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dam-l LS: Dam Shame - Activists Target Financiers of Chinese Eco Disaster
from New York weekly, The Village Voice
http://www.villagevoice.com/issues/0013/cook.shtml
Published March 29 - April 3, 2000
DAM SHAME
BY KAREN COOK
Activists Target Global Financiers of Chinese Eco Disaster
What will you do when you learn your Discover Card is indirectly bankrolling an
environmental disaster?
The people at the International Rivers Network, a California group,
hope you will cut it up and mail it back to its owners at Morgan
Stanley Dean Witter, along with a statement expressing your concern
about Morgan's financial role in China's Three Gorges Dam. Scheduled
for completion in 2009, the dam is a behemoth to rival the Great
Wall: It is by far the largest hydroelectric dam any country has ever
built. According to activists, it is also one of the most socially
and ecologically devastating projects humans have ever undertaken.
IRN's Discover Card boycott, the culmination of years of protest
against the dam, marks a
significant shift in environmentalist strategy. After years of focus
on the builders of exploitative industries and infrastructure in
developing nations, activists have a new target: the projects'
financiers, many of them huge U.S. investment banks that have never
before been called to account for the damaging enterprises they help
to underwrite. Thanks to sweeping changes in world financial markets,
those banks are unprecedentedly vulnerable to such attacks. Not only
have they been swept up in vast conglomerates-whose consumer
operations, like Discover Card, provide a ready focus for
boycotts-but most are publicly held, which means they can be
challenged internally, through shareholder actions.
"This is the beginning of a movement, " says
Ricardo Bayon, a Washington, D.C.-based consultant who helps
demystify global economics for environmental groups.
IRN is timing its boycott to coincide with
Morgan Stanley Dean Witter's April 6 annual meeting in Jersey City.
The action will lend muscle to a two-year-old shareholder campaign
led by Trillium Asset Management, a Boston firm that specializes in
socially responsible investments. Using Three Gorges as its
rationale, Trillium asked the bank to review its underwriting
policies, "with the view to incorporating and fully disclosing" any
transaction's impact on the environment and human rights.
Morgan's board of directors says such candor
would limit the company's flexibility and damage its business,
particularly since "competitors do not disclose this information."
But one large firm, Bank of America, has already held talks with
Trillium and agreed not to invest in Three Gorges directly. A
resolution similar to the one at Morgan is pending at Chase
Manhattan, and resolutions at Merrill Lynch
(filed by Domini Social Investments) and Citigroup have been
provisionally withdrawn, since the companies have agreed to discuss
their stance on Three Gorges.
"This is the first time an environmental and social issue has hit the
Wall Street investment banks," says Doris Shen, IRN's China
campaigner. "Usually investment banks stay amorphous and out of the
picture."
The two-pronged attack is a clear sign of the environmental
movement's growing sophistication about global finance. Much of that
awareness has developed during a decade of struggle against the Three
Gorges Dam. This massive public works project-575 feet tall and
running roughly a mile across the Yangtze River-is intended to
provide flood control and to generate electricity for people and
industry. It has been a dream of Chinese leaders since 1919, when it
was first proposed by Sun Yat-sen. But construction did not actually
begin until 1994, under Chinese premier Li Peng, the man behind the
brutal 1989 crackdown on students at Tiananmen Square.
Six years later, the river is still flowing. But when Three Gorges is
finally finished, it will create a reservoir the size of Lake
Superior-about 400 miles long. It will force the relocation of up to
1.9 million people. It will swamp ancient archaeological sites. It
could eliminate the Chinese river dolphin from the face of the earth.
According to The Lancet, a British medical journal, an array of
public health risks associated with the dam and its construction
could make it the "Chernobyl of hydropower." Some engineers fear the
dam itself could one day collapse from the buildup of silt behind its
walls. And there are 10 million people in its path.
