two of the points you raise in your final paragraph—about bribes greasing the wheels and about building relationships with entrenched officials elsewhere—strike me as very compelling ones for China. Regarding your first argument, while I certainly agree that “a clean BRI is a more effective development program” in the long term, corruption might actually make for a more efficient translation of yuan into roads by cutting through transaction costs. I also imagine Chinese leaders face great pressure to boost soft power with quick results—particularly given critiques that BRI, now in its sixth year and with several cancelled or delayed projects, is all smoke and mirrors. Finally, I’m concerned that if China sees bringing a few enforcement actions as an effective way to achieve its soft power and international legitimacy goals, it might use those actions to target political enemies with little heed for prosecuting the worst corruption cases. All that said, I agree wholeheartedly with your points on normative grounds, and hope they resonate with Chinese authorities!

  6. Jason, thanks for bringing this topic and making such an interesting argument. All four reasons you mentioned are convincing, and I agree with you that it is for China’s long-term interest to take more initiative to fight against corruption issues.

    However, I’m not so optimistic as you are, and I kind of doubt whether Chinese government can take the corruption issues in the BRI seriously.

    In response to the first argument you made, there’s no doubt that corruption is expensive and a clean BRI means more Chinese money will be used to build roads. However, as your example shows that Chinese government expect to lose 80% of their investment in Pakistan, and Chinese officials has admitted several times that many of the projects in Central Asia, Pakistan, and Myanmar may lose money. It seems to me that China has already prepared to lose money on many of the BRI projects.

    In addition, there are other evidences showing that Chinese government does not expect any short-term economic return from the BRI projects. Chinese government has injected huge amount of money into state-controlled banks, and these banks enjoy very low borrowing costs, that allow them to lend cheaply to Chinese companies working on BRI projects.

    Moreover, even if the money has been effectively used for building the road or for any BRI projects rather than being used for corruption, many of the infrastructure still cannot be effectively used and will become a kind of waste. For example, the Europe-China railroads are unproductive because the containers are full when goes to Europe but leave empty when back to China, with only half the route being effectively used, and the whole trip often lose money.

    Based on all the above facts and evidences, it is hard for me to believe that Chinese government will be seriously to work on the anti-corruption issues for economic reasons.

    With regards to your second argument, there’s no doubt that one part of the reason for China to plan and conduct these projects is to gain the goodwill and soft power initiative by the local people; however, there is also reports showing that some local people are dissatisfied. A local politician in Sri Lankan said that the huge projects are a waste and expressed his concern that their country is becoming a Chinese colony. It seems to me that Chinese government has great ambitions to continue on these projects even against the wishes of the local people, and therefore, it’s still hard for China to combat the corruption problem for this reason.

    Actually I think what you mention in the last paragraph is actually very closed to the real situation. It should be admitted that sometimes bribes to government officials may lead to more BRI projects and corruption could be an effective way to accomplish China’s great ambition. It is hard for me to believe that China will really and seriously be more involved in the anti-corruption activities. Also I think the main reason for China to land this great BRI is because China want to build strong political bonds thoughout the region, so the Chinese government will probably take more initiative in combating the corruption problems when there’s something happened that could have negative influence on the two countries relationships rather than the economic and soft power factors as stated above.

    Sources:
    https://chinapower.csis.org/china-belt-and-road-initiative/
    http://www.cadtm.org/A-critical-look-at-China-s-One-Belt-One-Road-initiative
    https://www.bloomberg.com/news/features/2018-08-01/china-s-empire-of-money-is-reshaping-lives-across-new-silk-road

  7. Fascinating post! The BRI covers a huge number of countries, so I wonder how these incentives might change based on where the corruption takes place. For example, in the some of the more autocratic countries where BRI projects are located, I could imagine that participating in corruption might more effectively accomplish China’s goals of building both infrastructure and allies. In relatively democratic countries, though, or in countries with more robust media, I think your points about reaching the hearts and minds of non-elite are particularly persuasive.

  8. Thanks for this great post, Jason! I wonder if part of China’s initial hesitation to be involved in international anti-corruption efforts has to do with concern that it would open the door for Chinese companies to be investigated for corruption by foreign governments. As you mention in your post, China’s foreign policy has generally been to emphasize sovereignty and the need to let other countries be as they are precisely because they want to limit international interventions into their own affairs. Perhaps in their cost-benefit analysis, the monetary benefits of coming out strongly against corruption would be offset by the costs that would come from having a stronger stance, thereby undermining this general non-interventionist posture. However, I would agree with you that this analysis would fail to consider the soft power benefits that would come from standing up against a rather universally unpopular crime.

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