HOMEPAGE

Business

 

Czech think-tank Sinopsis: Chinese ‘investment’ marred by endemic corruption, intransparency

 
photo:  (radio.cz)
 

Ahead of the 30th anniversary of China’s crackdown on peaceful pro-democracy demonstrators in Tiananmen Square, Radio Prague spoke to Filip Jirouš, coordinator the China-watching think tank Sinopsis, about the politics behind some of the more controversial aspects of business dealings between the countries. A harsh critic of China’s sweeping Belt and Road Initiative, to which the Czech Republic has signed on, and the main Chinese investment vehicle here, CEFC, he further argues allowing Huawei to roll out the 5G network would be a disaster.

 

The year 1989 is, of course, one of great symbolic significance to both the Czech and Chinese nations. The Czechs will be celebrating the 30th anniversary of the Velvet Revolution in grand style at the state level. The People’s Republic of China, meanwhile, has tried to erase all public memory of the violent Tiananmen Square crackdown.

Filip Jirouš of Sinopsis finds it troubling – to put it mildly – the degree to which the Czech president and other political and business elites have opened the door to business with China, an authoritarian state experimenting with capitalism, where transparency is a rare commodity.

I began by asking him what he thought of China’s Belt and Road Initiative, introduced by President Xi Jinping in September 2013, which aims to build a network of highways, railways, ports and pipelines linking Asia via the Middle East to Europe.

In April, there was another Belt and Road summit – some listeners might know it as the ‘New Silk Road’ project, as it was once called. Estimates vary on the amount of money spent, but it’s generally referred to as a trillion-dollar project. It’s been called the biggest infrastructure project in Europe since the Marshall Plan, which Czechoslovakia was prevented from joining (by the Soviets). What makes it troublesome or worrisome?

“The lack of transparency. This is the problem with the regime in China in general. You don’t know really know who is behind these projects. Quite often, it is actually state-owned projects that are doing the Belt and Road projects, again with clear links to the communist regime itself, which quite often leads to, if nothing else, a suspicion that this initiative is all about the promotion and advancement of Chinese interests in the various countries. This is part of the reason it’s been creating so much backlash all over the world.”

“We can talk about ‘debt-trap diplomacy’ – that definitely may be part of it – but at the same time there have been a lot of issues, from environmental to security, and especially whether those projects are actually necessary.

“In a lot of the countries, we’ve seen the projects are not necessary and are basically promoted by the political elite to split the benefits. As we’ve seen in Malaysia, there is plenty of evidence to show it was a corrupt project, where the government there was splitting the money with the Chinese SOE [state-owned enterprise] running one of the projects.

“We see corruption and the Chinese pushing for a lack of transparency in these projects. Also, there’s the problem that it is the Chinese companies that build the projects, that quite often ship in their own workers, ship in their own materials. And it’s not an investment, quite often, but more likely actually a loans. That’s another problem. So, the economic benefits are often, let’s say, not clear.

“The local governments often refuse to make any proper independent assessment of whether something is feasible, whether it’s necessary. Mainly in Africa, central Asia, southeast Asia, the governments push for it and sell it to the voters saying, ‘Look, we’ve brought in Chinese investment. We’re doing something for the people’. But, quite often, it’s not for the benefit of the people on the whole, but for a few wealthy and powerful individuals in the country, to the Chinese regime, and to the companies involved.”

A bridge or a road is something very tangible that the average person could see as evidence that the government is doing something, but it might end up being a ‘bridge to nowhere’ or road that no one actually uses. …

“Right.”

You mentioned the ‘debt trap’. There’s concern that the Chinese government is actually counting on default, and this is a way to seize land, or ports, and in some cases even establish military bases.

“This is something that has been debated in academic circles for quite a while. We don’t really know whether this is the ultimate goal, to get these countries into debt. But if it’s not the goal – if this is not strategic – it’s actually working out that way pretty well, in the sense that you silence critical countries.

“For example, we can see this clearly in the persecution of the local ethnic Turkic ethnicities and the Muslim world being silent because of Chinese money.

“At the same time, we have seen the establishment of the first Chinese military bases overseas within the last couple of years as part of the Belt and Road Initiative, for example in Djibouti. Then you have the military outpost or base in Tajikistan, which so far has been completely denied the local government, but we have satellite images to prove it.

“And if you look at what’s going on in the South China Sea, it’s definitely linked to it. This is a way to utilise money that the Chinese regime can’t really use domestically because it’s foreign reserves. And they take this money and invest in all kinds of strange projects that involve the political elite. They use this for elite capture.”

Elite capture, human rights, and economic diplomacy

Elite capture is a form of corruption whereby public resources are biased for the benefit of powerful individuals in detriment to the welfare of the larger population. In the opinion of Filip Jirouš, “elite capture” is at the heart of China’s deals made abroad. In some cases, it serves private interests rather than China’s national interests, as evidenced by some high-profile corruption cases.

“The deals should be checked. Any deal you make with the Chinese state ideally should be checked by an independent community of lawyers, of people who are actually statesmen, to make sure it’s a good deal that benefits the people, not just the people running it.”