Chinese activists tried to raise these issues, but Li Peng banned all
criticism of the project. A journalist who wrote a book of protest
was jailed for 10 months. As a result, dam opponents were forced to
mobilize in new areas. "They got nowhere in China, so they had to
move upstream, to the financiers," says Bayon.
China originally hoped to build the dam entirely on its own-"to show
how great socialism is," says Shen. But it needed Western technical
expertise. Moreover, the dam was incredibly expensive. Estimates vary
widely, but Shen says it was originally supposed to cost $9 billion,
has already hit $18 billion, and could eventually top out at a
mind-boggling $75 billion, including resettlement costs.
Such astronomical figures forced China to reach far and wide for
money. Wherever the government has turned, dam opponents have
followed. China's only major remaining funding hope is private
investment banks, which issue stocks and bonds that are sold to
investors around the world. The banks are staggering in size and
power; but their involvement also gives environmentalists new avenues
of protest-whether or not they know it yet, thousands of
impressionable investors have forked over some tiny portion of their
retirement savings portfolios for China-related bonds. Dozens of
financial institutions around the world have participated in issuing
those bonds, and each has a public image to protect. If capitalism is
global, activism can be global, too.
In the past, funding for a giant enterprise like Three Gorges would
almost certainly have come from the World Bank. In the 1990s, the
bank pumped $1.8 billion into what is now China's largest
hydroelectric dam, the Ertan Hydropower Station. (Last October
London's Financial Times reported that project was running at half
capacity and had lost more than $100 million in its first year.)
By its 1994 gold anniversary, however, the bank was under enormous
pressure to reform. It had been founded after World War II as a
financial consortium through which wealthy countries would make cheap
loans to poor ones, thus alleviating poverty. But critics said it
often funded projects that ultimately diminished the standard of
living for millions of people. Indeed, in a 1994 internal review, the
bank found that between 1986 and 1993, 15 percent of its lending went
to projects forcibly displacing 2 million people. Given that the bank
then closed or canceled 22 of these projects, there was little chance
it would smile on Three Gorges.
"The Chinese government didn't even approach the World Bank for
funding," says Simon Billenness, a senior analyst with Trillium.
Another likely source of aid was the U.S. Export-Import Bank-an
agency that, among other things, provides low-interest loans to help
foreign industries buy heavy equipment from U.S. manufacturers. But
that bank also declined; the U.S. National Security Council had
advised against the dam, raising concerns in a 1995 memo about
environmental and human rights issues, as well as the project's
overall financial strength.
Other countries, including Canada, France, Germany, Great Britain,
Sweden, and Switzerland, did provide export-import credits. Still,
"there were some really big snubs," says Michelle Chan-Fishel,
coordinator of the green-investments project for Friends of the
Earth. "The Chinese knew that they would have to turn to private
finance."
They were in luck: Banks that had once disdained so-called emerging
markets as too risky now saw a potential gold mine. As a result, over
the last decade, international development has essentially been
privatized. Since 1990, public development assistance to developing
countries has remained steady at around $60 billion a year.
Meanwhile, money from private capital sources shot from $30 billion
in 1990 to $212 billion in 1996. Unlike the World Bank, which has an
obligation to include even the most destitute countries in its
portfolio, private financiers focus on the regions whose hopes for
prosperity are best.
China is certainly one of those hot markets, but Three Gorges
apparently carries a stigma. According to FOE's Chan-Fishel, the
Chinese tried to issue Three Gorges bonds several times over the
years, but no one in the international markets would buy them.
So the Chinese government tried a new tack-issuing bonds for a state
bank, which in turn could loan money to the Three Gorges Dam. They
offered investors guarantees and they hid the fact that Three Gorges
might be a beneficiary deep in the prospectuses. One environmentalist
calls these "stealth bonds." In 1997, Lehman Brothers and J.P. Morgan
were the lead managers on a $330 million bond offering for the State
Development Bank of China-the main source of government funding for
Three Gorges. (Lehman Brothers, Credit Suisse First Boston, Morgan
Stanley, and J.P. Morgan contributed $66 million each. Smith Barney
underwrote $46.2 million, and Bank of America underwrote $19.8
million.)
