Two Chinese banks pump more money into the developing world than the entire World Bank. The China Development Bank and the Export-Import Bank of China now provide more financing to developing countries than the World Bank.

This relationship is redefining the global development agenda. While the West heralds trade liberalization and financial deregulation, the Chinese model is based around strictly regulated trade and financial markets. China’s finance does not come with the same harsh conditions that many western financing institutions have. A country does not need to liberalize trade nor do they need to take on any new fiscal austerity measures to receive money from China.

In the past fifty years, China has transformed its economy and brought 600 million people out of poverty with its outstanding record of rapid and broad-based development. Yet, in a world that is becoming increasingly conscious about social and environmental issues, China’s lackluster environmental record inhibits it from becoming the global development leader. Increasingly, China’s financial institutions have been losing ground in public opinion over social and environmental concerns.

One example is the Belinga iron ore deposit in Gabon, which was contracted in 2007 between the Gabonese government and the China Machinery Energy Corporation, with financing from the EIBC. The project sparked a strike of union workers demanding better working conditions and the expulsion of foreign workers. It also sparked numerous local protests against the negative environmental effect the project would have on the region. Because of this resistence, the project has been delayed multiple times and may ultimately be denied.

Another example is the EIBC-supported Patuca hydroelectric project in Honduras. Local civil society organizations along with multiple NGOs such as International Rivers and The Nature Conservancy, have expressed significant concern over the accuracy of the project’s environmental impact assessment. The project intends to flood 42km in the Patuca national park and the Tawahka Asangni biosphere reserve.

In order to secure markets in more developed countries, China’s banks will need to adopt established international norms of environmental conservation and social aptitude. Local skepticism and protests are just a few of the environment- and socially-related political risks associated with global development. Not listening to public criticism will only result in delays or losses of projects funded by the Chinese development banks.

China is already well on its way to being the world’s foremost global development powerhouse. With its successful track record and lack of strict conditions, China could very well reach this position in the coming decade- but not before adding substantial social and environmental safeguards.

Kathryn Cassibry

Sources: The Guardian, UNDP, Business Recorder