- The Washington Times
Wednesday, September 29, 2010

Stung by criticism that American taxpayers are footing the bill for China-owned companies to expand their influence overseas, a government development agency has said it will no longer award contracts to businesses owned by foreign governments.

The change comes after Sen. Jim Webb, Virginia Democrat, discovered that the Millennium Challenge Corp., a U.S. government agency that hands out large-scale grants to reduce poverty and stimulate economic growth in developing countries, had awarded nine contracts to Chinese firms worth $320 million for projects in Africa.

At least five of those contracts went to Chinese state-owned companies, with construction giant SinoHydro receiving $231 million to build roads and an airport in Tanzania, and China Railways Wuju Corporation receiving $42 million to construct a highway in Ghana.

Patrick C. Fine, MCC’s Vice President of Compact Development and Implementation, told The Washington Times on Wednesday that the change “makes government-owned enterprises ineligible to compete for MCC-finance contracts.”

“The purpose of that is to ensure a fair playing field for any private sector companies that are competing for any MCC-financed contracts,” Mr. Fine said.

The move comes as Congress shows signs of growing increasingly concerned with China’s increasing economic and political strength. It also comes after the Obama administration signaled plans to take a tougher stance with China on trade issues and pushed Beijing to reform its currency system.

The brainchild of President George W. Bush, the MCC was designed to help combat global poverty. Mr. Bush linked foreign aid to the threat of terrorism posed by failed states. The MCC was launched in 2004 with bipartisan support from Congress.

Mr. Bush originally hoped that Congress eventually would provide the MCC with $5 billion a year, but his highest single-year funding request was for $3 billion. For fiscal 2010, Congress appropriated $1.1 billion for the MCC, $320 million less than what the Obama administration requested.

Nevertheless, the program remains popular inside and outside the government, in part, because MCC officials maintain that their funds are disbursed directly to vendors for specific projects instead of being given to foreign government officials who could misdirect them.

The MCC recently has faced additional criticism for planning to distribute aid to countries with a lackluster record when it comes to good governance. Last month, The Times reported on its plan distribute $540 million in aid to Senegal despite persistent questions from members of Congress and others about the African nation’s commitment to good government and democracy.

On Wednesday, Mr. Fine said that American companies have received the majority of $3.2 billion MCC-funded contracts and that, as of June 30, only about 10 percent, or $325 million, had gone to government-owned businesses. He noted that an Azerbaijani-owned company and a Finish-owned company were among those to receive MCC-funded contracts.

“It has not been very common, most of the contracts are with private sector enterprises. The greatest number of state-owned enterprises winning contracts are Chinese,” he said.

In part, the new guidelines reads, “As MCC’s program portfolio matures, the agency has observed that more GOEs [government-owned enterprises] are winning contracts. Noting that GOEs often compete with support from their home government, MCC is taking this action to help ensure a level playing field for commercial firms from all countries to compete for MCC-funded contracts.”

Mr. Webb, chairman of the East Asian and Pacific Affairs Subcommittee, applauded the decision, saying, “these Chinese government-owned companies are designed to carry-out that government’s economic and political interests, and I do not believe that the U.S. government should be financing such activity.”

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