From the mailbag - longish post

Olaf, in comments, regarding China's unconditional loans vs. the highly-conditional IMF & World Bank loans and aid:

Are these conditions not what the left has been fighting and marching and protesting years to set up, in order to place environmental restrictions on corporations and governments?... I still have to wonder why China is willing to "offer more money at lower prices", but the IMF and WB aren't? I mean, if these loans are likely to be repaid, you'd think the IMF and WB would be interested, and if they're not likely to be repaid, you wonder why China IS interested.

The left has indeed been marching for some conditions to loans, such as human rights, environmentalism and accountability. On that score, the World Bank and the IMF is still pretty pathetic. The main conditions that the Bretton Woods institutions have added in the last half-decade have been about "corruption", which was dodgy enough to begin with. Post-Enron, post-Worldcom, to have Washington lecture developed countries about corruption and transparency became... less tenable. Maybe not rightly, but that's the facts.

In general, I don't believe the left wanted more conditions on IMF loans - which were already onerous. Maybe different conditions, and less of them. In particular, I think the whole idea of "conditionality" needs to be abandoned when we're talking about some of the poorest places on Earth. Build roads, dams, and whatever else is necessary to give people the basic security that comes from leaving poverty, and then work on more substantive change. Additionally - and this is where the World Bank and the IMF failed miserably - work for development should use indigenous labour as much as possible.

In any case, the biggest plus to China's unconditional loans is that they aren't - as far as I've seen - coming with the baggage of the IMF's structural adjustment programs. These have, since the 1980s, totally dominated the foreign aid scene. There's little evidence they've stabilized the global financial scene, because various crises (Russia, Asia, Argentina, Turkey) all stemmed from following the IMF's advice, not disobedience.

(For some good reading on this score, see Joseph Stiglitz, Dean Baker, or Robert Wade.)

Why isn't the World Bank or the IMF extending these loans? Probably because the countries in question can't swallow the IMF's conditions, and the IMF is still operating on the mentality that it's the only player that matters. Dean Baker has called the Bretton Woods institutions "the OPEC of money" because between the IMF and the World Bank, they could collectively decide whether a developing country has any access to capital at all. That was a position of incredible power, and they used it pretty mercilessly throughout the 1980s and 1990s.

Why is China extending these loans - even if we assume they won't be paid back? Two levels of self-interest here: One, investments that help the Pacific economy function more smoothly are, by definiton, good for China. So even if the loan doesn't get paid back, a bridge over the Mekong connecting Cambodia with southern China is A Good Thing.

The deepwater port the article mentions in Myanmar is part of China's long-term strategy of trying to route as much of its imports as possible in to China without going through the Straits of Malacca - pirate-infested waters when they're not controlled by the Americans. Either way, it makes Beijing nervous. More broadly, Chinese investments in Myanmar's (Burma's) infrastructure, especially roads and bridges, could (and I have no evidence of this, just speculating) be an attempt to increase land trade with India. Currently, all of the main connections between India and China are along the Tibetan plateau, which means the travel times are slow and the passes are treacherous. More serious roads would greatly help Chinese-Indian trade, but it's difficult to carve roads and railways out of mountains. Consider that China just this year opened a rail line to Lhasa in Tibet, after controlling that country for decades.

So land connections along the Chinese-Indian border (Tibet) are possible, but not ideal. That leaves the option of roads and bridges through Myanmar, connecting with Indian trade along the Brahmaputra. There already seem to be road connections, based on this map, but Wikipedia describes Myanmar's economy thusly:

Today, Myanmar lacks adequate infrastructure. Goods travel primarily across the Burmese-Thai border, whence most illegal drugs are exported, and along the Ayeyarwady [Irriwaddy] River. Railroads are old and rudimentary, with few repairs since their construction in the 1800s. Highways are normally unpaved, except in the major cities.

So it's pretty clear Myanmar needs some cash before Chinese-Indian trade can really take off. In theory, a solid system of roads from India, through Myanmar, to Kunming could give Indian exports a much faster route between India and the Pearl River Delta (Guangzhou, Shenzen, Hong Kong) and the southern coast more generally. In theory, increased land traffic in the south would supplement the existing routes which connect India to Chengdu and Chungking in the interior.

Land connections between China and India via Burma have a history, however - the Japanese threatened to invade India during WWII after their quick victory over British, Chinese and American forces in Burma. Anyway, like I said I have no evidence of this, it's all just speculation based on map-reading and some educated guessing.

The second form of self-interest, and I think the more basic explanation for why China is throwing money at loans that may not ever get repaid, is simply that it's in Beijing's interest to make itself look like a more generous, benevolent, less actively imperial agent of development in Asia. This doesn't come cheap, but Beijing isn't trying to spend money everywhere. In Africa and the poorer parts of Asia, China is spending money smartly and creating a wedge between Washington and Beijing. Actually, that's not true: there was already a wedge between Washington and the developing world, created by the IMF and World Bank's arrogant assumption that it could dictate the terms of development ad infinitum. Beijing isn't pushing this wedge - yet - but unless Washington can come up with more attractive money (read: Cheaper and more plentiful) I don't see the US winning this game.

Whenever I write a number of posts about how competently China is playing the geopolitical game, I feel the need to write a disclaimer that, NO, I do not think Beijing is particularly benevolent, and NO I do not like the idea of a powerful authoritarian government supporting governments like Myanmar's or Sudan's. Nevertheless, China is not Doing Bad Things by building dams, roads, and bridges throughout Asia and Africa. Do we like the governments? No. Does that mean the people should live in poverty? Not on your life.