China Reform Monitor: No. 1202

December 18:

The Chairman of China's National Development and Reform Commission, Xu Shaoshi, and Russian Far East Development Minister Aleksander Galushka have signed an MoU to increase Chinese investment in the Far East, AmurMedia news agency reports. The document calls for the joint development of the Northern Sea Route to boost cargo transportation between Russia and the Asia-Pacific. It also calls for the joint development of international transport corridors, known as Primorye-1 and Primorye-2, to improve trade between China and Vladivostok and Nakhodka ports. It foresees expanded Chinese investment in Vladivostok’s production facilities for metallurgy, energy, machine building, telecommunications and agriculture.

December 22:

Iraqi Prime Minister Haydar al-Abadi is in Beijing to sign agreements on oil, investment and military armaments, the BRICS Post and the official China Daily report. The Iraqi delegation includes ministers for security, economy, finance, defense and oil. Al-Abadi said: "The visit aims to strengthen ties between Beijing and Baghdad, which is fighting a war against terrorism. Iraq is looking forward to increasing its oil production and exports and China can contribute to that. There are key Chinese companies working in the oil field, construction and other services, and they [can help] build Iraq's infrastructure. Iraq is looking for investment, and China has a great ability to invest money in other countries, especially those with oil as a guarantor. Iraq has a huge oil reserve. The third issue to be discussed during the visit is military cooperation since Iraq is going through a war. We are looking forward to further military cooperation with China."

December 23:

A report by a National People's Congress session said by the end of 2014, local Chinese government debts were $15.4 trillion yuan, the official Sina Finance reports. In 2015 local governments accrued an additional 450 billion RMB in debt. The official Beijing News published a commentary on the crisis: "In response to the chaotic debts among local governments, we should adopt a detailed accountability system." It called for "detailed standards on who to hold responsible for exceeding borrowing limits, breaking rules on how the debt should be used and for breaking local governments' finance sustainability by raising debts illegally. Some officials may have been reassigned before the problem surfaced so efforts to hold them accountable for wrongdoings must be retrospective."

Another commentary on the local government debt crisis, this one in the official Beijing Times said: "Local governments are finding it hard to raise income as the economy slows. But they still must grow the economy. This has worsened their financial woes as they face heavier burdens in infrastructure projects and providing social security. Shortages in funding are becoming more and more heightened, forcing them to use debt to resolve their urgent needs. Such debts are playing an increasingly important role in local social management. Some local governments even pay pensioners' allowances with borrowed money. Given these difficulties it is hard to question local officials over debt levels. It is important to strengthen risk control, and establish a mechanism for local governments to borrow money."

December 30:

Bangladeshs Power Development Board (PDB) is likely to cancel the contract it awarded in August for the 300 megawatt Khulna dual fuel power project to Harbin Electric International and Jiangsu Eastern Company. The contract process generated protests from other bidders, mainly other Chinese state-run firms and their foreign partners, that "informally lodged complaints with the power board and the ministry" accusing the PDB of unduly favoring Harbin-Jiangsu. Among the six bidders, Harbin-Jiangsu had the highest bid at $292 million for the power plant, with a cost of $1,022 per kilowatt. The Shanghai Electric-Italian Alsaldo consortium offered the lowest bid of $183 million, or $718 per kilowatt. "The evaluation committee ranked Harbin-Jiangsu as the lowest bidder by giving it high marks on the financial and other components of its proposal," The Daily Star reports. The Greek firm JP AVAX formally complained: "We feel that there is an effort within the authority to try to accept the consortium of Harbin-Jiangshu and bring them in the position of the preferred bidder." The Chinese embassy in Dhaka responded with a letter to the prime minister’s Energy Adviser, Tawfiq-e-Elahi Chowdhury, urging the government not to re-tender the contract.

[Editor’s Note: Harbin Electric International made headlines in 2005 when the 80 MW Tongi power plant it completed for Bangladesh had more than 450 technical glitches. The plant malfunctioned on its inauguration day and has performed poorly for years. A corruption case was filed against Giasuddin Al Mamun, friend of BNP leader Tarique Rahman, accusing him of taking bribes in exchange for awarding Harbin the Tongi plant contract. In 2006, the Bangladesh state-run firm Eastern Refinery Ltd blacklisted Harbin for failing to install a 3 MW power plant.]