China buying influence in Africa in a big way

It sought access to Namibias mineral deposits in exchange for lines of credit

So when President Hu Jintao of China arrived at Windhoek, Namibia, in February 2007 with a 130-person delegation in tow, it clearly was not just a courtesy call.

And in fact, China soon granted Namibia a big low-interest loan, which Namibia tapped to buy $55.3 million worth of Chinese-made cargo scanners to deter smugglers. It was a neat illustration, Chinese officials said, of how doing good in Namibia could do well for China, too.

Or so it seemed until Namibia charged that the state-controlled company selected by China to provide the scanners — a company until recently run by Hu’s son — had facilitated the deal with millions of dollars in illegal kickbacks. And until China threw up barriers when Namibian investigators asked for help looking into the matter.

Now the scanners seem to illustrate something else: The aura of boosterism, secrecy and back-room deals that has clouded China’s use of tens of billions of dollars in foreign aid to court the developing world.

From Pakistan to Angola to Kyrgyzstan, China is using its enormous pool of foreign currency savings to cement diplomatic alliances, secure access to natural resources and drum up business for its flagship companies. Foreign aid is central to this effort.

Leaders of developing nations have embraced China’s sales pitch of easy credit, without Western-style demands for political or economic reform, for a host of needs. The results can be clearly seen in new roads, power plants, and telecommunications networks across the African continent — more than 200 projects since 2001, many financed with preferential loans from the Chinese government’s Exim Bank.

Increasingly, though, experts contend that China’s aid comes with a major catch: It must be used to buy goods or services from companies, many of them are state-controlled, that Chinese officials select themselves. Competitive bidding by the borrowing nation is discouraged, and China pulls a veil over vital data like project costs, loan terms, and repayment conditions. Even the dollar amount of loans offered as foreign aid is treated as a state secret.

Anti-corruption crusaders complain that secrecy invites corruption, and that corruption debases foreign assistance.

“China is using this financing to buy the loyalty of the political elite,” said Harry Roque, a University of Philippines law professor who is challenging the legality of Chinese-financed projects in the Philippines. “It is a very effective tool of soft diplomacy. But it is bad for the citizens who have to repay these loans for graft-ridden contracts.”

In fact, such secrecy runs counter to international norms for foreign assistance. In a part of the world prone to corruption and poor governance, it also raises questions about who actually benefits from China’s projects. The answers, international development specialists say, are hidden from public view.

China, which is not a member of the OECD, is operating under rules that the West has largely abandoned. It mixes aid and business in secret government-to-government agreements. It requires that foreign aid contracts be awarded to Chinese contractors it picks through a closed-door bidding process in Beijing. It attempts to prevent corrupt practices by its companies overseas appear stunningly weak.

The Namibia controversy is especially delicate because until late last year, the contractor’s president was Hu’s son, Hu Haifeng. The younger Hu is now Communist Party secretary of an umbrella company that includes Nuctech and dozens of other companies. As soon as allegations against the company surfaced this summer, China’s censors swung into action, blocking all mention of the scandal in the Chinese news media and on the internet.

Namibia’s anti-corruption investigators allege that Nuctech funnelled $4.2 million in kickbacks to a front company set up by a Namibian official, who split the funds with her business partner and Nuctech’s southern Africa representative, a Chinese citizen.

Reaching out to Namibia

China has promoted Nuctech as one of its global ‘champions.’ In 10 years the company has gained customers in more than 60 countries, marketing advanced-technology scanners that help detect contraband or dangerous materials inside cargo containers. Nuctech’s spokesman says it is the only Chinese company that makes such equipment.
Hu Jintao’s visit to Windhoek opened up an option for finance. “China says the sky is the limit. Just say what you want,” said Carl Schlettwein, the bookish permanent secretary of the Namibian finance ministry, who participated in the negotiations.

At first, Schlettwein said, the talks stalled because Namibia was unwilling to grant China access to its substantial mineral deposits in exchange for lines of credit. Once China dropped that condition, Namibia agreed in principle to a $100 million, 20-year-loan at a 2.5 per cent interest rate, then well below the market.

Namibian officials decided to draw on the credit line to finance most of the cost of the scanners. Schlettwein, who negotiated the scanner contract, said he wanted to seek competitive bids from scanner suppliers around the world, but Chinese negotiators refused.

A Windhoek bank official, following the strictures of Namibia’s new money-laundering Act, called to ask why Nuctech had deposited $4.2 million in the account of a consulting company set up by Tekla Lameck, a Namibian public service commissioner.

Schlettwein, who said that he has never met Tekla and that she had nothing to do with the scanner purchase, alerted Namibia’s anti-corruption commission. In July, Tekla, her business partner and Nuctech’s representative in Windhoek were arrested on suspicion of violating Namibia’s anti-corruption law.

At his bail hearing last month, Yang Fan, Nuctech’s representative, said his company hired Tekla because “Tekla explained how to do business here in Namibia.”
He did not elaborate. But in 2007, another Namibian official complained to the anti-corruption commission that Tekla had introduced herself to the Chinese Embassy in Windhoek as a representative of Swapo, Namibia’s governing political party. She claimed that no business could be done in Namibia without Swapo’s involvement, the complainant said.