Special Report: Massive Chinese Loan To Cover 'Fudan Hungary University', Raising Espionage & Corruption Concerns
- 29 Apr 2021 9:50 AM
This will be one of the largest investments into the country’s higher education in recent decades.
According to a draft proposal by two ministers, the construction, estimated by the government at €1.5B (HUF 540 billion), would utilize largely Chinese building materials, Chinese labor, and would mostly be financed through a Chinese loan, which Hungary would pay for.
According to these documents, the Chinese contractor does not even have to fear that another bidder would beat them in open competition. Documents state that “the construction can only be carried out as a Chinese only project” and, through legislative instruments, “it is necessary to reach the point where the investment process can no longer be stopped”.
China State Construction Engineering Corporation (CSCEC), the company eyeing the construction contract, has been suspected of corruption and espionage in many parts of the world in recent years.
In addition, according to government estimates, the new campus of Fudan University would cost more than what the state spent on operating Hungary’s entire higher education system in 2019.
Fudan’s buildings would also overtake space that was designated to the Budapest Student City Development project, which was meant to provide modern dormitory and community spaces for many thousands of Hungarian students.
Prime Minister Viktor Orbán’s government has been striving to build close ties with China for years, and recently entered into several important deals with Chinese partners.
One example is the €2B reconstruction project of the Budapest-Belgrade railway line, which was awarded to a consortium of Chinese state-owned corporations and a company affiliated with Lőrinc Mészáros, PM Orbán’s childhood friend and Hungary’s richest businessman.
Last year, after the outbreak of the coronavirus pandemic, the Hungarian state bought tons of often very expensive Chinese protective equipment and ventilators, while this year, Hungary has become the first European Union country to start using a Chinese Covid vaccine.
Neither the Chinese corporation nor the Ministry for Innovation and Technology (ITM), which proposed the Chinese deal to the government, responded to our inquiry on the construction of Fudan’s Budapest campus.
A Chinese offer we can’t refuse
Fudan University in Shanghai is a top higher education institution in China and it is world-class in international relations studies. With the help of the Hungarian National Bank, the university began to expand in Hungary, initially in cooperation with Corvinus University.
Levente Horváth, the central bank’s chief adviser on China and a Fudan alumnus himself, announced last year that Fudan would open its first European campus in Budapest in 2024 with five to six thousand students and five hundred professors.
The Chinese university has already agreed with the world’s largest construction company, the Chinese State Construction Engineering Corporation (CSCEC), that the state-owned company would bid for the construction contract.
This is revealed in a draft proposal by László Palkovics, Minister for Innovation and Technology, which Direkt 36 obtained. The Hungarian government discussed and accepted this proposal at its February 24 cabinet meeting.
The proposal was co-authored by Minister of Foreign Affairs and Trade Péter Szijjártó, however, ITM and Palkovics will be overseeing the project. According to the draft proposal, it was Palkovics whom Fudan and CSCEC’s subsidiary operating in Europe (China Construction Fifth Engineering Division) have notified of their agreement.
Although ITM only refers to the Chinese state-owned company’s bid as ’indicative’, i.e. preliminary, non-binding, the draft proposal shows that the Chinese company has already taken serious steps to prepare for the construction.
“In order to participate in the relevant tenders and start the work as soon as possible, the company has already simulated the implementation, design and construction teams and started preparations for construction and logistics,” the document states.
The institution would be named Fudan Hungary University and would be established and maintained by a Chinese-Hungarian asset management foundation, according to the ITM draft proposal.
This model is similar to the way the Hungarian government has recently started outsourcing the management of state-run universities to foundations. The capital needed for the establishment of the university, and the land for the construction, will be provided by the Hungarian state – for example, according to an earlier announcement, a plot of land worth of €2.3M.
China plans to contribute an unspecified amount to the foundation’s capital and then pay for the annual operating costs of the campus.
China State Construction Engineering Corporation made a bid for a little less than €1B for the construction, ie it would undertake to build a total of 520 thousand square meters at a price of €1,800 per square meter, according to ITM’s draft proposal.
