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Conditionality and Path Dependence in Chinese Lending

2015; Routledge; Volume: 24; Issue: 94 Linguagem: Inglês

10.1080/10670564.2014.978154

1469-9400

Mikael Mattlin, Matti Nojonen,

Political Conflict and Governance

AbstractChina's long insistence on non-interference in sovereign states' domestic affairs has contributed to a widely held impression that China also lends abroad without attaching policy conditions. In this article, we debunk the notion that China's bilateral lending is entirely devoid of conditionality, by showing that it involves elements of political conditionality, embedded conditionality and cross-conditionality, stemming from the varying concerns of Chinese foreign policy-makers and state-linked lenders. We then draw on the path-dependence literature to explore the possibility that there may also be more indirect forms of conditionality associated with Chinese lending practices. By 'emergent conditionality', we refer to structural lock-in effects that may cumulatively restrict or redirect recipient countries' policy-making choices similarly as more direct conditionality would do, even if the PRC government officially shuns conditionality. Notes 1. Apart from obtaining United Nations Security Council authorization for any crisis management action, China's government regards host nation consent as a major distinguishing line that divides extensive Chinese involvement in Africa from Western intervention. See Alex J. Bellamy and Paul Williams, 'Who's keeping the peace? Regionalization and contemporary peace operations', International Security 29(4), (2005), pp. 157–195. 2. 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Seth G. Jones and Patrick B. Johnson, 'The future of insurgency', Studies in Conflict & Terrorism 36(1), (2013), pp. 5, 12. 4. The Five Principles are mutual respect for each other's sovereignty and territorial integrity, mutual non-aggression, mutual non-interference in each other's internal affairs, equality and mutual benefit, and peaceful co-existence. 5. 'Zhou Enlai announces eight principles of foreign aid', The China Daily, (13 August 2010). 6. Shannon Tiezzi, 'In Africa, Li Keqiang refutes charge of Chinese "neo-colonialism"', The Diplomat, (13 May 2014), available at: http://thediplomat.com/2014/05/in-africa-li-keqiang-refutes-charge-of-chinese-neo-colonialism/. 7.Zhongguo duiwai yuanzhu [China's Foreign Assistance] (Beijing: PRC State Council, April 2011), pp. 2–3. 8. The other two are the China Development Bank (CDB) and the Agricultural Development Bank of China (ADBC). 9. Wu and Koh, 'From financial assets to financial statecraft', pp. 796–801.10. The IMF Executive Board determines the broad parameters of conditionality, with IMF staff taking care of the details of particular stabilization and adjustment programs.11. Stefan Koeberle, Harold Bedoya, Peter Silarsky and Gero Verheyen, Conditionality Revisited: Concepts, Experiences, and Lessons (Washington, DC: The World Bank, 2005), p. 5.12. Wendy Hunter and David S. Brown, 'World Bank directives, domestic interests, and the politics of human capital investment in Latin America', Comparative Political Studies 33(1), (2000), p. 117; Gregory T. Chin, 'Remaking the architecture: the emerging powers, self-insuring and regional insulation', International Affairs 86(3), (2010), p. 703; C. Randall Henning, 'East Asian financial cooperation', Policy Analyses in International Economics 68, (2002), p. 12.13. See e.g. IBRD, 'IBRD Articles of Agreement', Art. IV, section 10, (1989), p. l.14. A different strand of conditionality criticism concerns the ineffectiveness of lending conditionality pursued by the World Bank Group institutions. See e.g. Kurt Weyland, ed., Learning from Foreign Policy Models in Latin American Policy Reform (Baltimore, MD: Johns Hopkins University Press, 2003); Robert R. Kaufman and Joan M. Nelson, eds, Crucial Needs, Weak Incentives: Social Sector Reform, Democratization, and Globalization in Latin America (Baltimore, MD: Johns Hopkins University Press, 2004).15. One report by an NGO network counted an average of 67 conditions per World Bank loan. World Bank and IMF Conditionality: A Development Injustice, Eurodad Report (June 2006), pp. 3–5.16. James