Over the weekend, while the world’s largest economy was focused on internal fallout from the presidential sacking (and subsequent threatening) of the United States’ FBI Director (and amid calls for impeachment of President Trump), China hosted its ‘One Belt, One Road’ Summit, grandly showcasing its US$1 Trillion spending plan for transport and other infrastructure connectivity projects throughout Asia, Africa, and Europe. (See map below of covered countries in the One Belt, One Road initiative covering six east-west or north-south transregional corridors, affecting 4.4 billion people, and around 65 countries. Also available here.)
On its own, the scale, frequency, magnitude, reach and undisclosed duration of the One Belt, One Road initiative significantly outspends traditional project-by-project development finance decisions of established international financial institutions such as the World Bank and the Asian Development Bank, with its funding sourced from the China Development Bank, the China-led Asia Infrastructure and Investment Bank, four state-owned commercial banks, China’s Export-Import Bank, and China’s Silk Road Fund. The One Belt One Road initiative has been hailed as “perhaps the world’s largest platform for regional collaboration”, with Chinese President Xi Jinping declaring that the initiative underscores “the need to improve policy coordination and reject beggar-thy-neighbor policies…[the] need to seek win-win results through greater openness and cooperation, avoid fragmentation, refrain from setting inhibitive thresholds for cooperation or pursuing exclusive arrangements and reject protectionism.” While Human Rights Watch raised concerns about the long-term and short-term human rights impacts of the behemoth development projects under the One Belt, One Road initiative, others have raised geopolitical caution with a China-dominated global development trajectory.
No other country will be in a position to directly influence regional and/or global development outcomes, with projected greater impact than the United States’ reconstruction assistance to Europe under the Marshall Plan. The irony here is that while the United States under the Trump administration may keep publicly lionizing the virtues of bilateralism in the international economic order by threatening to withdraw from (or when that proves difficult, settling on renegotiating) the terms of multilateral trade (whether under the World Trade Organization or the North American Free Trade Agreement), China is literally leading the path through a bilaterally-negotiated ‘Globalization 2.0’ through its One Belt, One Road Initiative. While much of the technical contours of One Belt, One Road projects remain undisclosed, this post examines some aspects of the rising de facto Chinese global monopoly on bilaterally-negotiated development finance standards and foreign investment governance.
The One Belt, One Road Public-Private Paradigm
The World Economic Forum praised five virtues of the public-private partnership paradigm under the One Belt, One Road initiative: “1) based on a multi stakeholder approach, which is conducive to dialogue, multilateral cooperation, and long-term shared interests; 2) leverages market forces while promoting greater social inclusion and risk resilience; 3) helps prepare economies for the Fourth Industrial Revolution; 4) is based on an ‘open platform’ concept which could enable increasingly dynamic interaction and innovative outcomes; and 5) represents a positive message for resetting the world on a path towards shared value and global harmony.” While these virtues sound enticing, the lack of public transparency or specificity about project terms of reference under the One Belt, One Road’s program scope raises questions on how to truly operationalize an ‘inclusive’ and multi-stakeholder approach, especially since the financing country is of course expected to have more bargaining leverage than the recipient country over the terms of a China-financed infrastructure project. As a Chinese scholar put it in regard to China’s development projects in Africa:
“China’s intention in Africa is benign. Beijing has no intention to colonize the continent, dictate the politics or economy of the local countries or deprive them of development opportunities. On the contrary, China truly sees itself as Africa’s “brother” and hopes to help African countries develop through infrastructure projects. Beijing seeks an approach different from that of the West, one that avoids the “meddling” with the internal affairs of African countries through conditional aid. In the last several years, China has contributed significantly to the economic growth of some of Africa’s poorest nations. China wants to see a prosperous Africa, which is beneficial to China’s interests as well.