The Hungarian government, on the other hand, calculates a much higher cost of €2,800 per square meter, and estimates the total value of erecting buildings at €1.5B. However, according to the draft proposal, the Ministry does not conclude from this that the Chinese offer may be unrealistically low.
In fact, they recommend the Chinese bid to the government by arguing how favorable it is compared to their own estimate. But this would not be the total cost of the construction – the price of building roads, parks etc. as well as VAT are not included in this offer.
According to the draft proposal, to cover the construction, the Hungarian state would take out a huge Chinese loan.
“This construction is based on the model of the Budapest-Belgrade railway investment,” the document states, referring to the Belt and Road Initiative’s Hungarian project. Hungary would provide cca. €300M directly for the investment, while a remaining €1.3B would be lent by China.
According to ITM, state-owned China Development Bank would provide the financing on “favorable terms”, with a maturity of 10-15 years and a maximum interest rate of 4.5% for RMB loans and 1.9% for euro loans, and it has already submitted a preliminary financing proposal.
The loan would be repaid in full by the Hungarian state through the asset management foundation.
However, Fudan is not simply just a top university, but also an important tool for China in extending its political influence. In 2019, the university charter’s chapters on freedom of thought and academic freedom were replaced by a declaration of allegiance to the Chinese Communist Party (this was also covered in Direkt36’s recent investigation into Chinese-Hungarian relations).
Moreover, the construction of Fudan’s Budapest campus also represents a serious market opportunity for Chinese companies.
Chinese expansion financed by Hungarian money
One of the most intriguing parts of ITM’s draft proposal is about how the construction is to be carried out. According to the document, the Chinese bid also includes a condition that “a certain number of Chinese workers will be involved in the construction and Chinese building materials will be imported”.
This setup is the result of the Chinese economic policy of the last decade. “By the early 2010s, China faced a problem of overproduction: they had much more capacity in concrete, steel and other raw materials than would be necessary.
They keep on producing, but they can no longer use it anywhere in their own country. The Belt and Road was invented so that this surplus as well as Chinese labor could be utilized abroad,” economist Krisztián Orbán explained.
The Belt and Road Initiative, also known as the New Silk Road, was launched in 2013 by Chinese President Xi Jinping. ITM’s draft proposal portrays CSCEC, the bidder for constructing Fudan’s campus, as an “important player” of Belt and Road.
In addition to the draft proposal signed by ministers Palkovics and Szijjártó, Direkt36 obtained another government document which states that the Hungarian government had already decided that the Fudan campus should be built by the Chinese and that the process must not be halted.
This is revealed in an internal memo on the February 24 cabinet meeting when the Hungarian government adopted the draft proposal of ITM.
The memo states: “The Government accepted the proposal on the grounds that (…) the planning and design would be implemented as a Hungarian-Chinese joint project; construction can only be carried out as a Chinese only project; the Minister for Innovation and Technology will be appointed government commissioner overseeing the investment; with regard to the legal regulation, it is necessary to reach the point where the investment process can no longer be stopped.”
According to a government official familiar with the background of government decision, China should not fear that someone would enter the public procurement with a more favorable bid and thus beat them.
The campus of Fudan University will be built within the framework of a Sino-Hungarian international agreement, and the conditions of the tender will also be determined in this spirit, according to the official.
For example, the Chinese-led reconstruction of the Budapest-Belgrade railway line or the expansion of the Paks nuclear power plant by Russia’s Rosatom are also the result of a similar framework – in neither case was open competition following EU rules necessary.
Even in Minister Palkovics’s draft proposal, a section listing the project’s EU law implications only contains the phrase ‘not relevant’.
The amount of Hungarian public funding for building Fudan’s campus is really significant. For example, it exceeds what Hungary’s government spent on the annual operating costs of the country’s entire higher education system, which totaled €1.3B in 2019.
However according to economic site G7, it was actually just net €800M. Moreover, the government documents obtained by Direkt36 list additional costs related to Fudan’s Budapest campus.
