Adaptive governance along Chinese-financed BRI railroad megaprojects in East Africa

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Fig. 1. China’s Official finance (Official Development Assistance ODA; Other Official Flows OOF; Vague Official Finance VOF). Source: Aiddata https://www.aiddata.org/china-official-finance.

While some Chinese studies show increased Chinese efforts to improve engagement with host-country communities and employers, and Chinese corporate social responsibility (CSR) performance achieved its highest level in 2017 (GoldenBee, 2017), a 2018 study of 1,814 BRI-related projects found that approximately 270 had problems related to debt, labor, and environmental standards, national security, and corruption (Horsley, 2016, Kynge, 2018, Gerstel, 2018, Gokkon, 2018, ICG, 2018). This is unsurprising: China’s globalism is new, and the massive infrastructure projects it invests in via the BRI are per se risky, full of difficulties that are often further complicated by the weak institutional and legal regimes in the developing world. While much literature has already been produced about the BRI (Maçães, 2018, Xu, 2018, Liu, 2018, Liu, 2019, Garlick, 2020, Wang and Zhao, 2019, Duarte et al., 2020, Liu, 2019, Cheng, 2018, Ali, 2020, Ye, 2020), narrowing studies’ scope to specific cases help draw the general contours of its legal and political footprint (see for instance Chen and Landry, 2018, Pollet et al., 2012). This article investigates the governance promoted along the BRI by looking at how Chinese economic actors approached CSR in two railway megaprojects: the Kenya Standard Gauge Railway (SGR) and the Ethiopian section of the Addis-Ababa-Djibouti Railway (ADR), both financed by China Exim Bank and built by Chinese state-owned enterprises (SOEs).

The idea that economic actors bear responsibilities to communities beyond profits for shareholders is not new (Wickert & Risi, 2019). CSR has been defined in multiple ways and there is little agreement on how to measure performance,2 but it generally means businesses generating wealth for increasingly broadly defined shareholders through ethical policies and sustainable management practices, including economic viability, positive societal impacts, respecting and preserving the environment, and overall sustainable development (EU, 2001, ISO, 2010, Carroll and Shabana, 2010). This paper examines the articulation of governance through CSR by considering economic, environmental, and social impacts. I explore the specific CSR understood and practiced by Chinese SOEs and banks involved in financing and constructing the two railways, and contextualize this through directives published by both China’s government and host countries.

China’s government began focusing on CSR in the 2000s. Since its Going Out policy launched in 1999—and even more so with the BRI—it has become imperative for Chinese SOEs to improve CSR and environmental performance. They must not only meet host countries’ rising expectations and standards but also succeed in an increasingly competitive global market in which sustainable development matters (Lu, 2018, p. 17). CSR is usually understood to concern companies’ self-regulated and market-driven efforts, often responding to the needs of civil society, toward and beyond host countries’ minimum governance standards (Levy et al., 2018, Ribstein, 2006). Because China’s major economic actors abroad are SOEs, however, their CSR has been labeled state-centric (Ho, 2013, Lin and Milhaupt, 2013, Liu, 2018) and less market-driven. National and subnational government actors are the regulators and stakeholders in SOEs, and the Chinese government promotes profit maximization and political goals simultaneously (Liu, 2018, McBarnet et al., 2009). While this can allow it to directly mandate and facilitate Chinese companies abroad, implement nationwide policies, and make its economic actors’ CSR more convergent and compulsory, downsides include continual dependence on central government resources and a lack of consideration for civil society and market actors (Liu, 2018, Ho, 2013).

In the developing world, desire to attract vital foreign investments can be detrimental to social and environmental protection laws and regulations locally; foreign investors’ CSR can thus play a crucial role for more ethical development (Moon, 2007, Kolk and van Tulder, 2010). What then are the effects of state-centric CSR? How does global China balance sovereignty and non-interference in recipient countries with CSR and governance standards? Do Chinese economic actors raise the bar, going beyond what is requested by host-country laws for the environment and society, or lower it? This paper focuses on interactions between Chinese and host-country economic actors and how they implemented CSR regulations in Kenya’s SGR and Ethiopia’s ADR. Despite the two megaprojects’ many similarities, their CSR results diverged. I argue that this divergence, despite the state-centric approach, has to do with interactions between economic actors and both Chinese and host countries’ regulations; the Chinese government’s detachment or lack of control over economic actors abroad and its mixed rationale of profits and politics; and an adaptive (Chaffin et al., 2007), pragmatic approach to host-country legal norms that tends toward a “non-intervention, sovereignty-first” approach.

The research was conducted through document analysis and interviews with stakeholders. Primary sources include CSR-related directives and guidelines from the Chinese central government; host-country laws and regulations; and the Chinese economic actors’ internal CSR policies. In terms of actors involved, this study focuses on Chinese policy banks and SOEs. Secondary sources consist of academic publications, specialized newspapers, and reports from think tanks and research institutes in China and host countries. Additional data was gathered through 62 semi-structured interviews with stakeholders, including academics, legal practitioners, and government officials, mostly in Ethiopia and Kenya.3 Although civil society, especially in Kenya, critically shaped the behavior of Chinese enterprises, I mostly interviewed members of the elite and analyzed government documents. This was because the investment agreements considered did not involve the private sector or civil society—they were signed behind closed doors between high-level officials, the host state was primarily responsible for implementation, and construction and financing was by large Chinese SOEs—and because the focus is the attitude of Chinese SOEs toward CSR and the influence of Chinese government and host-country regulations.

The article is divided into six parts. The first looks at the BRI in Africa and the importance of infrastructure investments, presenting the two case studies. The second introduces Chinese government CSR directives to Chinese economic actors abroad. The third and fourth describe the CSR-related directives of the Chinese economic actors involved, as well as the Kenyan and Ethiopian government regulatory frameworks. The fifth part focuses on the SGR and ADR, and the economic, social, and environmental impact of Chinese SOEs’ investments. The conclusion discusses what these findings indicate about the governance standards and development China promotes.

The BRI is China’s global development project and investment plan, aimed at increasing world connectivity by building a network of rail, highways, bridges, and ports. According to the literature, its objectives are manifold. It was conceived to counterbalance the United States’ “Pivot to Asia” of 2012 and forge new alliances amid a geopolitical context wherein China’s rise was viewed with increasing suspicion (Carrai, DeFraigne & Wouters, 2020). It was a way to internationalize the Renminbi, address China’s overcapacity, access natural resources (especially in Africa), relocate production, and promote economic growth both in China and in countries along the BRI. Although a major tool for imperial projection in the 19th and 20th centuries (Davis, Wilburn & Robinson, 1991), infrastructure investment had been forgotten by most traditional international financial institutions in lieu of “software” issues such as governance, human rights, gender equality, and rule of law.4 The BRI is shaking up approaches that had consolidated in recent decades—even the more traditional financial institutions are now rediverting funds toward “hardware” to address the vast global infrastructure gap (Zeitz, 2015).

