China: Exim Bank provides Financial Aid with Stringent Conditions

China's Axim Bank in Namibia

It is not every day that global leaders set foot in this southern African nation of gravel roads, towering sand dunes and a mere two million people.

So when President Hu Jintao of China touched down here in February 2007 with a 130-person delegation in tow, it clearly was not just a courtesy call.

But In fact, China soon granted Namibia a big low-interest loan, which Namibia tapped to buy $55.3 million worth of Chinese-made cargo scanners to deter smugglers. It was a neat illustration, Chinese officials said, of how doing good in Namibia could do well for China, too.

Or so it seemed until Namibia charged that the state-controlled company selected by China to provide the scanners — a company until recently run by President Hu’s son — had facilitated the deal with millions of dollars in illegal kickbacks and until China threw up barriers when Namibian investigators asked for help looking into the matter.

Backroom Dealing
Now the scanners seem to illustrate something else: the aura of boosterism, secrecy and back-room deals that has clouded China’s use of billions of dollars in foreign aid to court the developing world.

Global Issue
From Pakistan to Angola to Kyrgyzstan, China is using its enormous pool of foreign currency savings to cement diplomatic alliances, secure access to natural resources and drum up business for its flagship companies. Foreign aid — typically cut-rate loans, sometimes bundled with more commercial lines of credit — is central to this effort.

Targetting Developing Nations
Leaders of developing nations have embraced China’s sales pitch of easy credit, without Western-style demands for political or economic reform, for a host of unmet needs. The results can be clearly seen in new roads, power plants, and telecommunications networks across the African continent — more than 200 projects since 2001, many financed with preferential loans from the Chinese government’s Exim Bank.

What's the Catch?
Increasingly, though, experts argue that China’s aid comes with a major catch: It must be used to buy goods or services from companies, many of them state-controlled, that Chinese officials select themselves. Competitive bidding by the borrowing nation is discouraged, and China pulls a veil over vital data like project costs, loan terms and repayment conditions. Even the dollar amount of loans offered as foreign aid is treated as a state secret.

Anticorruption crusaders complain that secrecy invites corruption, and that corruption debases foreign assistance.

Tekla Lameck, right, a Namibian public service commissioner, in court in the capital, Windhoek, was arrested after a Chinese company deposited $4.2 million in the account of a consulting company she set up.