However, this does not mean China is being altruistic. Helping Africa is important, but China would not do so if it had nothing to gain. Indeed, China emphasizes that any bilateral relationship has to be mutually beneficial. And China’s investment in Africa does pay itself back in multiple ways economically: development and exploitation of Africa’s natural resources, access to local market, employment opportunities for Chinese labors and service contracts for Chinese companies on infrastructure projects that China funds. When Chinese officials emphasize that China also invests substantially in countries that are not rich in natural resources to defuse international criticisms, they often forget to mention that China also has its eyes on other things that these countries can deliver, such as their support of Beijing’s “one China” policy, of China’s agenda at multilateral forums and of China as a “responsible stakeholder”. While there is nothing wrong with not being altruistic in one’s motives, it should be noted that China is not helping Africa in exchange for nothing.” (Italics added.)
Others have argued that domestic labor or social safeguards are not the responsibility of Chinese concession operators and funders, which only makes it all the more imperative for China’s bilateral partners under the One Belt, One Road initiative to themselves act to ensure that international environmental, labor, and social safeguards form part of their domestic regulatory frameworks. In this respect, China’s bilateral partners under the One Belt, One Road initiative have to be mindful of their obligations to regulate business activities in a manner that internalizes human rights as part of the proposed regulatory framework of any public-private partnership project. In particular, under the International Covenant on Economic, Social and Cultural Rights (where significantly, China has been a State party since 2001), it would be relevant for the host country of the One Belt, One Road initiative project, to also consider the current draft General Comment on State Obligations under the ICESCR in the Context of Business Activities, which was recently introduced in the latest session of the Committee on Economic, Social and Cultural Rights in February 2017 by Rapporteurs Olivier de Schutter and Zdzislaw Kedzia:
“The obligation to respect [the International Covenant on Economic, Social and Cultural Rights] is also violated when States Parties facilitate a violation of the Covenant rights by third parties, including business actors. For instance, forced evictions often occur in the context of investment projects, accompanied by the State failure to intervene or provide victims with access to remedies. In a number of cases, States Parties have seized land that is crucial to certain individuals or communities and to their enjoyment of Covenant rights in order to make it available to investors and businesses.
Furthermore, a State failure to adopt and implement effective measures to prevent businesses from violating Covenant rights may constitute a violation of the obligation to respect. Covenant rights may be abused by, for instance, lowering the criteria for approving new medicines or granting exploration and exploitation permits for natural resources without giving due consideration to the potential adverse impacts of such activities on the individual and community’s enjoyment of Covenant rights. The Committee also notes that corruption of public officials often facilitates and enables such failure by States Parties to respect the Covenant rights. In addition, judicial corruption results in impunity for business actors and injustice for victims without access to effective remedies.
The obligation to protect means that States Parties must effectively prevent the infringements of economic, social and cultural rights in the context of business activities, both domestically and, to the extent compatible with international law, extraterritorially. The obligation to protect requires States Parties to adopt legislative, administrative, educational, as well as other appropriate measures, to ensure effective protection against Covenant rights violations linked to business activities. This obligation also requires States Parties to ensure that businesses exercise due diligence in order not to impede the enjoyment of the Covenant rights of those who depend on their business activities or who may be negatively affected by them. As part of this obligation to protect, States Parties must also provide victims of such business abuses with equal and effective access to remedies.
The obligation to protect entails a positive duty to establish clear human rights standards for business actors and regulate relevant activities by adopting legislative and other measures. To this end, States Parties should adopt a legal framework requiring business entities to exercise human rights due diligence in order to identify, prevent, mitigate, as well as to account for the negative impacts caused by their decisions and operations on the enjoyment of Covenant rights. In addition, States Parties should also require businesses, if needed, to adopt human rights based codes of conduct for their management and employees; impose criminal and administrative sanctions and penalties for violations by business of the Covenant rights; enable civil suits by victims of rights violations against perpetrators; revoke business licenses and subsidies, if and to the extent necessary, from repeat offenders; and revise relevant tax codes to deny business exemptions in case of human rights violations and to align business incentives with human rights responsibilities. The obligation to protect also requires States Parties to monitor the impacts of business activities on the enjoyment of economic, social and cultural rights, to regularly review the adequacy of laws and identify and address compliance and information gaps and emerging problems.” [Italics added. Committee on Economic, Social and Cultural Rights, General Comment on State Obligations under the International Covenant on Economic, Social, and Cultural Rights in the Context of Business Activities, paragraphs 15 to 18, E/C.12/60/R.1, 17 October 2016, prepared for the Sixtieth Session of the Committee on February 2017.]