China is Africa’s largest trading partner and the biggest developing country investing in the continent. As this relationship has flourished over the past decade, the BRI emerged as part of China’s strategy to develop long-term, sustainable economic relations with Africa and protect its investments there, ensure a predictable flow of commodities for its increasing needs, and create new partners and allies. For Xi, “China-Africa cooperation must give Chinese and African people tangible benefits and successes that can be seen, that can be felt” (Rensch, 2018). Xi has identified Africa’s inadequate infrastructure as its biggest development bottleneck, saying the BRI can help address this (CNBC, 2018). Infrastructure investment may have significant spinoffs for African economies, in tourism, trade, and industrialization. The BRI has thus been perceived by African countries as a way to increase economic integration and competitiveness, and some studies foresee it producing significant economic growth (Nantulya, 2019, Mukwaya and Mold, 2018). In 2015, China and the African Union Commission signed a MoU to cooperate on major infrastructure networks and industrialization processes in Africa, and the effects are already visible. Although many projects were planned or under construction before the BRI’s launch, China bolstered the BRI success story by building four new railways—the SGR, ADR, Abuja-Kaduna, and Angola’s Benguela Railway; several other major projects are under construction or planned (Chen, 2018).

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Fig. 2. Ethiopia’s Addis Ababa-Djibouti Railway & Kenya’s Standard Gauge Railway. Source China Civil Engineering Construction Corporation (CCECC) & China Railway Engineering Corporation (CREC) Joint Venture Project, Ethiopia-Djibouti Railway Operation and Maintenance Handbook (2017), available at https://www.docdroid.net/joAPJeF/ethiopia-djiboutirailway-operation-and-maintenance-handbook-docx#page=9. Source National Geographic, available at https://file.ejatlas.org/img/Conflict/3162/kenya-train-nometatest.adapt.590.1.png.

Despite the similarities, end results differed. The SGR, which began transporting passengers immediately and freight soon after, has been popular to the point of ticket shortages. The ADR, not immediately operational, has suffered operational and financial issues (BBC, 2019).7 A CSR report by CRBC suggests that Kenya, in locally sourcing 40% of materials and employees, benefitted more from Chinese loans (CRBC, 2018, GoldenBees, 2018a). Ethiopia locally sourced around 25–30% of material and employees (Wang, 2019, Wang, 2019). Moreover, as Wang, 2019, Wang, 2019 has observed, the two railways developed different CSR and public relations capacities.

The SGR, a non-electrified railway with nine stations, is Kenya’s largest infrastructure project since independence and the first modern standard gauge railway in East Africa. According to the China Communications Construction Company (CCCC), its design and construction, sharing the more competitive Chinese standards and technologies, are first-rate (CCCC, 2016, p. 9). Chinese economic actors’ interests in securing contracts in Africa converged with Kenyan government hopes that such a project would produce economic development and aid President Uhuru Kenyatta’s reelection. The flagship project of Kenya Vision 2030, launched in 2008, the SGR was conceived well before the BRI launched; the idea was part of the Northern Corridor Initiative to connect Mombasa to Kampala, initiated in 2008 by Kenya and Uganda. Infrastructure development, particularly rail, was also part of Kenya’s 2012 Economic Recovery Strategy (GoK, 2003).

An independent consultancy report on the Northern Corridor and a World Bank cost-benefit analysis rejected the plan as economically unviable in 2011 (Berger, 2011, WB, 2013). Neither considered broader advantages deriving, for instance, from the generation of business connected to the railway stations, transport as an essential public service, or pollution reduction (Wissenbach, 2020). CRBC had already signed a MoU with Kenya’s Transport Ministry to conduct a feasibility study, cost-free on condition that results would be used only by the two parties. CRBC presented its study in January 2012, and then requested financing from China Exim Bank.

Although the loan’s content is unpublished, we know it comprised 1) a concessional loan of US$1.6bn over 20 years with a seven-year grace period and 2% p.a. interest rate, and 2) a commercial loan of US$1.63bn for 10 years with a five-year grace period (PIC, 2014, Wissenbach, 2020). While SGR planning and contracting started before Kenyatta came to power in 2013, it became a key component of his development vision. The US$3.8bn contract was signed in 2014; China Exim Bank funded almost 90% of the project. Construction started on Independence Day, December 12, 2014, and the SGR became operational on June 1, 2017. In its first year it transported over 1.3 m travelers and 60,000 containers (PRC Embassy in Kenya, 2018). Its social and environmental impact prompted much public debate, key issues being land expropriation, corruption, debt sustainability, and profitability. The fact that the operations contractor, CCCC—CRBC’s parent company—was chosen only one year before operations started was also said to show that operation and maintenance had not been properly planned.

The ADR was likewise conceived by Ethiopia’s government before the BRI launch. It was part of a plan to build a national railway network, for which the Ethiopian Railway Corporation was established in 2007 (Jemere, 2012, Ethiopian Embassy, 2016, FDRE, 2010). The ADR runs parallel to a defunct French railway built in the 1890s. Descending from Addis Ababa’s new Furi Lebu Station, 2,300 m above sea level, to Adama and then along the Rift Valley to the Gulf of Aden, the route was designed as Ethiopia’s main transport corridor. It includes industrial parks and dry ports and connects with Djibouti Port, which handled over 90% of Ethiopia’s international trade in the past decade (Rode, 2018).

According to China Exim Bank, Chinese companies took on the ADR’s design, procurement, construction, supervision, and operation. Exim states that the railway has become an artery for Ethiopia’s economic development, and will help Djibouti Port become a gateway and logistics center for regional development (China Exim Bank, 2016, p. 51). The railway has 21 stations, four being passing loops only, with no freight loading/unloading or passenger service. Two are exclusively for freight, and two just for passengers; the remaining 13 can handle both (CCECC & CREC, 2017). Due to insufficient funding,8 double track was laid only for the first 115 km, from Addis Ababa to Adama; the 600 km to Djibouti is single-track. The ADR is Africa’s first Chinese-built and Chinese-operated electrified railway.

Ethiopia’s ambitious GTP of 2010 included a new electrified standard gauge railway to reduce transport costs and connect industrial parks. The China Railway Group approached Ethiopia’s Transport Ministry in 2011 and conducted feasibility studies (Wang, 2019, Wang, 2019). That October, the Ethiopian Railway Corporation engaged China Railway Group subsidiary China Railway Engineering Corporation (CREC) through a US$1.53bn engineering, procurement, and construction (EPC) contract to build the 328 km section between Sebeta/Addis Ababa and Mieso. China Railway Eryuan Engineering Group (CREEC) was contracted to design that section in February 2012. The contract for the 339 km section from Mieso to Ethiopia’s border with Djibouti was awarded to China Civil Engineering Construction Corporation (CCECC). Finally, China Railway Construction Corporation (CRCC) was awarded a US$505 m contract to build the 100 km Djibouti section (Railway Technology, 2019). In 2012, bankable feasibility and environmental and social impact assessments were completed and approved, and contractors paid in advance. Local consultants designed the civil work and the EPC contractor mobilized China’s financing. In 2014, the loan was sealed on condition that the contractors be Chinese. A total of US$4bn went into the line: the Ethiopian section cost $3.4bn, 70% from China Exim Bank and 30% from Ethiopia’s government, while Djibouti’s government contributed $878 m (Railway Technology, 2019). Construction, almost twice as time-consuming as the SGR, finished in 2016, but testing continued through 2017. The line opened for commercial operations on January 1, 2018, but operational and financial problems persist (Xinhua, 2018).

