Seminar on Chinese Economic and Strategic Research No. 15: “Evaluating the impact of Chinese loans”

On 29th November 2016, VEPR’s Chinese Economic Studies Program (VCES) andthe Center for Strategic and International Studies (CSIS) of the Institute of World Economics and Politics (IWEP) organized a Seminar on Chinese Economic and Strategic Research no.15 with the topic of “Evaluating the impact of Chinese loans.”

Speakers at the Seminar on Chinese Economic and Strategic Research No.15 include PhD. Pham Sy Thanh, Director of VEPR’s Chinese Economic Studies Program (VCES).

The Seminar attracted the participation of scholars, researchers in the field of economics, politics, foreign affairs from numerous research institutes and departments; lecturers, university students as well as the press in Hanoi

Overview of the Seminar

Assoc.Prof.PhD Chu Duc Dung-Director of Institute of World Economics And Politics (IWEP), Viet Nam Academy of Social Sciences (VASS) and PhD. Pham Sy Thanh, Director of VEPR’s Chinese Economic Studies Program (VCES) made opening speeches to start the Seminar.

Assoc. Prof. Dr. Chu Duc Dung gave the opening remarks

Seminar on Chinese Economic And Strategic Research No.15 is one in the chain of seminars on Chinese Economic and Strategy Research organized once every two months, chaired by VEPR’s Chinese Economic Studies Program (VCES) with the aim to open up a forum for national and international researchers to present their research, thus create a network of research and exchange on Chinese economics, politics, diplomatic, foreign affairs, social and security.

On behalf of VCES’s researchers, PhD. Pham Sy Thanh  presented a report on “China offering  loans for development in the new context: Opportunities and challenges” (Trung Quốc cung cấp tín dụng phát triển trong bối cảnh mới: Cơ hội và thách thức”). Main points in the report include (1) China promotes supplying loans for developments and establishing financial institutions; (2) Opportunities that Chinese credits for development brings to developing countries; (3) Challenges from Chinese credits for development.

Dr. Pham Sy Thanh presented the research

China has shifted its route on economic development from not only exporting goods but also exporting capital, technology and labor abroad. To promote this, China has established numerous financial institutions that offer loans for developmets such as the Asian Infrastructure Investment Bank (AIIB- regulatory capital of 100 billions US dollars); Silkroad Fund (SF- initial capital of 40 billions US dollars) and Green Silkroad Fund (initial capital of 4.8 billion US dollars). These new financial institutions, together with banks such as China Dvelopment Bank (CBD), The Export-Import Bank of China (CHEXIM) have made China the leading country in supplying loans for development in 2016.

The period of 2005 -2014, Chinese financial institutions have supplied more than 126 billions USD of loans for development for the energy sector alone (almost twice the amount of 78 billion USD provided by the World Bank). In Africa, China is the biggest financial supporter, providing loans for 80 percent of traffic infrastructure projects, According to VCES’s estimates, taking together Official development assistance (ODA), loans from policy banks, commercial banks and new financial institutions, since 2015, China has provided 80 to 100 billion USD every year for global financial development. One notable thing is that the money used for developments are heavily under the control of China’s “One belt, one road” Strategy (OBOR) issued by President Xi Jinping since 2013.

The existence of Chinese loans for developments has brought many opportunities to the developing countries:

  1. Narrowing the gap between demand for investment and the ability  to provide loans of other financial institutions
  2. Creating a geo-economic connection, thus reducing trade costs, creating production and logistic network on a larger scale.

However, Chinese loans for development also pose threats to the borrowing countries.

On lending conditions. China’s requirements on access to capital are often simpler than other current international financial institutions; however, this may lead to corruption and low investment efficiency. Specifically, AIIB’s loans entail “no political interference”. Comparing regulations on environment protection, important Chinese institutions such as AIIB, CDB, CHEXIM, MOFCOM or CBRC all have very few requirements (typical 2-3 terms of requirement, CBD has 6 requirements as compared to 9 requirements from the World Bank). Three of the most important requirements that are not included are supervision and evaluation of impact on the environment; minimization of  environment damages; interaction with local community where the project is implemented etc.

Besides, regulations on human rights are required by the World Bank, Asia Development Bank (ADB) or  European Bank for Reconstruction and Development (EBRD) to ensure welfare of the vulnerable groups and that they can raise their voice and ask for compensation as the foreign-funded project is implemented.

On Economics and Finance. Loans offer by China is not cheap (in terms of interest rate and exchange rate)

Even when China is willing to provide loans with low interest rate of almost 0, terms requiring employing Chinese contractors, Chinese labor even for every category has minimize the potential benefits for the local firms.

Chinese firms participating in ODA projects often overcharge more for every task (hạng mục công việc).

In real terms,  the interest rate offered by China is not low.

Concerns on environmental issues. China has three levels of environment protection for foreign investment or loans for development.

  1. China’s Ministry of Commerce issued “Instructions on environment protection activities for foreign direct investment and international co-operation” This document aims at Chinese investors regardless of being state-owned or private but only acts as “moral compass” to state-owned companies.
  2. China Banking Regulatory Commission (CBRC) issues “Green Credit Guidelines” (“Hướng dẫn tài chính xanh”) to all projects using loans from banks, in which require Chinese investors to meet requirement on international environmental laws and national environment law of the countries receiving the loans
  3. Two national financial institutions are CBD and CHEXIM set the requirements on environment for their own projects.

Impacts of environment damage do not only affect environment recovery process but more importantly, these damages can destroy local community’s surroundings and livelihoods. Report done by the Center for Regional Security Studies (CRSS) which is under  Chinese Academy for Social Sciences (CASS) (Báo cáo của Trung tâm Nghiên cứu An ninh khu vực (CRSS) thuộc Viện hàn lâm khoa học xã hội Trung Quốc (CASS) in 2016 also acknowledged that “Many OBOR projects can cause a series of environmental security issues”

Concerns over labor and the changes in Chinese foreign policies.

  1. Number of Employment that Chinese projects create is not highdue to usual employment of Chinese labor on a large scale.
  2. Changes in policies that protect Chinese citizens may lead to strains between China and host countries

The seminar went well with the  participation of experts such as PhD. Luu Bich Ho, senior economic expert Pham Chi Lan, PhD. Tran Toan Thang, Mr. Nguyen Quoc Truong, Assoc. Prof. PhD. Le Cao Doan,… The experts appreciated the research group’s approach and will have further discussion on the impact of Chinese loans for development on Viet Nam.

PhD. Luu Bich Ho
Ms. Pham Chi Lan (first from left)
PhD. Tran Toan Thang (third from left)

Mr. Nguyen Quoc Truong (second from left)
Assoc. Prof. PhD. Le Cao Doan (second from right)

Other photos from the seminar:

Seminar on Chinese Economic and Strategic Research No. 15: “Evaluating the impact of Chinese loans”

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