Today is the last class of our current four class set. We will begin with a casual conversation. Our reading today is about hiring. Our listening is about Chinese lending. Don’t worry about accuracy- please follow the transcript with the audio at the same time. Do not listen more than two times. We will practice your presentation using the presentation deck.
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SYLVIE DOUGLIS, BYLINE: NPR.
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DARIAN WOODS, HOST:
Countries have always lent money to help out their friends. Sometimes they'd lend to help out other countries for economic reasons, like what benefits you, benefits me. Sometimes it's out of generosity, and often it's for political influence. And whether it was the World Bank, the International Monetary Fund, European countries, or the U.S. itself, one thing has been true since World War II - Western democracies dominated international grants and lending.
WAILIN WONG, HOST:
But over the last decade, China has gotten into the game in a big way. It's now the No. 1 lender to low- and middle-income countries. China has built airports, power stations, dams and railroads and caused a lot of backlash while doing it.
WOODS: And these concerns aren't just about the U.S. being rivals of China or even straight-up Sinophobia, although there is plenty of that in the debates. There are real differences about the way China lends money. This is THE INDICATOR FROM PLANET MONEY. I'm Darian Woods.
WONG: And I'm Wailin Wong. Today on the show, we learn about the Chinese government's lending around the world by zooming in on one country where all these issues of power and influence and controversy are smoldering hot. We're going to the Pacific - in particular the Solomon Islands.
WOODS: The Solomon Islands is historically important to the U.S. It was there that a major battle between American and Japanese troops took place, leaving landmines that remain there to this day. But over the years, the Solomons slipped down the list of American priorities. The U.S. closed its embassy there in 1993.
WONG: Dorothy Wickham is a Solomon Islands journalist, and this is how she describes her country.
DOROTHY WICKHAM: We don't have good internet. We don't have cars. And maybe - not every person has a laptop at home. But if you're talking food in the garden, fish in the sea, clean air, clean sea, we are not poor.
WONG: Not poor in natural amenities, but Dorothy does want to see the Solomon Islands complement its wealth in gardens, fish and air with conventional prosperity, too. And over the last few years, one big country has bought the majority of the Solomons' exports and also lent it a lot of money - China.
WOODS: China's assistance is very new. Three years ago, the Solomons didn't even diplomatically recognize the country. It recognized Taiwan instead. And this is a longstanding conundrum in international politics, where you kind of have to pick a side about which of the two you recognize. Most countries, like the U.S., diplomatically recognize China, not Taiwan. So when the Solomon Islands switched to recognize China in 2019, everything changed.
WICKHAM: When they came here, they were willing to talk whatever it is what we wanted. Right now, they're building us a new wing to our hospitals. They're helping out with, you know, handing computers to schools.
WONG: Along with hospital wings and computers to schools, the Chinese government also gifted the Solomons a whole new sports stadium.
WOODS: And that wasn't a loan. That was a gift.
WONG: I'm imagining a big, red bow on top of the sports stadium. But still, loans are actually the main part of China's playbook. Just last week, China and the Solomons announced a $66 million loan to build cellphone towers. This has to be paid back, but the interest rate is really low - just 1%.
WOODS: And in the commercial sector, Chinese companies invest in the Solomon Islands' main export - logging. And most of those logs go to China. Also, Chinese nationals own many of the shops selling cheap goods in the Solomons.
WONG: What's happening in the Solomon Islands is really a microcosm of what's happening in low- and middle-income countries around the world. China lends about $85 billion a year in state-directed loans to 165 countries for 13,000 projects. Samantha Custer is the director of policy analysis at AidData.
SAMANTHA CUSTER: China is outstripping everybody in terms of the level of assistance. The U.S. used to be the single largest bilateral provider of foreign assistance. Now China outspends the U.S 2-to-1.
WOODS: Now to American ears, this 2-to-1 ratio might sound concerning because lending and assistance isn't just about helping make low-income countries wealthy. As we said at the start of the show, it's also about influence. And that's something that Samantha has taught a lot about.