If we can turn to the Czech case, President Miloš Zeman is well known around the world for being especially close to the China, to Russia. Back in 2016, when he welcomed his Chinese counterpart Xi Jinping to Prague Castle, there was a 21-gun salute for the first time in half century. Yet, ahead of the (Belt and Road) summit in April, he was complaining a bit that the fruits of investing the political capital, essentially, had not come in terms of incoming Chinese investment. How do you see it?

“Well, this is pretty much what has been going on in what is sometimes called the Third World, or the developing world – the same practices, in that the Chinese reach out to groups with links to political elites and big businesses around them. This, I think, is the only explanation to what’s going on in the Czech Republic as well.

“You see clear evidence and clear coinciding times between when the company PPF, which is by far the largest financial group, and though registered in the Netherlands if of Czech origin, and is a product of the post-communist privatisation.

“This is a very big player known to hedge in politics, buying political influence among the parties – this is hard to prove, but we’ve seen clear links, especially personal links, between people who are, for example, working for the Presidential Office and PPF, the company itself.

“And by 2014, they already had a pilot project for non-banking consumer loans in China, called Home Credit, and what they got from the Chinese side – and this is basically a proven fact – is that they needed to get political backing in your country if you want a nationwide licence. …

“You need political backing because of how the Chinese market works. There is no rule of law, the regulators often behave unpredictably, and so, even for the Chinese side, to be sure you’re not going to do anything wrong or potentially harmful, they need to have the government of your home country involved.

“So they [PPF] started influencing a lot of the political elites here, started helping China do the elite capture tactic that we talked about. And then they [the elites] turned the human rights, lost-cause policy towards China, where we promoted the interests of Tibet or Taiwan – which is why the Czech Republic has really good ties with Taiwan – and they turned it around and started talking about ‘economic diplomacy’.

“But from what we’ve seen, the only beneficiary of this turn was PPF itself. Its income in China has risen tremendously.”

Much political capital, little true investment

The Czech Republic in effect signed on to the Belt and Road Initiative more than four years ago. The private conglomerate CEFC emerged as the flagship for Chinese investments – President Zeman even named its chairman an honorary adviser of his. But allegations of corruption and demonstrable mismanagement led CEFC to implode.

CEFC’s former chairman is believed to be in prison in China, though rumours circulate of an untimely death following his arrest. In any case, the Czech assets of the scandal-ridden firm have since been taken over by another state-owned enterprise, called CITIC (a consolidation agency that buys distressed assets). These assets include the football club Slavia Prague, the airline Travel Service, the Lobkowicz brewery, hotels and offices buildings.

Is there a positive side to the investment? Are the Chinese filling a role that no one else is?

“No (laughs). CEFC has been proven, basically, to have been a pyramid or Ponzi type scheme, but instead of having small investors, you had state-owned enterprises within the system CEFC put up. Because of the system in China where SOEs get a lot of money, but they don’t know what to do with it, and so they outsource it, basically.

“So you get companies like CEFC you go abroad and invest it – usually it was acquisitions, really, which is what happened here. But what’s kind of curious about the Czech case is that it seems – and there is a lot of evidence to that effect – it was not even Chinese money that was behind these acquisitions. It was Slovak, or Czech-Slovak money, borrowed from a bank called J&T, which took over CEFC assets for a short time last year.

“CEFC only did acquisitions – they bought a football club and luxury and ‘dead’ assets, in the sense that unless a lot of management was put behind them, there was no profit to be made. So, it was clearly political.

“We can obviously speculate as to what was the actual reasoning behind, the purpose of, this sort of vanguard of Chinese investments in the Czech Republic. Some would say it clearly just the advancement of Chinese interests and elite capture tactics in the Czech Republic.”

Filip Jirouš went on to say that while “elite capture” is not new it has clearly intensified under President Xi Jinping’s Belt and Road Initiative. In his view, so too has economic espionage, as document by the Czech counterintelligence agency BIS.

For the Czech Republic to allow the technology company Huawei, which has ties and de facto obligations to cooperate with the Chinese intelligence services, to do the 5G network roll out here would be an enormous mistake.

“It would be stupid of us to disregard this in such an important matter as the security of our infrastructure – the internet is a more important part of the infrastructure than ever before.

“If nothing else, we should really not allow Chinese tech – or any technological company that has clear ties to some sort of authoritarian regime, to some sort of military that has no transparency whatsoever – into what we call our critical infrastructure.”

 
 
Author: Český rozhlas Radio Praha
 
Added: 05.06.2019
 
 
 

Related articles

 
Business
 
 

Prague needs to accommodate over 1.5...

The city of Prague currently needs to provide flats for roughly 1.55 million residents, according to an...

 
 
Business
 
 

Court orders compensation for Czech...

A Czech court has for the first time recognised the right of Czech owners of Volkswagen cars to...

 
 
Business
 
 

Waste collection fees in Prague to...

The costs of communal waste collection in the Czech capital could rise by 30 percent, at least according...

 
 
Business
 
 

Preservationists slam Jiřičná design...

Plans were recently revealed for a major, and striking looking, development project that would transform...

 
Most favourite

History of Czech fine art

What happened in the realm of fine art at the very beginning of the Czech…

Climate

The Czech Republic is a landlocked country located in moderate geographical…

The most significant current discoveries

During the last decade, Czech science has made many revolutionary discoveries…

Czech language

The Czech language belongs to the group of West Slavic languages. From another…