According to ITM, between 2023 and 2027, outfitting and operating the institution will cost approx. €275M. Later, “in the period after the full ramp-up of the university”, an annual €45M will be needed for these purposes, which can be provided in the form of direct state support and corporate sponsorships.
At the same time, ITM hopes that this would be largely paid by China.
Moreover, the Chinese university’s settling in to Hungary comes with a sacrifice: the Orbán government had to scrap current plans for a student housing neighborhood in Budapest.
This would have provided modern learning and housing conditions for eight to ten thousand Hungarian university students and professors. According to the internal memo written at the cabinet meeting on February 24, the government also decided that “according to the draft proposal, the project will be carried out at the site of the Budapest Student City – Southern City Gate Development Project”.
Here, south of the Rákóczi Bridge, the government had originally planned to build the Budapest Olympic Village.
Later, after withdrawing Budapest’s bid for the 2024 Olympics, plans were modified to build the Student City on this site. However, according to a government official, this spin-off project has in fact always been supported by the Orbán government’s top leadership in the hope that it may still come in handy for a future Olympics bid.
However, according to the source, these hopes were completely crushed in February as the International Olympic Committee handed Brisbane the right to host the 2032 Olympics.
Fudan’s campus will not only have a serious impact on Hungary’s national budget and higher education developments. The history of the Chinese company signing up for construction as well as news related to Fudan over the past few years also raise concerns over the investment.
Espionage and corruption
In January 2017, technicians at the African Union’s headquarters in Addis Ababa, Ethiopia, noticed an unusual phenomenon: data traffic of the building’s servers peaked every night between midnight and 2am, even though there was hardly anyone in the building at that time.
A security sweep of the twenty-story building revealed that the increase in traffic was caused by data being secretly copied to a server in Shanghai every night. In addition, eavesdropping devices and microphones hidden in tables and walls were found in the building.
The $200M headquarters, finished in early 2012, was a gift from China. Not only did they bear the costs, but they also undertook the construction. China State Construction Engineering Corporation was tasked with the construction – the same company now also applying to build Fudan’s Budapest campus.
Confidential information gathered at the African Union headquarters could have fallen into unauthorized hands for five years before the leaks and wiretaps were finally discovered by technicians. Both the Chinese government and the Chinese state-owned company denied accusations of espionage.
Following the incident in Ethiopia, CSCEC was blacklisted by the U.S. Department of Defense last year due to its close ties to the People’s Liberation Army. In China, cyber espionage and technological intelligence are largely overseen by the military.
Later, an executive action of President Donald Trump prohibited U.S. citizens and companies from becoming shareholders in the Chinese construction company.
In 2009, the World Bank investigated a road construction project in the Philippines and found collusion in the bidding process. Following the discovery, the World Bank imposed sanctions and blacklisted the company for six years.
In 2017, the company was sued for hundreds of millions of dollars for allegedly charging fraudulent fees as well as other problems with the construction of a luxury hotel and casino complex in the Bahamas.
In 2019, the Pakistani government claimed that $500M ended up in the pockets of corrupt officials during CSCEC’s gigantic highway construction project in the country.
Most recently, in January 2021, the Australian government prevented CSCEC from acquiring an Australian construction company.
They feared that Chinese intelligence would obtain information about Australia’s critical infrastructure through the Chinese company. National security concerns have also been raised with Fudan University itself.
As reported in Direkt36’s previous article, the university collaborates with Chinese intelligence, operates its own spy school, and as the elite university training the new generation of the Chinese Communist Party, at least a quarter of Fudan’s professors and students are CCP members.
However, ITM’s draft proposal does not mention any of these problems, instead only praises the Chinese corporation.
“The company won the title for the best contractor in the world between 2016 and 2020, and the largest credit rating agencies (ENR, Standard & Poor’s, Moody’s, Fitch) all give them an ‘A’ rating,” the Ministry for Innovation and Technology states in the draft proposal.
The Chinese state-owned company has always denied allegations of espionage and corruption, but has not responded to Direkt36’s related inquiry.
We also asked ITM about national security and corruption risks posed by the construction of Fudan’s campus, but the ministry did not respond either.