Belt and Road Forum, II, part I-Cleaning Up the House
At the recent Belt and Road Forum, Chinese President Xi Jinping stressed China would adopt a zero-tolerance policy towards corruption regarding its Belt and Road Initiative (BRI). Interestingly, Xi mentioned this while refuting charges China was using the “honey pot” of BRI money to take over other country’s valuable assets like land through subterfuge. Infrastructure, which is a core of the BRI, and corruption often go hand in hand because of the “gatekeeper role” played by political leaders and government officials who may select bid winners based on the best package for them rather than the best package for their countries. This fact, plus the generally low corporate social responsibility (CSR) standards of Chinese companies and the poor institutional environment in which Chinese firms engaged in BRI business often operate, mean corruption has emerged in connection with BRI activities. Shaping up the CSR practices of Chinese firms overseas, whether engaged in the BRI or not, has long been discussed, but little has been done. It is an interesting question why there is renewed attention to the issue of corruption now. One factor could be China’s effort to draw in more developed countries, which often have higher standards, into the BRI. Another factor could be to bolster the BRI’s somewhat tainted image. Yet another factor could be the desire to reduce the possibility that bad projects move forward because of corruption, not sound project economics. If bad projects proliferate because of corruption, then the risk of debt default (and asset seizures) increases which means the “debt trap” argument could hound Beijing even more. Whatever the case, cleaning up corruption will require tougher action against state-owned enterprises (SOEs), more rigorous lending and project standards, and greater transparency. Real results would have notable implications for China, SOEs, host countries, and foreign multinational corporations.