China Exim Bank in Africa

China Export-Import Bank

China's trade, investment and aid activities in Africa have been growing rapidly over the past decade. Chinese aid to Africa totaled $5.75 billion in 2006, and China the world's third largest food aid contributor. Trade between China and Africa has grown tenfold since 1999, reaching $56 billion in 2006. China's export credit and guarantee agencies—China Exim Bank in particular—have played an important role in fostering the rapid expansion of Chinese trade and investment in Africa.

The China Exim Bank, founded in 1994, is currently the world's third largest export credit agency (ECA). As of 2005, China Exim's loan approvals—many of which are in Africa—reached $20 billion. By September 2006, there were 259 China Exim projects in 36 African countries, 79 percent of which committed to infrastructure development, such as railways (Benguela and Port Sudan), dams (Merowe in Sudan; Bui in Ghana; and Mphanda Nkuwa in Zambia), thermal power plants (Nigeria and Sudan), oil facilities (Nigeria), and copper mines (Congo and Zambia).

China Exim lending practices tend to follow China's foreign policy, with package deals frequently focusing on projects that provide access to raw materials, and on concessional loans for economically and politically important countries. China Exim infrastructure loans in Africa are offered without domestic political reform requirements, which stands in marked contrast to stipulations required by other ECAs and international finance institutions (IFIs).

In this March 22, 2007 Wilson Center meeting, cosponsored by the China Environment Forum and the Africa Program, Peter Bosshard (International Rivers Network) and Ali Askouri (Leadership Office of the Hamdab Affected People) discussed trends in China Exim Bank projects in Africa, focusing on a case study of the Merowe Dam in Sudan. The Merowe Dam is a $1.8 billion hydropower dam being built on the Nile in Sudan that will displace more than 50,000 people and also has the potential to adversely affect the environment and human health.

Concerns Regarding China Exim's Role in Africa

China Exim Bank has provided money to countries in great need of infrastructure that have been rejected by other ECAs and IFIs. Such investments offer important benefits to underdeveloped African countries; however, Bosshard and Askouri expressed concerns about some of China Exim's investment into ill-conceived or poorly implemented projects, such as the Merowe Dam in Sudan. According to the two speakers, these projects tend to: (1) support repressive governments, (2) pose serious long-term environmental and social impacts, and (3) lead to human rights abuses.

Support of Repressive Governments
IFIs and ECAs ceased lending to Sudan because of the Darfur crisis and a long record of corrupt spending practices. However, China Exim works closely with the Sudanese government on broad range of oil and hydropower projects. Thus, China Exim undercuts efforts of other countries to pressure the Sudanese government into political reform. Bosshard noted that such loans are giving other non-democratic governments leverage in negotiating for loans from other IFIs and ECAs, which are coming under pressure to lower their standards to remain competitive. He also speculated that China Exim's lending practices could spur a new wave of debt in Africa, which recently went through massive debt relief.

Low Environmental and Social Impact Standards
When the construction of the Merowe Dam began in 2003, the communities in the basin were initially very supportive, for the electricity generation was desperately needed. However, the planning and construction of the dam has violated many international safety and environmental standards and forced many to relocate into barren desert areas. The dam does not adhere to environmental standards required in China or Sudan, let alone those set by ECAs in OECD countries. Both speakers noted that the Merowe Dam violates World Bank safeguard policies in 63 instances. Most critically, the few impact studies of the Merowe Dam are not public.

Projects with Human Rights Violations
In his 15 years as president of LOHAP, Ali Askouri has been actively involved in representing Sudan's dam-affected communities in negotiations for their compensation, entitlements, and resettlement. In his years of advocacy work surrounding the Merowe Dam, Askouri has witnessed many human rights violations. Although the communities surrounding the Merowe Dam were initially supportive of the project, many have opposed their forced relocation to remote desert locations with no arable land, water for farming, or infrastructure of any form. Over the past few years, a number of community leaders opposing the dam's relocation plans have been jailed without explanation. On several occasions police have shot and killed farmers who were peacefully meeting to discuss their opposition to the relocation. Moreover, some villages that refused to move were flooded with no warning. In another case, Chinese dam construction companies caused protests when they denied nomads access to traditional drinking wells.