Mahoney, 'Path dependence in historical sociology', Theory and Society 29, (2000), p. 507.17.Ibid., p. 511.18. Marie-Laure Djelic and Sigrid Quack, 'Overcoming path dependency: path generation in open systems', Theory & Society 36, (2007), pp. 161–186; Paul Pierson, 'Increasing returns, path dependence, and the study of politics', American Political Science Review 94(2), (2000), pp. 251–267.19. See e.g. Brian Arthur, 'Competing technologies, increasing returns, and lock-in by historical events', Economic Journal 99, (1989), pp. 116–131; Robin Cowan, 'Nuclear power reactors: a study in technological lock-in', Economic Journal 106, (1990), pp. 541–567.20. Jörg Sydow, Georg Schreyögg and Jochen Koch, 'Organizational path dependence: opening the black box', Academy of Management Review 34(4), (2009), pp. 689–709; William Barnes, Myles Gartland and Martin Stack, 'Old habits die hard: path dependency and behavioral lock-in', Journal of Economic Issues XXXVIII(2), (June 2004), pp. 371–377.21. Pierson, 'Increasing returns, path dependence, and the study of politics'.22. Djelic and Quack, 'Overcoming path dependency'.23. Kellee Tsai, 'Adaptive informal institutions and endogenous institutional change in China', World Politics 59, (2006), p. 120.24. Douglas North, Institutions, Institutional Change and Economic Performance (Cambridge: Cambridge University Press, 1990), p. 95.25. Richard Whitley, Divergent Capitalisms (Oxford: Oxford University Press, 1999); Peter Hall and David Soskice, Varieties of Capitalism (Oxford: Oxford University Press, 2001); Glenn Morgan, Richard Whitley and Eli Moen, Changing Capitalism? Internationalization, Institutional Change, and Systems of Economic Organization (New York: Oxford University Press, 2005).26. Bob Hancké, Large Firms and Institutional Change—Industrial Renewal and Economic Restructuring in France (New York: Oxford University Press, 2002), especially pp. 190–191; North, Institutions, Institutional Change and Economic Performance, p. 95; Pierson, 'Increasing returns, path dependence, and the study of politics', p. 254.27. Chul W. Moon and Augustine A. Lado, 'MNC–host government bargaining power relationship: a critique and extension within the resource-based view', Journal of Management 26(1), (2000), pp. 85–117.28. Zhang Qingmin, 'Continuities and changes in China's negotiating behaviour', in Pauline Kerr, Stuart Harris and Qin Yaqing, eds., China's 'New' Diplomacy: Tactical or Fundamental Change? (New York: Palgrave Macmillan, 2008), p. 162.29. See e.g. Paul Kubicek, 'Political conditionality and European Union's cultivation of democracy in Turkey', Democratization 18(4), (2009), pp. 910–931.30. See e.g. Gao Zhen, 'Infrastructure development in Africa supported by the Export–Import Bank of China', 3rd Annual Meeting of the Infrastructure Consortium in Africa, (17 January 2007).31. Exim Bank, Chinese Government Concessional Loan and Preferential Export Buyers' Credit, (2009).32. Bräutigam, China, Africa and the International Aid Architecture, pp. 7, 29–30.33. See e.g. Farnsworth, 'The new mercantilism', p. 56.34. Roger Mitton, 'Beijing refuses aid to Hanoi after rebuff over Taiwan', Straits Times, (22 December 2006).35. In return, China pledged its opposition to any efforts to use 'human rights' to interfere in the internal matters of Belarus. See Zhonghua Renmin Gongheguo zhengfu he Bai Eluosi gongheguo zhengfu lianhe gongbao [Joint Communiqué of the Governments of the People's Republic of China and the Republic of Belarus] (Beijing: PRC Foreign Ministry Website, 5 November 2007).36. C. Fred Bergsten, 'A partnership of equals: how Washington should respond to China's economic challenge', Foreign Affairs 87, (July/August 2008), pp. 57–69.37. Richard Gowan and Franziska Brantner, A Global Force for Human Rights: An Audit of European Power at the UN, European Council on Foreign Relations Policy Paper (September 2008), pp. 25–26.38. Bräutigam, China, Africa and the International Aid Architecture, p. 38.39. US–China Economic and Security Review Commission, 2010 Report to Congress, (November 2010), p. 122.40. Gao, 'Infrastructure development in Africa supported by the Export–Import Bank of China'.41. Neil R. Richardson, Foreign Policy and Economic Dependence (Austin, TX: University