With the proliferation of BRI projects and problems arising from them, as well as growing pressure from global markets, China’s central government agencies9 have begun encouraging higher standards for state-owned and private Chinese enterprises in overseas financing, project contracting, and investment. The expertise of the largest Chinese constructions companies, including those in this study, comes from constructing railroads and highways in developing China in previous decades, with strict budgets and basically non-existent CSR. Reflecting domestic efforts to improve CSR,10 in two decades the government has issued hundreds of codes of conduct and regulations requiring Chinese companies abroad to respect local customs and culture, honor social responsibilities, and protect labor and the environment (UNDP, 2017, Bernasconi-Osterwalder et al., 2012, Leung and Zhao, 2013, Hsu, 2017).

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Fig. 3. Stakeholders Involved in Chinese Companies’ “Going Out” Process. Source: Liu, 2019, Liu, 2019.

Chinese institutional directives have concentrated on social and environmental protection, and Chinese banks increasingly focus on green financing (CBRC, 2012, CDB, 2020, Carrai, 2017, State Council, 2017). In negotiating to join the WTO Agreement on Government Procurement, the government made transparency and local public consultation mechanisms required for financing, developing, and implementing any BRI project (Office US Trade Representative, 2020). China’s increasingly comprehensive regulatory approach to CSR prioritizes a good image and avoiding risks and losses. It has also started referring to international standards, such as the UN Global Compact, the Equator Principles,11 and OECD Guidelines for Overseas Companies (Liu, 2019, Liu, 2019).

Some Chinese companies have followed suit by including CSR directives in their corporate strategy. Chinese SOEs increasingly understand CSR not only as philanthropy, but as self-regulation through which they make themselves accountable to a broader range of stakeholders and as a form of risk prevention. According to a 2018 report by Chinese consultancy firm GoldenBees, Chinese companies’ CSR performance continues to increase, especially information disclosure and engagement with communities, employees, suppliers, and stakeholders (GoldenBees, 2018b). From 2001 to 2018, the number of CSR reports from enterprises in China increased by 8.5% year on year. From January to October 2018, 1,676 reports were released (GoldenBees, 2018b). Chinese companies’ recognition of environmental sustainability criteria is no longer fundamentally different from that of Western counterparts (Farrell, 2016).

The main weakness of these regulations and guidelines is their lack of enforcement power—compliance is mostly voluntary (Liu, 2019, Liu, 2019). Although increasingly specific, as reflected by the first inclusion of a definition of “green finance” in the 2016 “Guidance on Building the Green Finance System,” the language remains largely vague, with no clear enforcement mechanisms, penalties, or concrete measurable objectives (Liu, 2019, Liu, 2019). The UN compact and other international CSR codes are voluntary; neutral external entities, civil society, and other stakeholders (such as shareholders, in this case the government) are meant to monitor, pressure, and shame corporations who fall short. Another major issue is that many SOE managers and employers are unaware of government directives (Weng & Buckley, 2016). The government has tried to address this with increasingly detailed, comprehensive regulations while establishing dialogue with industrial organizations to publicize best practices (China WTO Tribune, 2017). It also encourages the release of sustainability reports that can impact companies’ reputations. SASAC is evaluating ways to include corporate social and environmental impact in assessments for corporate leaders’ remuneration, and the government is building a credit system for tracking companies’ behaviors and activities (Liu, 2015, Liu, 2019, Liu, 2019). But CSR is not yet a national strategy, and no comprehensive framework or policy mechanism exists (Lu, 2018, p. 240).

The state-funded, state-owned Export–Import Bank of China (Zhongguo jinchukou yinhang中国进出口银行, or Exim Bank), established in 1994 under the State Council, is among China’s leading development banks implementing state industrial policies, foreign trade, and aid. Since the BRI’s launch, Exim has been at its forefront, providing concessional loans for large infrastructure projects.12 It has focused on CSR for over a decade. Per its own description, it “has vigorously implemented the decisions and arrangements of the CPC Central Committee and acted in strict accordance with the requirements of the regulatory authorities to pursue sustainable development” (China Exim Bank, 2020). Its 2007 Guidelines on Environmental and Social Impact Assessment of Loan Projects stipulate that overseas project developers must complete an environmental and social impact assessment (ESIA) before loan approval; projects harmful to the environment or without environmental agencies’ approval will not be funded (China Exim Bank, 2007). In 2008, for example, Exim Bank withdrew support for developing the Belinga Ore Mine in Gabon after an NGO revealed that no environmental impact assessment had been conducted yet the plans included construction of a dam in Ivindo National Park (Kühne 2018, p. 23). Its 2015 Green Credit Guideline gives requirements for the environmental and social risk management of credit projects (China Exim Bank, 2015). Its 2016 White Paper on green financing introduces concepts, criteria, practices, steps, and expected results (China Exim Bank, 2018). “Social responsibility” (shehui zeren 社会责任) first appeared in its 2010 annual report as a general paragraph referring mostly to education and poverty alleviation; the latter seems to remain a key aspect (China Exim Bank, 2018b, China Exim Bank, 2020b). Indeed, companies everywhere often choose to fulfill CSR through non-controversial and cheap donations to schools and charities.

Despite such improvements, Chinese financial institutions remain in the initial stages of integrating environmental and social considerations into lending policy, without comprehensive or transparent information disclosure or grievance mechanisms (Liu, 2019, Liu, 2019).

CCCC subsidiary CRBC (Zhongguo luqiao gongcheng youxian zeren gongsi中国路桥工程有限责任公司), one of four large state-owned companies going global and leading the BRI, focuses on civil engineering and construction (CRBC, 2020a). In three decades, CRBC has transformed from a simple construction company to a provider of integrated EPC services. Among the largest such firms globally, it operates out of over 50 branches and offices throughout Asia, Africa, Europe, and the Americas. CRBC has played a key role in designing and constructing greenfield and brownfield infrastructure projects in developing countries, especially in Africa, where it is a market leader. It pursues public–private partnership projects, often acting as concessionaire, investing its own funds or “equity” and borrowing additional funds (CRBC, 2020b).

CRBC reports on its CSR practice in specific projects (CRBC, 2020c). It states that it is committed to protecting employees’ interests, fostering training and technology transfer, adhering to local regulations, implementing green technology, protecting local ecologies, and integrating environmental protection ideas throughout construction, planning, and management. Like Exim Bank, it has viewed CSR as a form of charity and education (CRBC, 2020d) but now adopts a wider notion. CRBC’s first CSR Report came in 2015 (CRBC, 2016, GMD Mombasa-Nairobi, 2016, MofCom, 2016), probably following CCCC, which had already broadly taken on CSR and has a more sophisticated understanding of it. Since 2016, CCCC has invited experts from the Chinese Academy of Social Sciences Research Center for CSR to conduct company-wide social responsibility training (CCCC, 2016, p. 23). CCCC does not offer examples of specific types of training, but describes one November 2016 training to “improve responsibility awareness” for 99 employees from 54 units (CCCC, 2016, p. 22–23).

State-owned CRCC (Zhongguo tiedao jianzhu zong gongsi中国铁道建筑总公司), one of the world’s largest integrated construction corporations, was established in 2007. Implementing projects globally, including in many parts of the BRI, it has become a leader in the project design and construction of plateau, urban, and high-speed railways, highways, bridges, and tunnels, especially in Africa (Xinhua, 2009).

