After extensive negotiations, the Chinese government in January agreed to let Kenya defer $245 million in repayments on loans from state-owned Export-Import Bank of China, also known as the China Exim Bank. The reprieve was probably a relief to Kenya’s government, which borrowed more than $4.7 billion to build the 298-mile Standard Gauge Railway project connecting the port of Mombasa with the capital, Nairobi.
But some economists question the financial viability of the project, along with the high costs. To critics, Kenya’s railway project represents another example of Chinese-owed debt and China’s growing influence in Africa. Indeed, many commentators point out that Kenya has an estimated $9 billion in China-financed debt — and note their concerns that a growing number of projects under China’s Belt and Road Initiative, in Africa and elsewhere, may be upending a Western development financing model based on rule of law and high environmental standards.
My research on two Chinese railway megaprojects in East Africa — the Nairobi-Mombasa line and Ethiopia’s Addis Ababa-Djibouti project — suggests the fears that China is upending development guidelines might be misplaced. I analyzed primary sources like Chinese government corporate social responsibility (CSR) guidelines and host-country regulations, and interviewed Chinese stakeholders and Ethiopian and Kenyan government officials.
In a March 2020 article, I showed how the Chinese government and state-owned enterprises have made CSR a priority, yet these two railway megaprojects show that implementation largely depends on local conditions. My research suggests insufficient Chinese government enforcement of CSR policies encourages Chinese organizations and enterprises to follow host-government guidelines. At times, this means Chinese companies resort to what I call “adaptive governance” — in both of these railway projects, for instance, Chinese state-owned enterprises followed host-country guidance on procurement, environmental, land and labor regulations, even if these regulations were less stringent than Chinese rules.
To be clear, Beijing has actively worked to increase CSR within Chinese state-owned enterprises and banks since the early 2000s. The central government, ever cognizant of its international reputation, has vigorously promoted higher standards for state-owned and private Chinese enterprises operating abroad. Hundreds of Chinese regulations and codes require Chinese companies to respect local customs and cultures, honor social responsibilities and protect labor and the environment. In both Kenya and Ethiopia, however, the impact of China’s national directives appears to be limited. Here’s what I found.
Similar goals, different outcomes
On the surface, the Kenyan and Ethiopian projects share many similarities. Both railways link capital cities to ports: One links Nairobi to Mombasa Port in Kenya; in Ethiopia, the new railway links the capital, Addis Ababa, to a station near Djibouti Port. The China Exim Bank financed both projects, and state-owned enterprises were involved — China Road and Bridge Corporation built Kenya’s rail project; China Railway Engineer Corporation and China Civil Engineering Construction Corporation built the Ethiopian railway. Both projects also ostensibly operated under China’s relatively uniform CSR guidelines for Chinese businesses abroad.
Yet the outcomes of these two railway projects were different. Upon completion in 2017, Kenya’s Standard Gauge Railway started transporting passengers and enjoyed a sudden popularity to the point of ticket shortages. In contrast, the construction of Ethiopia’s Addis Ababa-Djibouti Railway took nearly twice as long as Kenya’s project and has suffered from persistent operational and financial problems.
The two projects followed very different guidelines
One reason for the different outcomes lies in China’s adaptive governance model, which ultimately aligned with the vastly different local standards in Kenya and Ethiopia and the strength of civil society institutions.
In Kenya, the government required Chinese firms to comply with local regulations and ensured sustainable operation. Interviews with Chinese project managers in Kenya revealed that respect for local laws was essential to reducing operational risks and avoiding environmental and labor disputes and punitive measures.
In 2016, China Communications Construction Company, a contractor in the Kenya railway project, issued a CSR report — a first for a Chinese firm operating abroad — stating that the project observed local environmental protection laws and became involved in local charity relief efforts. Incentivized by Kenya’s vibrant civil society and robust press, Chinese state-owned enterprises financing and building the railway exhibited strong awareness of Kenya’s CSR requests, publishing reports and interacting with the local media and community. The manager of external relations and cooperation for China Road and Bridge Corporation said, “We see ourselves as not just here in Kenya to build a railway track between Mombasa and Nairobi. We see ourselves as a force for good, a transformative agent among the people in the areas we operate.”
In Ethiopia, where regulations and implementation of CSR are relatively weaker, Chinese companies didn’t encounter free media, or an active and engaged civil society. Chinese enterprises involved in Ethiopia’s rail project initially made less concerted efforts to project an environmentally and socially responsible image, and were less active on social media platforms. China Civil Engineering Construction Corporation, the state-owned enterprise behind this effort, issued its first comprehensive CSR report on the project in December 2019 — two years after the railway opened for business.
Chinese companies adapt to local business practices
Chinese financial institutions and state-owned enterprises involved in each of these railway projects could have followed Beijing’s CSR guidelines — but they mostly didn’t. Interviews with representatives from Chinese businesses suggest many aren’t well-briefed on the Chinese government’s CSR directives. Indeed, many official Chinese government documents regulating such overseas investments are vague and lack both legally enforceable obligations and effective monitoring mechanisms. It’s possible this encourages Chinese enterprises to instead adapt to the host country’s regulations and conditions.
While these Chinese government edicts on corporate social responsibility might be unclear, the result of such ambiguity is not: If China is aiming to create an alternative model of developmental financing that challenges a Western system, it’s in a nascent phase. For now, Chinese companies operating around the world tend to adapt to local business practices, rather than follow Beijing’s CSR guidelines — and that may mean they adapt to the regulatory gaps within host countries.
Editor’s note: Be sure to check out our new series exploring Chinese investment in Africa, along with activities related to debt relief, infrastructure and other critical issues across the continent. See below for the contributions from the Johns Hopkins School of Advanced International Studies China Africa Research Initiative (SAIS-CARI) workshop; new articles will be added as they are published.
Maria Adele Carrai is an assistant professor in global China studies at New York University Shanghai and the author of Sovereignty in China. A Genealogy of a Concept since 1840 (Cambridge University Press, 2019).