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China’s Malign Secrecy

In principle, China’s massive savings, infrastructure know-how, and willingness to lend could be great for developing economies. Alas, as many countries have learned the hard way, Chinese development finance often delivers a corruption-filled sugar high to the economy, followed by a nasty financial (and sometimes political) hangover.

CAMBRIDGE – Secrets may be among the most valuable assets that governments have: the Trojan Horse, the Enigma code, the Manhattan Project, and surprise attacks such as Pearl Harbor, the Six-Day War, and the Yom Kippur War are just a few of the best-known examples. But in some cases, governments’ desire for secrecy is hard to square with the national interest – and may even be among the most dangerous threats to it. The threat is even greater when the secrecy is prompted by the less-than-lofty interests of a foreign government intent on getting its way.

A case in point is Chinese international development finance. China has become a new and important player in this area. In principle, China’s massive savings, infrastructure know-how, and willingness to lend could be great for developing countries. Alas, Pakistan, Sri Lanka, South Africa, Ecuador, and Venezuela have learned the hard way, Chinese development finance often delivers a corruption-filled sugar high to the economy, followed by a nasty financial (and sometimes political) hangover.

As countries confront rising project costs and try to make sense of what happened and how to get out of the mess, they find that the financial terms of their obligations have been contractually shrouded in secrecy. Moreover, the contracts impose constraints on the ability of borrowers, such as state-owned enterprises, to make the terms known to the government, let alone the public.

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