CRCC has a relatively developed code of conduct. It has a CSR section on its website, has issued CSR reports since 2008, and “adheres to the concept of rewarding shareholders and society, insisting on taking development as the first priority” (CRCC, 2020). It purports to promote employees’ inclusion in enterprise management, safeguard their legitimate rights and interests, ensure their safety and health, and improve living conditions. CRCC advocates “green engineering” through resource-saving and environment-friendly construction, energy conservation, emissions reduction, and environmental protection. It has focused on hiring local workers and reports absorbing over 1 million people into the social labor force each year since 2008. It also states that it has actively participated in poverty alleviation and education assistance (CRCC, 2020).

Aside from whether China’s CSR directives are followed by its economic actors on the ground, a crucial question is how they converge with host-country standards and institutions. A major variable consists of host countries’ political, economic, and regulatory frameworks, over which Chinese government and economic actors often have little power. A more developed local regulatory system with good standards means less need for separate CSR from China and its actors. CSR can become critical when host-country regulatory and legal standards and institutions are weak. Poorly governed investments projects can severely impact China’s image as well as project feasibility and gains.

Being high in biodiversity and dependent on natural tourism, Kenya finds environmental protection crucial. Its relatively well-developed legal system addresses many environmental and social aspects of foreign investments. In the past decade, its environmental regulations and laws have increased. Its Vision 2030aims for a sustainable, clean, and safe environment (Mwenda and Kibutu, 2012, Government of Kenya, 2030). In 2010, the environment gained an important place in the Constitution, which now specifies the government’s environmental duties, including sustainable exploitation and conservation, and mandates tree cover of at least 10% of the country’s land area (arts. 42, 69). Articles 69 and 70 give citizens the right to petition a court for redress if they feel their environmental rights have been infringed upon. While it remains unclear if any citizens have successfully done so, the Constitution also establishes a Public Complaints Committee (Article 31) and a National Environment Tribunal (Article 125), legal institutions to facilitate enforcement of Articles 69 and 70 (Kibutu & Mwenda, 2012). A range of government policies, institutions, and legislative arrangements regulate investment projects and associated activities to minimize environmental damage and maximize socioeconomic wellbeing. For example, the 2011 Environmental and Land Court Act allows a superior court to retain original and appellate jurisdiction over disputes related to environmental planning and protection, climate issues, land use, and minerals mining (Environment and Land Court Act, 2011). Relevant institutions include the National Environmental Management Authority (NEMA), Kenya Wildlife Services (KWS), Kenya Parks Service, and the Water Regulation Management Authority. These regulations and institutions are often challenged by landowners’ interests and local and central government corruption (Kameri-Mbote, 2019).

Despite significant legislative reforms in 2009–10, Kenya has complex, patchy land-ownership regulations complicated by tribal and ethnic conflict, clashes between central and local authorities, and corruption. While the law tends to protect landowners’ interests, according to the Land Act the state may acquire any title for a public purpose subject to compensation (Land Act of Kenya, 2016, Art 8; Kibugi, et al., 2016, Wissenbach, 2020). Further laws on land expropriation, such as the National Land Commission Act and the Prevention, Protection and Assistance to Internally Displaced Persons and Affected Communities Act, promote the social rights of locals affected by foreign investments (National Land Commission Act, 2012, Prevention, 2012). Yet enforcement capacity is weak, and corruption widespread (Mwangi, 2017). High private property protection on paper and an absence of valuation criteria, with clashing agencies determining and implementing their own methods, makes compulsory land acquisition complicated and expensive (Mwangi, 2019, Wissenbach, 2020). This proved a major problem for Chinese SOEs in the SGR’s construction even though they were not responsible for settling land disputes; they lacked familiarity with settling land titles for public construction as land in China is not privately owned.

The SOEs were responsible for resolving labor issues and disputes, however, which required following Kenya’s detailed labor law and cognizance of its various labor unions (ILO, 2004, ILO, 2004). Kenyan labor law is regulated in the Constitution (Arts 70–86), the Labour Relations Act, and various other sources; regulation and practice of collective labor rights has dramatically improved in recent decades. According to the US-based World Justice Project’s Rule of Law Index (RoLI), Kenya’s score for labor rights is 0.56 (Mosley, 2011, ILO, 2020). In interviews, SOE representatives in Kenya specified disputes with locally hired workers over wages, benefits, and safety as a major issue during construction. The representatives, who had not experienced strikes in China and preferred mediation, complained that they were often forced to go to court, use local lawyers, and make appeals within the Kenyan legal system, which they found under-resourced and confusing.13 As for imported Chinese workers, while Chinese regulations provide strong legal protection for them abroad, this is not realized in practice (Halegua, 2020); this aspect, which deserves further research, was not the focus here.

According to Article 227 of Kenya’s Constitution, “when a State Organ or any other public entity contracts for goods and services, it shall do so following a system that is fair, equitable, transparent, competitive and cost-effective” (Constitution of Kenya, 2010). Besides regulations and periodic circulars, the main rules for public procurement are contained in the 2015 Public Procurement and Asset Disposal Act. They follow clear, internationally recognized principles: value for money, integrity, public accountability, openness to competition and trade partners, support for economic and social objectives, and efficiency (Udeh, 2013, OECD, 2007, Public Procurement and Disposal, 2010). Yet due to the large amounts of money involved, public procurement is often opaque with many irregularities—as in the SGR (OECD, 2007).

Ethiopia’s five-year Growth and Transformation Plan (GTP) of 2010 was very ambitious (MOFED, 2010, p. 22). While it previously had a reputation for opaque regulations and a challenging business environment, the government increasingly welcomes foreign investment, and it has significantly improved business regulations (WB, 2020). The GTP cites this as a critical component, and current Prime-Minister Abiy Ahmed shows enthusiasm for liberalization and free-market reform (GIIN, 2015). Theoretically, the government retains tight control over the economy, with foreign investment restrictions and strict social and environmental regulations in its Investment Code, but such control does not necessarily extend to enforcement, as seen below.

Ethiopia has relatively well-developed environmental legislation and sustainable development laws (Shinn, 2015, Berhane, 2009). Following land reforms and privatization in the 2000s (Chinigò & Fantini, 2015), increased investment in land has often caused environmental pollution and social problems. These are in turn addressed by new environmental regulations. The Environmental Policy of Ethiopia guides all relevant activities undertaken by the Environmental Protection Authority (EPA) and other sectors. Overall coordination, policy review, and direction is in EPA hands, but enforcement of regulations, guidelines, and directives relies on multiple agencies and faces challenges (MT and EMAA, 2016, Amen, 2015). The legal basis for national environmental law is Article 43 of the constitution, with rights to improved living standards and sustainable development. Moreover, Article 3 of Environmental Assessment Proclamation No 299/2002 stipulates: “Without authorization from the Authority or from the relevant regional environmental agency, no person shall commence implementation of any project that requires environmental impact assessment.” Further: “Any licensing agency shall, before issuing an investment permit or a trade or an operating license for any project, ensure that the Authority or the relevant regional environmental agency has authorized its implementation” (Kumsa, 2011, p. 93). Yet an interviewee at the Ethiopian Investment Commission observed that effective enforcement is often trumped by the desire to attract foreign investment.14 Meanwhile, division between regional and federal agencies (Environmental Protection Organs Establishment Proclamation No. 295/2002) preserves constitutionally protected ethno-federalism but complicates implementation, due to differing approaches or evaluations.

