When the outrage machine breaks down
SEVERAL weeks ago, the Philippine Star found itself at the center of controversy for a day or two after publishing a story about China’s sovereign lending that drew a sharp rebuttal and demand for a correction from Finance Secretary Carlos Dominguez 3rd.
The Philstar story, titled “China projects in Philippines found riddled with secretive conditions,” was published last April 1. It was a report on a study called “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments,” which was published in late March by a think tank called AidData, an organization backed by the Global Research Institute at the College of William & Mary, the Center for Global Development, and the Peterson Institute for International Economics in the United States, and the Kiel Institute for the World Economy in Germany.
For years, there have been widespread accusations that China is using its aggressive international finance and development program as a soft expansionist tool by creating “debt traps” for poorer countries. In other words, China is funding infrastructure and other developments with loans that have terms that will be impossible to meet, allowing China to effectively colonize the country by seizing assets or dictating economic and political policy when the inevitable default occurs.
The “debt trap” fable has largely been disproved both by close analyses of high-profile individual projects — the illstarred Hambantota Port project in Sri Lanka is a well-known example — and by other studies of large numbers of projects, such as one a couple of years ago that reviewed several hundred in Africa. However, absence of evidence is not necessarily evidence of absence, and the AidData group obviously suspected that the lack of clear “smoking guns” of Chinese nefariousness may be simply attributable to researchers’ not having looked hard enough in the right places.
Even though the assumption isn’t flatly stated or presented as a hypothesis, the title of AidData’s paper and the text of its abstract gives it away; the abstract asserts that the study reveals “unusual confidentiality clauses” in Chinese loans, that “Chinese lenders seek advantage over other creditors,” and that “cancellation, acceleration and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies.”
Among the 100 Chinese loan contracts, AidData compared to a control set of 142 loan contract from other sources were three from the Philippines: The Chico River Pump Irrigation Project; the New Centennial Water Source-Kaliwa Dam Project; and the Philippine National Railways South Long-Haul Project Management Consultancy. Philstar’s reporters put two and two together, and concluded that these three projects suffered from the same handicaps the AidData study “found” in Chinese loan contracts generally; that is, limitations on transparency, and loan repayment guarantee conditions that put the Philippines in a compromised position.
Finance Secretary Dominguez took exception to this — “erupted” might be a better word for it — and sent a scalding, fourpage public letter to the Philstar explaining that precisely none of the allegations in the paper’s story were true. Not only are the contracts in question as transparent as is possible to make them (they were posted in full on the Department of Finance’s website within days of being signed), none of the “secretive conditions” they are supposedly “riddled” with actually exist.
More to the point, the AidData study certainly did not say they did — the Philippine projects are not discussed at all in the report, but are simply part of its dataset — and as a matter of fact, the study reached the overall conclusion that, despite suspicions of irregularity, the most the Chinese could be accused of is using “creative [loan] design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially-savvy lender to the developing world.” Those Chinese loans that most aggressively push “creative design” are those made by the China Development Bank, which is not subsidized by the government and therefore operates on a more commercial footing than the China ExportImport Bank, which is the source of the loans for the three projects in the Philippines.
As a result of Dominguez’s harangue, someone at the Philstar evidently decided to read the entire AidData report, and the paper applied the inevitable remedy in the most face-saving way it could, knocking the misbegotten sensational story off its website and publishing the Finance chief’s response. A couple of heads apparently got rolled as well, although that is neither here nor there as far proper management of public information is concerned.
There is an obvious lesson in all of this for journalists — and researchers as well, since the AidData study didn’t conclude in quite the same place as it started — that more effort should be made to suspend preconceptions when taking on any potentially controversial subject. China is an overbearing superpower and behaves like it, but if there is a point to be made in criticism of that, it must be done objectively and with careful attention to both the existence and context of hard facts. The outrage machine will quickly break down if the wrong fuel is put in it, and will be much harder to start the next time.