of Texas Press, 1978).42. Diao and He, 'Strategic reflections on China's bilateral development aid', pp. 123–124.43. There are two committees in the OECD that deal with aid: the Development Aid Committee is responsible for ODA, while the Export Credit Committee deals with exports credits (one form of tied aid that is not counted in ODA).44. Edward J. Clay, Matthew Geddes and Luisa Natali, 'Untying aid: is it working? An evaluation of the implementation of the Paris Declaration and of the 2001 DAC Recommendation of untying ODA to the LDCs' (Copenhagen, 2009), p. 12, available at: http://www.oecd.org/development/evaluation/dcdndep/44375975.pdf; Gregory T. Chin and B. M. Frolic, Emerging Donors in International Development Assistance: The China Case (Ottawa: International Development Research Centre, 2007), pp. 11, 14.45. See e.g. 'China: Beijing puts its huge piles of cash to work', Financial Times, (25 January 2011); Henry Sanderson and Michael Forsythe, China's Superbank. Debt, Oil and Influence—How China Development Bank is Rewriting the Rules of Finance (Singapore: John Wiley & Sons, 2013), p. 42.46. Deborah Bräutigam, 'Aid with Chinese characteristics: Chinese foreign aid and development finance meet the OECD–DAC aid regime', Journal of International Development 23, (2011), pp. 752–764.47. European Parliament, Export Finance Activities by the Chinese Government, Directorate-General for External Policies of the Union, Policy Department Briefing Paper (September 2011), pp. 6–8.48. Preferential credits are short-term credits provided to either importers or exporters by overseas financial institutions to pay for traded goods.49. Zhou, 'China's foreign aid and 30 years of reform and opening-up', p. 40.50. Anonymous interview with two persons involved in export financing, 1 April 2011. See also European Parliament, Export Finance Activities by the Chinese Government, pp. 10–12.51. According to one 2006 Standard & Poor's report, only 3% of Exim Bank's assets were concessional loans, with the rest made up of other official financing and suppliers' credits. Bräutigam, 'Aid with Chinese characteristics', p. 757.52. Exim Bank, Chinese Government Concessional Loan and Preferential Export Buyers' Credit.53.Zhongguo duiwai yuanzhu, p. 5; see also Zhou, 'China's foreign aid and 30 years of reform and opening-up', p. 29.54. 'Industries ignore local content', VietNamNet, (1 September 2010). For an opposing view see Prashanth Parameswaran, 'Measuring the dragon's reach: quantifying China's influence in Southeast Asia (1990–2007)', The Monitor: Journal of International Studies 15(2), (2010), p. 45.55. Discussion with two persons involved in development aid in Beijing, 13 January 2012.56. Xie Yiqiu, '"Bu ganshe neizheng" de kunjing' ['The dilemma of "non-interference in internal politics"'], Nanfang Chuang 1, (2010), pp. 42–44.57. Samia Satti Osman Mohamed Nour, Assessment of Effectiveness of China Aid in Financing Development in Sudan, UNU-MERIT Working Papers 32011-005, (2011), p. 14.58. Foster et al., Building Bridges, pp. 19–20.59. Thanh Nien, 'Most of Vietnam's major projects in Chinese hands', VBN Vietnam Business News, (10 August 2010).60. 'Ecuador "expels World Bank envoy"', BBC, (26 April 2007), available at: http://news.bbc.co.uk/2/hi/americas/6598027.stm.61. Sanderson and Forsythe, China's Superbank, pp. 139–140.62. The World Bank's long drought of projects in Ecuador ended in 2014 with the first new financing commitments for years. See The World Bank website, Ecuador, available at: http://www.worldbank.org/en/country/ecuador/overview.63. Serge Michel and Michel Beuret, China Safari: On the Trail of Beijing's Expansion in Africa (New York: Nation Books, 2009), p. 214. However, an authoritative field study has claimed that local employment rarely fell below 70% of the workforce in Chinese-funded projects in Angola. See Tang Xiaoyang, 'Bulldozer or locomotive? The impact of Chinese enterprises on local employment in Angola and the DRC', Journal of Asian and African Studies 45(3), (June 2010), pp. 350–368.64. Foster et al., Building Bridges, pp. 42–43; Bräutigam, China, Africa and the International Aid Architecture, pp. 20–21.65. Sanderson and Forsythe, China's Superbank, pp. 139–140.66. International Monetary Fund, The