CUSTER: So when I started my career, I started working for a small, non-governmental organization in southeast Asia doing community-driven development projects. And so if you asked me that question - is development entirely altruistic? - I would say yes, of course, because my point of view was working on specific community projects - right? - to help local communities.
WONG: But then Samantha got a job working as a teaching assistant for former Secretary of State Madeleine Albright, and her perspective entirely shifted. International aid and assistance was like wielding huge levers of power over the world.
CUSTER: Aid is one of a number of foreign policy tools that countries can use to build good relationships with foreign leaders, to build popularity and favorability with foreign publics and also to get things that they want.
WOODS: So what China is doing in the Solomon Islands and around the world isn't new, but Samantha explains what is new.
CUSTER: There is a concern about the fact that with China, this is the first time that you see a very, very large, non-democratic country that's investing at a scale within other countries that has the chance not only to affect their economic development, but also their governance.
WONG: Compared to a lot of Western lenders, there are real differences in how China lends to governments.
CUSTER: They often require secrecy and opacity in the terms. And this can create major problems, actually. You know, citizens are completely locked out of decision-making. They don't know how much debt their countries have taken on. It creates these perverse incentives and opportunities to collude. So what you see is that the costs of this road all of a sudden start increasing 'cause the - you know, the local government official and the Chinese company are saying, hey, you know, we increase the cost per kilometer, we can pocket the proceeds. We'll divide them up together, you know, because it's not transparent.
WOODS: That seems like a slightly euphemistic way of saying corruption.
CUSTER: That's corruption. Exactly.
WOODS: Loans or grants from the IMF, the World Bank and also other countries like the U.S., come with all kinds of requirements for minimizing corruption, like make sure there's an open procurement process. They also have environmental requirements, like logging old-growth forests isn't exactly encouraged. Plus, there's labor requirements and policy requirements. There are so many rules that when China comes along with loans that are faster and easier, it's pretty attractive.
WONG: And now, for the first time in decades, there's real competition in lending to low- and middle-income countries.
CUSTER: You know, from my mind, that's not necessarily a bad thing if you're a small country. If they can have multiple powers that they're able to play off of each other, it improves the terms of what they get.
WONG: But not everyone on the Solomon Islands is happy with the terms.
WOODS: Yeah, it's divided the country. Late last year, there was a protest in the capital city that turned into a riot, with some people angry about Chinese influence and money.
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WOODS: They burnt down buildings, and three people in the local Chinatown ended up dead. Still, for now, the pendulum in the Solomons seems to be swinging towards China.
CUSTER: I think the challenge for the U.S. is being responsive to a Fiji or a Solomon Islands in a way that's really responsive to what local leaders want, as opposed to just a reaction to China.
WONG: Dorothy Wickham, our journalist in the Solomon Islands, agrees.
WICKHAM: They can't come here and jump around about China - you know, why is China doing this and that? - when they're not offering to us another alternative.
WOODS: Dorothy feels like the U.S. just forgot about them. But the Solomon Islands never forgot about the U.S. - the battles fought on its islands. And the mines left there - they're still dangerous.
WICKHAM: I have a cousin who was killed in November last year. They were having a barbecue outside, and it exploded on them.
WOODS: That's terrible.
WICKHAM: Yeah, outside a house. There's just been no consideration by these countries who consider themselves allies.
WONG: Speaking to Dorothy, we got the sense that maybe it's not four-dimensional chess, this game of trying to influence the world. Maybe it's simpler.
WICKHAM: The first step is to actually show up. China showed up.
WOODS: China showed up. But in February, the U.S. announced it was reopening its embassy in the Solomon Islands. The U.S. deputy secretary of state visited earlier this month, and it seems like the U.S. is playing catch-up.
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WONG: This episode was produced and fact-checked by Kathryn Yang and Nicky Ouellet. It was engineered by Josh Newell. Viet Le is our senior producer. Kate Concannon edits the show, and THE INDICATOR is a production of NPR.