That offering came to the attention of Trillium, which had been
monitoring Three Gorges since Human Rights Watch issued a dire report
on relocation in 1995. Trillium considers itself an early-warning
system for corporations. "Smart companies will try to address our
concerns," Billenness says. So far, only one large corporation has
risen to the challenge on Three Gorges. In December 1997, Bank of
America promised not to commit any direct lending to the Three Gorges
project and to carefully weigh any transactions that might indirectly
benefit the dam.
No other bank was as cooperative. As usual, Trillium was forced to
pursue its mission through shareholder resolutions-it drafts
statements expressing desired company policies and then asks all
other shareholders to vote on them. These resolutions rarely pass,
but they do provide a useful means of raising investor consciousness,
both because they must be mailed to all stock owners and because the
authors of the resolutions can question executives at the annual
meeting.
Trillium launched its campaign at Morgan Stanley Dean Witter in 1998.
Its resolution, which asked for guidelines to stop such destructive
projects as Three Gorges, found one major ally: New York City's
pension fund. Comptroller Alan Hevesi's support was one reason
Trillium's resolution scored a solid 5.7 percent "yes" vote-enough to
allow it to be reintroduced in 1999. That caught Morgan's eye, and
the firm agreed to sit down for talks.
Three high-level Morgan executives met with environmentalists last
May, but the session didn't go well. "They mentioned they didn't want
to poke their client in the eye," says Shen. "They want to enter
China's emerging markets, with good favor from the government-that's
where they are coming from."
Three Gorges "is a litmus test," Shen adds. "If they are involved in
Three Gorges and claim they are following any social or environmental
guidelines, they are really hypocritical."
Only days later, there was news of a $500 million bond issue for the
China Development Bank, formerly the State Development Bank of China.
Merrill Lynch and Salomon Smith Barney (part of Citigroup) underwrote
$225 million each. Morgan Stanley Dean Witter, J.P. Morgan, and Chase
Securities contributed $6.25 million apiece, and another 12 banks
from overseas contributed as well. That was certainly a poke in the
eye for the environmentalists, but Morgan didn't apologize. "They
never called us back after that," says Julie Tanner, a specialist in
environment and finance for the National Wildlife Federation.
Merrill Lynch and Citigroup say they received
assurances that none of that $500 million would go to Three Gorges.
Even if that were true, says IRN's Shen, the fresh cash would
certainly free up other China Development Bank resources for the dam.
When it comes to Morgan Stanley Dean Witter, she's ready to declare
war. IRN has launched a slick, comprehensive Web site,
floodwallstreet.org, and begun organizing its boycott. It's not clear
how effective that action will be-IRN has canceled a planned
demonstration outside the Morgan Stanley Dean Witter annual meeting
because it's too busy working with other groups on a massive April 16
protest of the International Monetary Fund in Washington, D.C. But
IRN's campaign against Discover is endorsed by more than 40 other
groups, whose combined mailing list numbers in the millions.
Meanwhile, the political mood in China may be
shifting. The current premier, Zhu Rongji, "has never said a kind
word about the dam," says Shen. He has launched a campaign to root
out massive dam-related corruption. (China has said that around $600
million has been embezzled, and one official who stole $1.4 million
and used it in gambling parties was recently sentenced to death.)
"The political will is waning," says FOE's
Chan-Fishel. "We are optimistic the dam can be stopped." As the
Chinese struggle to build a dam, the fate of a river, millions of
people, and several species may depend on activists' abilities to
stanch a flow of money. "The Three Gorges Dam needs capital from
Western capital markets," says Billenness. "And if the project
doesn't get that capital, then it is not going to go forward."
Tell us what you think. editor@villagevoice.com