Modalities of Conditionality—Further Considerations, (8 January 2002), p. 40, available at: http://www.imf.org/external/np/pdr/cond/2002/eng/modal/010802.pdf; Koeberle et al., Conditionality Revisited, p. 11.67.PSIREN, 'Indonesia: Chinese financing in PLN's "fast-track" program', (PSI, University of Greenwich, 2 November 2009); Janeman Latul, 'Bosowa power plant project postponed as China Development Bank pulls out', Jakarta Globe, (30 January 2009); Mita Valina Liem, 'Funding spat puts the brakes on fast-track power project', Jakarta Globe, (9 February 2009).68. Mita Valina Liem, 'Power loans tied up over Merpati', Jakarta Globe, (23 February 2009); 'PLN secures part of the loan needed for 10,000 MW program', Jakarta Post, (25 February 2009); Aditya Suharmoko, 'PLN secures Chinese loans for power plants program after Merpati spat solved', Jakarta Post, (5 May 2009); PSIREN, 'Indonesia'.69. For a good discussion of the complex relations between the two ministries and Exim Bank, see Lucy Corkin, Uncovering African Agency. Angola's Management of China's Credit Lines (Farnham: Ashgate, 2013), pp. 64–71.70. Mahoney, 'Path dependence in historical sociology', p. 508; Sydow et al., 'Organizational path dependence', p. 691.71. Bräutigam, China, Africa and the International Aid Architecture.72. Discussion with two experts working in the field of development aid in Beijing, 13 January 2012.73. Diao and He, 'Strategic reflections on China's bilateral development aid', p. 132.74. Sometimes Chinese state interests and private corporate interests can be quite hard to disentangle, as the controversial case of the business group surrounding the Chinese International Fund and Sonangol shows. Tom Burgis (with Demetri Sevastopulo and Cynthia O'Murchu), 'China in Africa: how Sam Pa became the middleman', The Financial Times, (8 August 2014), available at: http://www.ft.com/intl/cms/s/2/308a133a-1db8-11e4-b927-00144feabdc0.html#axzz39Kag3Q4k; 'Does the government in Beijing control the China International Fund?', The Economist, (12 August 2011), available at: http://www.economist.com/blogs/baobab/2011/08/chinas-oil-trade-africa.75. Ann-Marie Slaughter, A New World Order (Princeton, NJ: Princeton University Press, 2004), p. 12.76. Hancké, Large Firms and Institutional Change, p. 199.77. Zhou, 'China's foreign aid and 30 years of reform and opening-up', p. 39.78. For example, in October 2010 a member of the Vietnamese National Assembly's Finance and Budget Committee claimed that 30 Chinese companies were participating in 42 key strategic projects in Vietnam. Apparently, the Chinese contractors used no Vietnamese materials, equipment or labor. See 'Industries ignore local content', VietNamNet.79. European Parliament, Export Finance Activities by the Chinese Government, pp. 15–16, lists some potential impacts on developing countries.80. Chris Alden and Daniel Large, 'China's exceptionalism and the challenges of delivering difference in Africa', Journal of Contemporary China 20(68), (2011), p. 22.81. Pierson, 'Increasing returns, path dependence, and the study of politics', p. 259.82. Geoffrey Pridham, 'Unfinished business: European political conditionality after eastern enlargement', in Richard Youngs, ed., The European Union and Democracy Promotion. A Critical Global Assessment (Baltimore, MD: Johns Hopkins University Press, 2010), pp. 16–37.83. See e.g. Koeberle et al., Conditionality Revisited.84. Corkin, Uncovering African Agency.85. James Reilly, 'A norm-taker or a norm-maker? Chinese aid in Southeast Asia', Journal of Contemporary China 21(73), (2012), pp. 71–91.86. See e.g. François Godement and Jonas Parello-Plesner (with Alice Richard), The Scramble for Europe, ECFR Policy Brief 37, (July 2011), pp. 2–4; Chin and Helleiner, 'China as a creditor', p. 91; Graham Bowley, 'Cash helped China win Costa Rica's recognition', The New York Times, (12 September 2008).87. Lamido Sanusi, 'Africa must get real about China ties', Financial Times, (11 March 2013).88. See e.g. Wu Chien-Hui, 'Beyond European conditionality and Chinese non-interference: articulating EU–China–Africa trilateral relations', in Jan Wouters et al., eds, China, the European Union and Global Governance (Cheltenham and Northampton, MA: Edward Elgar, 2012), pp. 106–121.