Given that all land is state-owned, with leaseholds for up to 99 years, land acquisition was less complicated for the ADR, and Chinese SOEs felt more at home there—in China too individuals cannot privately own land. Precise lease terms vary by location, investment type, and class of land; leases must be negotiated with local governments. The government has attempted to limit land speculation and fluctuating leasehold prices, and with the Urban Land Lease Proclamation of 2011, it reserved the right to revalue any land involved in transfers of leasehold rights (Cullet & Koonan, 2019). For public-purpose projects, land or buildings are usually granted immediately (Muzaffar, 1967, Kumsa, 2011, Ambaye, 2013), being defined as “public domain” (Civil Code, Articles 1444–1459; Ambaye, 2013). Ethiopia’s legal framework better protects land rights utilized for profit than those for livelihood. In loss of livelihood land rights, past income is used to compensate for future income loss rather than future inflation and value (Ambaye, 2013, p. 158). Probably due to the nature of the land and authoritarian politics, Ethiopia’s Rule of Law Index (RoLI) score of no expropriation without adequate compensation is lower than Kenya’s.15

Ethiopia’s current employment relationship regulations rest on its 2003 Labour Announcement No. 377 and its Civil Law of 1960 (ILO, 2004, ILO, 2004). The law sets out employers’ and workers’ rights and obligations, as well as the principles guiding their relationship, including association rights, dispute-resolution procedures, government supervision of labor-management agencies, contract duration, compensation, additional salaries, working time, and firings. It does not provide for social security funds but does impose strict work-visa policies and can impose localization rates (TuliuWang, 2016, Oya, 2018). Regulation and practice of collective labor rights have increased dramatically in recent decades, although its RoLI score is still low at 0.31 (Mosley, 2011).

Public procurement procedures and regulations, quite detailed, are ruled by (i) value for money; (ii) non-discrimination, save exceptional situations expressly provided for; (iii) transparency; (iv) accountability; and (v) assistance for national producers and micro and small enterprises, considered vital for the country’s economic development (Bahta, 2013, p. 76). When the Federal Government Procurement Directives entered into force in 2010, Ethiopia modernized its procurement laws. In 2017, it released a public–private partnership policy to support and regulate the GTP and transparently promote sustainable development and infrastructure development (MoFC, 2017). Despite common principles, Ethiopia’s federal setting, allowing each state to legislate and regulate a public procurement system modeled on federal law, means ample variation in interpreting and implementing procurement rules, and enforcement remains quite weak (Bahta, 2013).

Having scrutinized host-governments regulations and Chinese governmental guidelines, I now examine Chinese SOEs’ observation of their own CSR guidelines and interaction with host-country regulations and locals to determine whether they imposed higher or lower governance standards or adapted to context. This section finds that while increasingly including CSR in their policies and practices, the SOEs largely adapted. They also took advantage of host countries’ legal and implementation lacunae rather than imposing higher standards, exacerbating negative externalities.

As in Kenya, where the government skipped various steps to complete the SGR before Kenyatta’s reelection in 2017, Ethiopia seemed willing to borrow at less concessional terms from China—disregarding its policies and medium-term debt strategy to secure infrastructure financing through concessional loans with at least a 35% grant element—probably so as to speed up the ADR’s negotiation, preparation, and implementation (Jalles d’Orey & Prizzon, 2017, pp. 19, 21). The Ethiopian government’s external debt is 60% of GDP, one third owed to China; Ethiopia is China’s second-largest borrower in Africa (Trading Economics, 2020, Cheng, 2019). This makes Ethiopia vulnerable, and fear exists that China might have a say in its future internal policy.16 As for Kenya’s SGR, Exim Bank itself was concerned about loan repayment from the start, and focused on repayment capacity, political stability, and loan distress, while attempting to establish an escrow account in opposition to the Ethiopian government.17 Indeed, repayment was among the main conflict points, together with China’s demand to be preferred supplier of goods (such as cement and steel), services, and workers, which could have been provided locally. China asked for a specific budget earmarked for loan repayment, while Ethiopian negotiators preferred a contingent liability budget system.18 Not reflected on a central government’s balance sheet, a contingent liabilities system would award greater financial flexibility, obligating it to make payments only if certain events, like a loan default, occurred. If fulfilled, China’s request for an earmarked budget expressly allocated for loan repayment would decrease Ethiopia’s likelihood of default.

For Meng Fengchao, CRCC chairperson, the railway should spur development of industrial parks, logistics centers, and real estate along the route, helping create jobs and boost industries (Xinhua, 2016). Repayments started before the railway became operational in 2017, and economic returns from freight and economic spillovers to industrial parks and economic zones disappointed. While the project was expected to significantly improve Ethiopia’s international trade by reducing traders’ logistical costs and delivery times, operational and financial difficulties mean its annual freight tonnage is far below maximum capacity (CCECC & CREC, 2017). Rather than relying on existing stations, the ADR follows China’s current rail-connectivity model that enables high speed by placing stations for major cities in their peripheries. While possibly beneficial for transit-oriented development on less developed, open land, this sacrifices the primary advantage of direct city-center rail connectivity (Rode, 2018, Baum-Snow et al., 2017). The line was also built without access to roads, trunk lines, storage facilities, or goods handling facilities, and due to massive debt—equaling a third of the annual state budget by 2016—there was no funding for extra infrastructure to put the railway into commercial operation (Berhane, 2017). Probably due to mistakes being learned, Kenya’s SGR is much better connected to roads, trunk lines, and storage facilities. In response to low economic returns, in 2018 China agreed to extend the ADR repayment period from 15 to 30 years, made debt concessions, and briefly suspended all interest-free loans (Chen, 2019).

There was little transparency about the deal; usually such agreements are made by high-level bureaucrats, with host countries only rarely inviting an external eye to look at particular parts.19 Ethiopia partly addressed this in 2018 by adding a clause that its attorney general must approve large loan agreements. There is also now more openness to external lawyers and a National Advisory Council for a comprehensive legal program. A local law firm representative said this might help improve Ethiopia’s negotiation capacity.20 It is challenging to obtain foreign legal service without international multilateral financial institution sponsorship, and China did not offer it.21 In contrast, the World Bank often supports Bank-sponsored projects with legal services and expertise on project finance, public–private financing, and the operational aspects of environmental and international law (WB, 2018). The China Desk at Ethiopia’s Finance Ministry claimed that the struggle over the deal was largely caused by Ethiopia and its legal system. Ethiopia has low legal capacity and contracts were essentially “copy-and-paste,” the interviewee said, concluding that “the debt distress is the result of deficiencies of Ethiopia.”22 Lack of legal and institutional capacity was also indicated as a difficulty from the Chinese side.23

CSR was important for Chinese SOEs in Ethiopia, but in contrast to Kenya they did not encounter a lively civil society or free media, and land acquisition was easier due to state-ownership —although it did create mistrust among the local population. As a consequence, Chinese SOEs’ efforts to project a socially and environmentally responsible image were remarkably fewer and less sophisticated. For instance, Chinese SOEs were much less active on social media in Ethiopia, which often blocked such platforms as per China’s own censorship playbook. The leading state-owned internet provider, Ethio Telecom, signed an US$800 million telecommunications deal with China, intended to strengthen Ethiopia’s censorship capacities (Bailey, 2017). Online descriptions of the railway addressed CSR, showing how Chinese personnel taught skills, helped resolve drinking-water problems in Oromia, and made the project more environment-friendly (CRG, 2018). It was only in December 2019 that CCECC announced, on Facebook, its first comprehensive CSR report, on its work from 2012 to 2019, and vowed to advance its efforts in Ethiopia. One section (CCECC, 2019) offers data on the company’s social and environmental engagement during the ADR’s construction and operation, and the construction of industrial parks. It states that the company strove for the most suitable project plans by considering local conditions and future progress, based on Ethiopia’s development aspirations. It points out that it has continued to support communities in close proximity to its major development projects.

