THE China Railway Number 3 Engineering Company is not the title of the latest Alexander McCall Smith novel. It is a subsidiary of the one of the biggest construction companies in the world, the China Railway Group (CRG), which has been involved in infrastructure projects across Africa and South East Asia. Oh, and it was planning to build thousands of social houses in Scotland, under a memorandum of understanding signed by Nicola Sturgeon in March 2016.
Unfortunately, CRG has also been accused of “gross corruption” by the Norwegian state pension fund – the second largest sovereign wealth fund in the world. And, as we report today, Amnesty International has accused the Chinese company and its subsidiaries of “human rights abuses” in Africa, where its mining interests have been involved in “mass evictions”.
Graft is practically a way of life in the murky world of Chinese enterprise and African mining is a tough business. But the Norwegians believed that the evidence that CRG officials had paid bribes to secure housing and construction projects in China was so great that financial involvement carried an “unacceptable risk”. Amnesty calls on the Scottish Government to observe the UN principle that “human rights should not be traded for commercial gain”.
Nicola Sturgeon appears to have been unaware of any of this. Or if she was, she decided to ignore it on the grounds that the Chinese government has promised to crackdown on corruption. Or because she desperately wanted a piece of the action – £10bn for energy and infrastructure projects was just too good to miss for a government that desperately wants public investment but has very limited borrowing powers.
The FM insists that the government had not actually got round to striking any specific deal with the CRG and its partners SinoFortone. No contracts had been signed; no money changed hands; it was all just a vague discussion. You know the kind of thing: you’re in the car showroom, you sit down to discuss finance, but then you walk away when you find out that the vehicle has a poor safety record. Only it was a bit more than that.
The problem for the Scottish Government is that while the Memorandum of Understanding did not involve any specific investments, specific projects were discussed, including the building of a factory in Falkirk to prefabricate social housing. Moreover, the MoU implies that the Scottish Government regarded the China Railway Number 3 as an ethically sound firm with which it was ready to do business. Like when the mafia bosses hug each other and exchange invitations to their daughters’ weddings, it is a recognition of mutual trust.
And then there is the Soutar factor. It seems that the SNP donor and Stagecoach bus magnate Sir Brian Soutar had been around the periphery of the deal with CRG. There is no evidence that he was financially involved, though that would not in itself have indicated wrongdoing. But he certainly seems to have known what was going on and had been in communication with Scottish Government officials. It appears that the Scottish deal only came to light after Sir B discussed it in the Chinese media.
Labour claims that the Scottish Government misled the public by trying to keep Soutar’s name out of it. The Scottish Government was forced to confirm his involvement when they released a wodge of emails this week relating to the memorandum under freedom of information. Sir Richard Heygate, the adviser to China Railway Group, raised further questions by claiming the affordable housing projects were due to commence “this year”.
Of course, you can discuss projects without anything ever coming of them. And there’s no reason businessmen shouldn’t advise governments. There is no evidence of corruption, impropriety or unethical practice in this entire affair – which is probably why it has yet to acquire a “gate” suffix, as in “Chinagate” or “Soutargate”. At most this is a lapse of “due diligence”, as the lawyers call it. Or, no one in the Scottish Government thought of googling China Railway Number 3 before allowing the First Minister to sign on the dotted line.
Labour has accused the Scottish Government of signing a “secret deal” with the Chinese to accept tainted cash, but that is hard to sustain. There was no way you could keep a £10bn PFI-style deal secret – though the Government didn’t exactly put the flags out when the memorandum was signed in March. This may have been to do with the controversy over the use of Chinese steel in the construction of the new Forth Road Crossing. Or it may have been related to the much-criticised Chinese involvement in the building of the Hinkley Point nuclear power station in Somerset.
Governments desperately want Chinese money, but they are never entirely comfortable with accepting it. And they are right to be uncomfortable. After all, China is a communist dictatorship with an appalling record on human rights, which censors the media, incarcerates dissidents and is involved in military expansion in the South China Seas where it is constructing artificial islands in order to establish territorial claims. Arguably, any dealing with the Chinese puts you in questionable ethical territory.
And this applies also to nominally private Chinese companies. China Railway Group may be listed on the Hong Kong and Shanghai stock exchange, but it is majority-owned by the Chinese government. It is essentially a nationalised industry under the direction of the state. Other apparently independent companies are linked to the Chinese state through loans from the state-controlled banks.
China has been involved in a kind of financial imperialism across the southern hemisphere. In Africa it is heavily involved in financing and building infrastructure projects with governments not renowned for their avoidance of corruption. When I was in Sierra Leone at the end of last year there was controversy over a Chinese offer to finance a new airport at a cost of nearly £280m in one of the poorest countries in the world. The China Railway Group has been trying to get established in Europe and was involved in a failed road project in Poland. Clearly getting a £10bn deal with the Scottish Government could have looked very good on the company CV as it seeks to improve its reputation.
The public sector projects the Scottish Government was looking for the Chinese to finance seemed rather worthwhile. Scotland certainly needs social housing crisis on a massive scale. The Scottish Government is not allowed to borrow on its own account because of the fiscal framework, so it has to look to the private sector.
Maybe it should be a bit more selective over who it does business with, but before we get too precious about dealing with the Chinese, we should recall that the UK Government is heavily involved in financial deals with the world’s second largest economy. David Cameron laid on Her Majesty the Queen and the full panoply of a state visit for the Chinese premier Xi Jinping only months before Nicola Sturgeon’s China crisis. The PM also signed memorandums clearing the way for £30bn in trade and investment. When it comes to Chinese cash, everyone looks the other way.