Asia Society report warns that Chinese officials’ ‘laissez-faire’ attitudes mean projects are not being properly vetted in Southeast Asia. Study also warns that villagers in Laos are being evicted from their homes without proper compensation to make way for a rail link.

China’s massive infrastructure spending in Southeast Asian nations under the Belt and Road Initiative has run into a series of problems including substandard work and money wasted on unprofitable projects, a new report has warned.

The Belt & Road Initiative, launched by Chinese President Xi Jinping in 2013, encompasses an estimated US$1 trillion of projects many of which are road and rail links in more than 125 countries.

But the initiative has been overshadowed by controversy, including persistent warnings that poorer countries will be burdened with unsustainable debts and claims that Beijing is using it to extend its geopolitical influence claims the Chinese government has denied.

The report by the Asia Society, a non-profit educational organisation, suggested a series of measures to improve the initiative, including setting up a fund to enable less-developed countries to mitigate risks and launching proper environmental assessments.

The study, released on Wednesday, said that in Southeast Asia Chinese officials had adopted a “laissez-faire” attitude towards enforcing standards, often citing the principles of “non-interference” to distance themselves from unpopular projects.

It cited the case of villagers in Laos who had been forced to leave their homes to make way for the Kunming to Vientiane railway. The report said Chinese project managers had made no effort to win support from locals or ensure they were properly resettled and compensated.

“There are numerous documented incidents of villagers being forced to leave their homes without compensation as a result of the project,” the report said.
Chinese officials had also been pushing to sign off on projects quickly without undertaking due diligence, the report said.

Malaysia’s East Coast Rail Link was awarded to the China Communications Construction Company in 2016 without an open bidding process, and without a full pre-project assessment.

As a result, the cost of the project ballooned before Malaysian Prime Minister Mahathir Mohamad tried to pull the plug on the scheme after his return to power last year.

The subsequent renegotiation resulted in the cost of the project reduced to US$9.6 billion, about two-thirds of the original cost.

“One of the single biggest factors in flawed or failed projects was the lack of adequate pre-project viability analysis,” the report said.

“This has resulted in problems that necessitated politically and financially expensive changes to projects after they were under way.”

It also warned that some projects were too expensive for the host country, which led to the developer being compensated through side deals or opaque projects. The railway in Laos, for example, is estimated to cost US$5.95 billion, with the host country being liable for US$1.78 billion or 12 per cent of its gross domestic product.

The report said the Laos government had already had to make tax and land concessions, and past experience suggested further concessions might be forthcoming, citing a case in 2008 when the authorities had to cede land to a Chinese developer as compensation for back debts from a Chinese-built sports stadium in Vientiane.

Other problems identified include a lack of local stakeholder engagement, failure by the Chinese companies to hire local workers, and host countries and foreign contractors finding it difficult to bid for contracts.

The report called for a project preparation fund to be set up to so less-developed nations could seek international advice to evaluate projects.

“It would help developers and project host country officials and stakeholders identify and navigate issues that could delay or derail projects. And it would signal to public and private sector investors that the project is bankable and sustainable,” it said.

It said companies that decided to send workers from China for belt and road projects should be required to document the need for and the size of the imported workforce.