As with the SGR, many disputes arose over low wages and poor treatment of workers (Gardner & Rosser, 2018). In response, Chinese contractors prioritized social responsibilities and localization. They performed well in knowledge transfer and creating jobs for locals (Tang, 2019). A China Desk representative was very positive about their localization, remarking that “the US has committed billions of dollars and it has an office of bilateral relations near us, but you never see them—they do not hire local, and they just give luxury homes and salaries to US employees. If China hires, it hires more local employees in comparative terms.”24 While there was admiration for what was deemed a Chinese work ethic, as in Kenya, some complained that it was too harsh on workers.25 Chairperson Meng stated that CRCC hired over 20,000 locals in Ethiopia and 5,000 in Djibouti—the majority of construction workers (Xinhua, 2016). The CREC prioritized local hiring for construction even though the agreement did not require a certain amount of local input (Xia, 2018).

Due to a lack of skilled local personnel, CREC and CCECC were contracted under a build-operate-transfer method: they will manage railway operations until 2023, then handover to local operators. In the agreement, Chinese contractors pledged to send Ethiopian Railway Company employees to technical universities in Beijing, Tianjin, and Chengdu to further their knowledge of railway maintenance and operation (Rucai, 2017). While technology transfer and training did take place, the China Desk representative said there was not enough of the former: a model Chinese framework was followed, with little negotiation.26 He said related clauses should have been required by Ethiopia, but it lacked institutional knowledge and technical and legal capacity.27

Exim Bank had to respect its CSR and green financing requirement to see whether a project is environmentally sustainable before loan disbursement. CREC and CCECC did not have a plan for such commitments, but both had to respect Ethiopian environmental regulations for railways. The federal EPA’s 2004 environmental assessment guideline lists major environmental issues related to road and railway projects that should be taken into account during preparation and assessment. It states that appropriate enhancement and mitigation measures should be integrated as early as possible, preferably in project design (Amen, 2015, p. 131). To this end, the Ethiopian Railway Corporation was to assess impact on local physical and cultural resources, as well as potential sources of environmental impact. It also required the consultant to submit mitigation measures for adverse impacts, undertake public consultation, and prepare an environmental management and monitoring plan (Amen, 2015, p. 131). Ethiopian regulations moreover require an ESIA to facilitate sustainable development principles well in advance (Amen, 2015, p. 123). This was conducted for areas to be impacted by the ADR and followed the guidelines prepared by Ethiopia’s EPA and regional EPAs, and the Environmental Procedure Manual of the Ethiopian Roads Authority (Amen, 2015, ETLP, 2016). Following Ethiopian regulations, CREC and CCECC attempted to preserve the original landscape and spent US$4m on wildlife crossings (Shi, 2019). It seems that there were no major environmental preservation problems in the ADR. It is worth noting that it did not pass through any national parks, and because Ethiopia remains less reliant on tourism than Kenya, there may have been fewer regulatory hurdles to clear.

The primary problem was land expropriation—mainly related to agriculture. While leaseholders were compensated, some initiated lawsuits for unfair compensation, intimidation, and local officials’ corruption (Gardner & Rosser, 2018). Not being responsible for this, CREC and CCECC forwarded accusations and land valuations to local authorities. The process was less financially cumbersome for the state and faster than in Kenya due to the nature of land ownership in Ethiopia and its authoritarian government. This resulted in poor handling of displacement, resettlement, and vulnerable groups (Credit Suisse, 2014, pp. 15–16). Many Ethiopians thus perceive the railway suspiciously, as a symbol of the regime (Terrefe, 2018).

Besides Exim Bank’s loan secrecy and non-concessional terms, Chinese economic actors appear to have adhered to standard industrial practices and adapted to local circumstances, hiring local people and law firms to better adapt to regulations considered strict and confusing due to ethno-regionalism.28 Ethiopian officials reported that the Chinese approach tended to differ from traditional financial partners, like the World Bank, the European Bank for Reconstruction of Development, or the US, and a better understanding of Ethiopia’s priorities, in particular its need for basic transportation infrastructure (Jalles d’Orey & Prizzon, 2017, p. 20). While Ethiopian civil society is not lively and the government remains authoritarian despite Prime Minister Ahmed’s pledges to reform repressive electoral, media, and terrorism laws, the ADR, like the SGR, became politicized between parties and ethnic groups. For instance, the ADR helped politically legitimize the Ethiopian People’s Revolutionary Democratic Front (EPRDF), which used it as a symbol of renaissance and democratic union founded upon diversity and holistic development. This vision was contested by ethnic groups in Oromia, who felt excluded from this imagined prosperous future (Terrefe, 2018). Construction reflected centrally planned policies, challenging Ethiopia’s constitutional ethnic federalism which defers power to the regions. Top-down institutional arrangements sped up infrastructure roll-out in the face of complex negotiations between city, regional, and federal bureaucracies, often leaving ethnic tensions in their wake. Chinese SOEs could have achieved better CSR by following their own government guidelines, but largely adapted to the situation. Rather than a concerted Chinese effort to suppress civil society in Ethiopia or Kenya to reduce complications, it appears that the Chinese companies were unfamiliar with local business and legal conditions, and upheld the principle of non-interference in host-country domestic affairs.

If following government guidelines and self-imposed CSR standards was voluntary for Chinese actors, Kenya’s government was legally obliged to consider national environmental, labor, and social policies and affected communities when assessing the SGR’s environmental and social impact and economic feasibility. It required CRBC to comply with Kenyan regulations to ensure sustainable operation. Before construction, CRBC had to undertake a study guided by the 2003 Environmental Impact Assessment and Audit Regulations, issued and enforced by NEMA (National Environmental Management Authority, 2003) for planning, design, construction, and operation. The Chinese government, through its Nairobi embassy, sought to oversee the CRBC’s CSR performance to ensure sustainable construction and compliance with local environmental and social regulations as well as international guidelines (Liu, 2019, Liu, 2019). It did regular visits, meetings, and trainings and created penalties that could damage managers’ political careers (Liu, 2019, Liu, 2019). Chinese SOEs financing and building the SGR were very much aware of CSR, publishing reports and interacting with the local media and community. CRBC showcased certain public welfare activities (Ti, 2014). “We see ourselves as not just here in Kenya to build a railway track between Mombasa and Nairobi. We see ourselves as a force for good, a transformative agent among the people in the areas we operate,” said CRBC’s manager of external relations and cooperation (Omondi, 2016). CCCC released a CSR report in 2016—a first for a Chinese firm operating abroad (CCCC, 2016, p. 23)—which stated that the project strictly observed local environmental protection laws and regulations but also organized and participated in environmental protection charity and relief. CRBC prided itself on constructing boreholes to share with communities suffering endemic water problems and on repairing or constructing roads to improve internodal transport between the railway and existing road infrastructure, especially in rural counties.29

Kenya’s government was attracted to Chinese financing and the speed of negotiations and realization. The World Bank had declared the SGR economically unfeasible; building within its social and environmental safeguards for financing would have substantially increased time and cost. Kenya’s National Treasury moved forward even though China’s loan, with its 25% grant element, did not pass its established 35% grant element threshold (Mustapha and Greenhill, 2017, RoK (Republic of Kenya), 2019, IMF, 2018). Exim Bank refused more concessional terms and was reluctant to make the deal public.30 The leaked lease agreement contains this clause: “Without the prior written consent of the lender (China), the borrower shall not disclose any information hereunder or in connection with this agreement to any third party unless required by applicable law” (Okoth, 2019). This suggests the government was willing to bypass its constitutional freedom of information requirements, and that Exim Bank pushed for and exploited this.