Askouri expressed concern that in the dam construction no steps were being taken to address the potential introduction of slow-water diseases such as malaria, schistosomiasis, river blindness, and Rift Valley Fever. The effects of the dam on the downstream population have also been ignored, including the thousands of small farmers who will face difficulty in irrigating their plots due to the lowered flow of the Nile. These farmers also will be affected by a reduction in annual siltation.

Some Positive Trends

Despite the serious environmental and social problems surrounding China Exim Bank projects, it merits mention that China is also offering expertise and products that are sometimes better suited to markets in poor countries than Western goods, such as the cheap anti-malarial drug Artemisinin, which the Chinese government has provided for free to many African countries.

While IFIs now prioritize environmental guidelines to protect citizens in developing countries, Bosshard stressed that the strict privatization conditions imposed by IFIs also have caused great instability and harm in some African countries. By only requiring recipient countries to agree to the One-China principle rather than economic policies, China Exim has created a better balance of power between donor and borrowing governments.

Domestic politics within China are notably changing in ways that could promote more responsible investment by China Exim:

• In January 2007, Cheng Siwei, the vice-chairman of the standing committee of China's National People's Congress, declared that Chinese companies domestically and abroad faced sanctions if they shirked their social responsibilities.

• In March 2007, China's National Development and Reform Commission took Sudan (and eight other countries) off the list of resource rich countries that could receive soft loans from China Exim. It has been speculated that the Darfur genocide may be behind this decision. Moreover, in April 2007, The New York Times reported that a senior Chinese official traveled to Sudan to encourage the government to accept a UN peacekeeping force. This is a striking shift from the previous policy of ignoring internal politics in countries where China does business.

• China Exim Bank adopted environmental procedures in November 2004, and in its 2005 Annual Report the bank noted that it would spare no efforts to establishing a harmonious society within and beyond China.

Conclusions

Africans want and need many of the infrastructure projects supported by China Exim Bank. However, the two speakers emphasized that China Exim is ignoring lessons learned from IFIs and is wasting money on unsustainable projects. Moreover they felt that without a stable and accountable government, the prospects for the Merowe Dam being well maintained and supplying power to poor Africans is low. In addition, while China Exim stresses the need to respect other government's sovereignty, the speakers were concerned that it is in fact interfering with internal politics in many African countries by supporting governments that harm their own citizens.

To prevent supporting harmful projects, China Exim should open dialogues with local communities, NGOs, and other ECAs to coordinate their efforts to support projects with sound environmental and social impacts. Askouri reported that China Exim Bank has been unresponsive to letters and visits by LOHAP representatives complaining about the ill-conceived relocation measures and human rights abuses in the dam area. However, in December 2006, Bosshard met with the president of China Exim Li Ruogu, who promised to look into the problems of the project.

It is not likely that China Exim will follow OECD lending regulations; however, Bosshard felt that it would be reasonable for the bank to adopt environmental and social impact standards that match those now required within China, which have been greatly strengthened over the past few years. (For a discussion of these domestic changes in the environmental impact assessment regulations see the lead feature article in China Environment Series issue 8).

Bosshard stressed that China Exim has the potential to rapidly change its standards. The passage of environmental regulations in 2004 is a promising first step; however, these regulations have not yet been publicly released. International Rivers Network (IRN) will be working with Chinese environmental NGO partners to encourage a public debate about China's emerging international role and responsibility for projects such as Merowe Dam. The speakers stated in closing that IRN and LOHAP will continue to reach out to China Exim Bank and other government agencies to promote more dialogue on China's environmental and social impact on Africa.

Drafted by Linden J. Ellis.