Finally, it bears stressing that the kind of long-term infrastructure projects contemplated in the One Belt, One Road initiative will expectedly carry various kinds of risks – project risks, political risks, credit or currency risks, social risks, among others – and it is important to determine the lines of accountability between China and all the countries participating in the One Belt, One Road initiative, particularly with respect to issues such as project risk sharing; risk-mitigation measures permitted under foreign investment project contracts; host country oversight over the content and implementation of foreign-financed infrastructure projects; political risk insurance; possibilities for shared technology transfers, among others. Many (if not all) of these projects will most likely be covered and/or protected within the terms of China’s (currently 145) bilateral investment treaties with developing countries covered in the One Belt, One Road initiative. In light of recently demonstrated African trade deficits with China; the alleged ‘dark side of Chinese infrastructure’ supposedly due to inefficiencies and other project pathologies; China’s critiqued track record on infrastructure projects in countries such as Venezuela, Sri Lanka, and Myanmar (among a corpus of infrastructure projects deemed to have “destroyed, and not generated, economic value”), it may also be prudent to ask the extent to which there would be any Chinese sovereign control, oversight, influence, or any lasting preferential arrangements for China over these ‘trans-regional corridors’ after infrastructure projects are completed, especially if they stand to strategically alter the terms of the level playing field of foreign market access envisaged under the world trading system. Would the One Belt, One Road initiative be another demonstration of “China’s emerging institutional statecraft“?
It would also be an appropriate time for One Belt, One Road initiative recipient countries to review and revisit the terms of their bilateral and/or regional investment treaties with China, to determine the extent to which their regulatory powers as host States of investment are affected (if at all); to determine their institutional, practical, and legal ability to defend against any possible investor-State claims in the future over the long-term implementation of One Belt, One Road initiative projects; and to evaluate the suitability of their current regulatory environments and institutions to the long-term infrastructure concession and connectivity projects contemplated.
What Kind of Development Will the One Belt, One Road Initiative Create?
The One Belt, One Road Initiative may indeed lead the world towards its “Fourth Industrial Revolution”, but the lack of other truly competitive sources of foreign financing is what ultimately reinforces China’s monopolistic advantage over foreign-financing of infrastructure and connectivity projects. It should also serve as a prudential warning for developing countries, to be vigilant about their own regulatory environments and institutional capacities and to avoid “neocolonialism” achieved through negotiating disparities in bilateral arrangements. Directly internalizing international economic, social, and cultural rights, international labor agreements, and international environmental agreements – (to many of which China is already a State party, see here, here and here) into the long-term domestic regulatory frameworks governing One Belt, One Road projects is one way of redressing the bargaining imbalance for developing countries and ensuring mutual accountability for all global partners in China’s push as a ‘responsible power’ driving ‘Globalization 2.0’ bilaterally through the One Belt, One Road initiative.
In December 2016, China publicly articulated its philosophy, contribution, and practice on the right to development. It is also up to China’s partner countries in its One Belt, One Road initiative to be active investment partners conscious of their duties to ensure the protection of this “inalienable human right [to development] by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realized…[which] also implies the full realization of the right of peoples to self-determination, which includes, subject to the relevant provisions of both International Covenants on Human Rights, the exercise of their inalienable right to full sovereignty over all their natural wealth and resources.” (Declaration on the Right to Development, Articles 1.1 and 1.2). Calling for the transparency of One Belt One Road projects, and the internalization of human rights, labor standards, and environmental duties under international law in all projects, is one concrete way for developing country states partnering in the One Belt, One Road initiative to realize the right to development of the 4.4 billion persons that stand to be affected by this global program of development for generations to come.