While Exim expects the loans to be repaid, it proved open to renegotiating interest rates and fees in both Kenya and Ethiopia. In 2014 it granted Kenya a grace period until July 2019 (Mwangi, 2019). Yet African Stand reported in November 2018 that Kenya was at high risk of losing strategic assets due to huge Chinese debt—specifically the Mombasa Port, if used as collateral—and that loan disputes would be resolved in Beijing (Port News, 2019). China dismissed the claims as false (Mutethya, 2018, Okoth, 2019). According to a new agreement between Kenya Railway Corporation and Exim, Kenya was to start servicing the SGR loan in 2020, when the railway was expected to generate significant profits. Although freight has not reached its hoped-for capacity, even with strong government encouragement and impositions (Miriri, 2019),31 Kenya’s government does not seem too preoccupied with debt sustainability or the consequences of default, as it is currently negotiating a new loan for the third phase of the SGR that would link Mombasa Port with the landlocked Great Lakes Region. Exim Bank now appears more cautious about disbursement, withholding approval so far.32 A Kenya Railway Corporation representative said Ethiopia’s inability to repay was a wake-up call for the bank, and that the new terms, requiring proof of how the SGR will repay the loan through freight, must get approval from China’s Ministry of Commerce.33

Aside from loan terms, the data available suggests that Kenya’s regulatory framework was a significant reason for Chinese companies to attend to social and environmental performance. Although many factors weakened implementation, such as low enforcement capacity, weak rule of law, and corruption (Knack, 2013, Ampratwum, 2008), interviewed Chinese project managers in Kenya said respect for local laws was essential to reduce operational risks and avoid environmental and labor disputes and punitive measures (Liu, 2019, Liu, 2019).34 Kenya’s regulatory environment presented legal risks that caused Chinese companies to operate sustainably or give the impression of doing so. For example, in September 2016 the National Environment Tribunal issued a stop-work order after Kenya’s Coalition for Wildlife Conservation and Management filed a petition (NET, 2017, KenyaForum, 2016, NET, 2016) complaining that the SGR ran through the iconic Nairobi National Park, threatening biodiversity and conservation efforts. Kenya’s Transport Ministry commissioned an ESIA. Civil society and environmentalists dismissed the report as biased and urged NEMA to not to allow building in the park, mooting alternative routes (Mwanza & Chumo, 2019; Gitari 2019). CRBC then analyzed over 10 routes and chose one that bypassed the park. Eventually, an “animal-friendly” design was adopted, aimed at allowing free wildlife movement by incorporating viaducts and watering points along the 7 km route through the park. CRBC was willing to listen to public concerns yet eventually took on the tribunal’s more cost-effective decision. Complaints about changes to animals’ migration patterns still surface in Kenyan media (Mwanza & Chumo, 2019).

Exim Bank was also responsible for conducting its own ESIAs, project reviews, public consultations, and ex-ante ESIAs of its lending policy, as per its internal 2007 Guidelines. According to the bank’s general manager, aspects considered when extending loans for the SGR included environmental and social risks and impact; labor and working conditions; resource efficiency and pollution prevention; community health, safety, and security; land acquisition and involuntary resettlement action plans; biodiversity conservation; assessments of impacted protected areas and mitigation measures; and protection of indigenous peoples and cultural heritage (Liu, 2019, Liu, 2019). During construction, CRBC and Kenya’s government were responsible for reporting on social and environmental impact to Exim Bank. Interviewees said the government submitted environmental acceptance documents upon project completion and, based on these, the bank post-evaluated its environmental and social impact and monitored the SGR’s post-loan management (Liu, 2019, Liu, 2019). This report is not public, and it is unclear whether the host-country government could access it. As Liu, 2019, Liu, 2019 notes, the bank had no legal obligation to disclose project evaluation information and there was no third-party monitoring or grievance mechanism to allow communities or individuals to complain during construction, undermining the credibility of the sustainable lending process.

While many Chinese government CSR guidelines could have helped promote better results, especially in debt sustainability and transparency, Chinese interviewees at Exim Bank and CRBC demonstrated little awareness of them.35 They were much more cognizant of Kenyan rules, and the many criticisms and labor strikes there meant they were more concerned with public opinion. They were generally able to quickly address the protests that halted SGR construction. For instance, after two Kenyan workers without protective gear died in 2018 when a culvert collapsed, their colleagues went on strike for better pay and safety, including safer transport—they had been transported to the site in open lorries. CCCC responded on social media that it would henceforth provide buses. A CCCC spokesperson said the company adhered to Kenyan labor laws and “spared no effort to ensure that we offer our staff the best possible working conditions,” adding: “The workers have raised a number of issues as the reason to their strike and we have taken up the issues in a responsible approach” (GCR, 2018). To address workers’ complaints and locals’ dissatisfaction about not seeing jobs appearing (Kuo, 2016), Chinese economic actors sought to address local employment, safeguard employees’ legal rights and interests, create a “three-layer training system” to develop employees’ careers, and reserve senior railway talent, usually Chinese, for Kenya.36 They created a liaison office to help resolve employment-related tensions (Wang & Wissenbach, 2019, p. 294). Kenyan law requires 40% local contractors, which became 60% local non-skilled labor in the SGR contract.37 In June 2018, China’s ambassador to Kenya, in an unusual TV interview, claimed that the project had provided jobs for almost 50,000 people, and that CRBC trained over 5,000 technical workers and operation managers and supported over 100 Kenyan students earning undergraduate degrees in China.38 The CCCC report says it contributed 1.5 percent of Kenya’s GDP growth (CCCC, 2016, p. 9). Yet despite CRBC efforts to communicate with affected locals through group consultations, public announcements, notices, explanatory letters, and a liaison office, it encountered difficulties in communicating with the Maasai tribe and various disputes related to wages, employment benefits, land compensation, environmental impact, and supply contracts (Liu, 2019, Liu, 2019). Reasons included Chinese SOEs’ unfamiliar way of working—described as “almost military,” with stricter deadlines, longer hours, and fewer rest days39—as well as cultural and linguistic divergences, Chinese SOEs’ unfamiliarity with strikes, and differing interpretations of labor law (Wang & Wissenbach, 2019, p. 294).40

Relocation and land expropriation, overseen by Kenya’s government, were significant issues. The SGR brought land ownership, long problematic in Kenya due to patchy regulations, to the forefront of debate. Despite not being its responsibility, land compensation became one of CRBC’s biggest challenges (Wissenbach & Wang, 2016). Much of the land through which the SGR passes was expropriated from private owners. Full rights and high levels of protection and compensation are declared in Kenya’s Constitution and legislation, but there is no clear legal way to implement them (Mwangi, 2019, Wissenbach, 2020). Particularly in Mombasa county, compensation disputes posed significant obstacles to construction. The government did secure land,41 but costs rose disproportionally. This was due to speculation, corruption, and elites’ manipulation and local clientelism (Wang & Wissenbach, 2019).

