Why China is winning

A simply fantastic article in the NYT about how China is winning hearts and minds across Asia by doing something as breathtakingly rational as opening the purse.

Nearby, engineers from the China Shanghai Construction Group have sunk more than a dozen concrete pylons across a tributary of the mighty Mekong River, a technical feat that will help knit together a 1,200-mile route from the southern Chinese city of Kunming through Laos to the Cambodian port of Sihanoukville on the Gulf of Thailand.

This is the new face of China’s foreign aid to poor Asian countries: difficult construction in remote places that benefits the recipient, and China, too....

For poor countries like Cambodia, Laos and Myanmar, and somewhat better-off countries like the Philippines, China’s loans are often more attractive than the complicated loans from the West.

The Chinese money usually comes unencumbered with conditions for environmental standards or community resettlement that can hold up major projects. The aid does not carry penalties for corruption that are being increasingly used by the World Bank president, Paul D. Wolfowitz. And China’s offers rarely include the extra freight of expensive consultants, provisions that are common to World Bank projects.

For its part, China benefits from the added infrastructure — roads, ports and bridges — in the underdeveloped but growing region around it, to help increase trade and to move natural resources from China’s periphery to its heartland.

Gee, investment in infrastructure that a) helps the local economy and b) assists China in it's long-term development. It's like the textbook definition of what foreign aid should be, but too often isn't. What's stunning - but shouldn't be - is how successful this strategy is proving, even in places where Washington's influence should make it difficult:

In the Philippines, China is also making a big splash, offering an extraordinary package of $2 billion in loans each year for the next three years from its Export-Import Bank.

That made the $200 million offered separately by the World Bank and the Asian Development Bank look puny, officials from those banks said, and easily outstripped a $1 billion loan under negotiation with Japan....

And why did the Phillipines spurn the World Bank and Japan (aside from the obvious reasons above?)

After being a favorite of the Bush White House, the Philippine president, Gloria Macapagal Arroyo, fell out of favor when she pulled her country’s troops out of Iraq in 2004.

Here we have it: a direct example of the war in Iraq totally ruining America's interests in Asia. This isn't exactly Manila falling to the Japanese, but it's a blow to US influence in Asia nonetheless.

There's precious little evidence that the anti-corruption clauses in World Bank and IMF contracts actually have any effect. Hell, there's precious little evidence that corruption affects development - the PRC is notoriously corrupt on a number of levels, but it hasn't slowed China's growth appreciably. All the clauses and caveats that the west has demanded in lending were only acceptable so long as there was no alternative. Now China is providing a competitor in the aid marketplace.

So here's the question: will the free marketeers at the IMF actually try and compete with China by offering more money at lower prices, or will they try and get the powerful governments of the west to rig the marketplace in their own favour?