May 15, 2023

World Bank Money to Suspected Huawei Firms Exposes US Disconnect

Eric Martin, Bloomberg News

The Huawei Technologies Co. stand on the opening day of the Mobile World Congress at the Fira de Barcelona venue in Barcelona, Spain, on Monday, Feb. 27, 2023. The annual flagship mobile industry and technology event runs from Feb. 27 to March 2. Photographer: Angel Garcia/Bloomberg , Bloomberg

(Bloomberg) -- A US watchdog found that $10 million in World Bank borrower funds were awarded to contractors with possible links to Huawei Technologies Co., exposing a rift between Washington’s national security priorities and the policies of the global development lender, where the US is the largest shareholder.

The deals were identified in a Government Accountability Office report last week requested by Republican senators, aimed at determining how many contracts went to American firms, as well as those on US sanctions lists.

Read more: China Got Lion’s Share of World Bank Contracts, US Agency Finds

The US has targeted Chinese telecommunications leader Huawei over concerns that its equipment may be used to spy for the government of President Xi Jinping, an allegation the company rejects. Washington and many allies have banned the use of Huawei’s network equipment on national security grounds, and the US Commerce Department also severely limited the ability of American companies to sell it technology since 2019.

Meanwhile, the World Bank only prohibits firms from bidding on borrower contracts if they’re under United Nations sanctions or banned for anti-corruption reasons.

The tension shows “what is clearly a more aggressive, further-reaching regime of sanctions on the US part, and how that collides with activities of these global institutions,” said Scott Morris, a former US Treasury official now at the Center for Global Development.

Huawei representatives did not immediately respond to requests for comment.

The report potentially raises questions for President Joe Biden’s pick to lead the bank, Ajay Banga. He’s set to take over from David Malpass, who was nominated by former President Donald Trump and is due to step down next month. The US is the World Bank’s largest source of funds, and every president since its creation after World War II has been American.

The Biden administration has continued Trump’s hard line on Chinese tech and national security issues, among a handful of factors straining relations between the two powers.

“Why would we be OK with US money going to Huawei via a World Bank contract when we and many other countries have restricted business with Huawei over serious security concerns?” said Senator Chuck Grassley, an Iowa Republican who requested the report along with Bill Hagerty of Tennessee and Tom Cotton of Arkansas. “The administration needs to have a strategy to leverage US influence in the World Bank to protect American interests.”

The GAO report found 28 contracts worth $76 million awarded to entities that may be on US sanctions lists, including 12 Chinese businesses.

The US Treasury Department, which represents the US at the World Bank, told the GAO that it’s not responsible for monitoring individual borrower contract awards. The department declined to comment.

To be sure, funds suspected of going to Huawei entities are a fraction of the 150,000 contracts worth $80 billion awarded from 2013 to 2021 that were analyzed by the GAO.

Additionally, the GAO said its analysis couldn’t definitively say if the contractors are on US sanctions lists. “Our analysis provides an indication that a contract was awarded to an entity that may have been on a US list, but cannot confirm it,” it said.

The larger of the two contracts, which went to Huawei Consortium for $9.9 million, was for a regional government project in eastern and southern Africa in May 2020. The other, which went to Huawei International Co. for about $61,000 for software maintenance and services in Rwanda, was awarded that October, the GAO said.

China and the World Bank compete to build infrastructure projects in developing countries, particularly since Beijing launched its Belt and Road Initiative in 2013. Boston University’s Global Development Policy Center earlier this year found that China’s top two development banks made more than 1,000 overseas commitments from 2008 to 2021 totaling almost $500 billion — equal to about 83% of the World Bank’s sovereign lending during the same period.

--With assistance from Nick Wadhams.