Due to public opinion concerns in a context of vibrant civil society and media—and to avoid legal disputes—Chinese actors adapted to regulations and situations in Kenya. They created a public relations office, gave interviews and used social-media platforms forbidden in mainland China, published a CSR report online, and hired local law firms.42 Facing debt and sustainability pressures and ample media criticism due to the leaked loan contract, Exim renegotiated the debt and is taking more extended considerations before disbursing the third-phase loan. Apart from the lack of loan transparency, problems mainly seem to have arisen through the Kenyan government’s poor implementation of its rules, corruption, and weak institutions. As construction took place in the run-up to elections, and for Kenyatta the SGR symbolized his successful development policies, the government “disregarded its own governance principles on public participation, accountability, transparency and integrity” (Otele, 2018, 137). It also bypassed many environmental and social regulations. Kenyatta’s office was crucial in speeding up construction, settling disputes and overriding government levels and regulations, neglecting protections for landowners and rejecting constitutional petitions from activists challenging the financial agreement and procurement procedure (Xia, 2019, Wissenbach, 2020). In short, it isolated the SGR from longer, more normal accountability processes. Chinese economic actors pointed to host-government institutions’ lack of capacity, corruption, and weak legal frameworks.43 They complained that local government often failed to meet its legal responsibilities as construction proprietor, such as conducting feasibility studies before signing contracts, managing the interests of both parties efficiently and transparently in disputes, and fairly allocating and compensating for land (Weng & Buckley, 2016, p. 21).44 While Chinese SOEs seem to have taken advantage of some lacunae rather than impose the higher standards suggested by their home country’s directives, they said they wished that the Kenyan government had implemented its own regulations properly to avoid a poor perception of their work.

China is attempting to increase its economic actors’ accountability abroad, and according to the 2017 Report on the Sustainable Development of Chinese Enterprises Overseas, enterprises have raised awareness of sustainability. Some have incorporated it into their development strategies, alongside safety and risk management (UNDP, 2017). However, the interviews I conducted, as well as broader studies, suggest little awareness among Chinese financial institutions and SOEs of their government’s CSR directives and regulations. When there is knowledge, it is not considered particularly relevant for operations abroad (Weng & Buckley, 2016). Despite some efforts, such as creating a blacklist for companies investing overseas that violate relevant regulations, many official documents regulating overseas investment are vague and without legally enforceable obligations. Other accountability mechanisms, like monitoring, are lacking (Weng & Buckley, 2016, p. 14). Obliviousness can be partly explained by insufficient Chinese state control over the country’s economic actors and the fact its directives are only one part of a complex governance ecosystem they must navigate (Norris, 2016). But the government may be deliberately vague to give companies maximum flexibility, or write its directives purely to signal its responsible global leadership to external actors.

The Chinese economic actors interviewed did seem aware of CSR and willing to implement it, but were often limited by lack of proper local regulations and implementation. Aside from the secrecy, non-negotiability, and non-concessional nature of the loan agreements, they adapted to the host-country environments. Rather than impose higher standards, they sought to avoid clashes with local regulations and practices; negative externalities often emerged from how host countries implemented their own regulations, due diligence, and risk management. This suggests that these same companies might have carried out stronger CSR if the host-country had asked, as some European countries do; Chinese infrastructure investments in 17 + 1 members, often considered the margin of the EU normative orbit, have had to respect EU standards (EUAR, 2019). The relative success of Kenyan civil society, which prompted CRBC to choose a more environmentally friendly route, and Ethiopian organized labor, which led Chinese contractors to source and train more local workers, suggest that strong civil associations hold the key to ensuring that such companies adhere to local laws and keep CSR pledges.

While increasingly active in terms of CSR, Chinese SOEs juggled profit maximization and China’s reputation. They adapted to low law-enforcement capacity and poor governance as well as to social norms and institutional practices, including corruption and clientelism. CSR success or failure thus depended on host-country regulations, institutional frameworks, and willingness to allow civil associations a voice (Akilu, 2014, CCICED, 2011). The impact of Chinese developmental financing varies by industry and country, but also by enterprise type. Private enterprises tend to behave more poorly than large SOEs.45 Large, landscape-changing infrastructure projects generally have significant negative societal and environmental repercussions, but they do create fundamental structures for achieving social equality between the Global South and North (Sun & Tang, 2016, pp. 92, 96).

China has offered opportunities where there were none, diversifying development financing, and studies show that it is increasingly similar in its investments to other donors. If a Chinese developmental paradigm is in the making, it is in its nascent phase, with a rapid learning curve and adaptive approach. Greater regulation, transparency, enforcement, and civil activism are necessary to overcome negative externalities, which derive from adaptability rather than active promotion of negative governance standards. Both case analyses reveal a learning process, with CSR increasingly incorporated. Practices changed to preserve companies’ reputations, while compliance with local laws led to better working conditions and CSR know-how. Having learnt that building Ethiopia’s ADR far from roads, trunk lines, and storage facilities had downsides, Chinese SOEs built Kenya’s SGR to better connect with transport links and commercial facilities. Growing awareness of the risks of bad governance was apparent in Exim Bank’s creation of mechanisms to ensure debt sustainability and pausing loan disbursal; it seemed to have learnt to ensure that the infrastructure projects it finances make sense in terms of the country’s overall transportation and commerce. More experience might also be one reason why the CSR in Kenya’s SGR was slightly better than in Ethiopia’s ADR.

The governance model behind the BRI is thus constantly reshaped by interactions between Chinese and host-country economic and social actors, producing highly context-specific results, and it is on a context-by-context basis that the BRI must be studied. While Chinese companies are increasingly aware of the reputational risks related to lack of CSR, and both companies and the government are improving their CSR standards, it is ultimately up to host-country governments to ensure that local laws and CSR are respected. This article suggests that despite the economic asymmetry between China and individual African countries, Chinese enterprises’ adaptability gives host countries leverage to promote standards that suit them. In following the Chinese central government’s non-interference policy, companies are likely to do what the host-government asks—and this can include weaker CSR.

Future research into CSR, adaptive governance, and Chinese-funded BRI projects in East Africa could bear much fruit. As Chinese actors continue sponsoring megaprojects, it will become feasible to compare how the same companies behave in different local contexts. This will allow for some consistency amid numerous ambiguous factors, including company culture, internal initiatives, individual political goals, and the non-interference policy. Future studies should also compare the CSR policies and behavior of Chinese and non-Chinese actors in a region. The idea that Chinese companies undercut non-Chinese rivals through lax CSR is disputed, and it would be useful to examine Chinese and non-Chinese megaprojects side by side.