Wall Street Wary of Chinese Plan for Dam : Investment: Because of environmental and rights concerns, bankers aren't eager to underwrite the Yangtze River project.


With all the excitement over investing in China, one of the biggest infrastructure projects since the Great Wall might be expected to generate great enthusiasm. It hasn't.

A $24-billion plan to dam the fabled Yangtze River has drawn little more than a peep from some of Wall Street's largest firms. In fact, Morgan Stanley Group Inc. won't even confirm whether the project is on the agenda this week at a series of Chinese investment seminars it is holding.

One of those expected to attend says the dam complex is up for discussion. But the decidedly low-key position Wall Street is taking highlights the controversial nature of the project.

The dam, to be located on a stretch of the Yangtze River in central China known as the Three Gorges, would be constructed over 17 years and would be the largest dam complex in the world.


Despite widespread criticism of the project in China and abroad over environmental damage and the more than 1 million people to be displaced by the dam's waters, Chinese Premier Li Peng has pushed ahead with the project as a nationalistic monument to his nation's economic prowess.

Chinese officials say they expect to raise 80% of the funding for the project at home but are looking to international capital markets to fill an expected $3-billion to $5-billion shortfall.

Goldman Sachs & Co., Morgan Stanley and Merrill Lynch & Co. have been discussing possible bond issues with China, project official Guo Shuyan said at a Beijing news conference late last year.

None of the foreign companies involved are eager to talk about the dam.

"Everything is still being negotiated," said Tracey Gordon, a spokeswoman at Morgan Stanley. "Nothing has been decided yet."

Goldman Sachs had no comment and Merrill Lynch spokesman Jim Wiggins denied any involvement in Three Gorges.

It has been suggested by some of those who follow the dam's progress that the firms are hesitant about becoming involved but are being compelled to if they want a chance at the lucrative underwriting of a growing number of Chinese state-owned companies going public.

Morgan Stanley has invited institutional investors to three educational seminars about opportunities in China beginning in Boston today and continuing in Chicago on Thursday and Friday in New York.

Gordon would not comment on the seminars. But one person who plans to attend in New York said he expected Three Gorges to be mentioned.

"We are looking at Three Gorges in terms of corporate responsibility," said Patrick Doherty, director of investment responsibility for the New York City comptroller's office, which he said holds $14 million worth of Morgan Stanley stock.

"We are concerned about the use of forced labor, suppression of dissent and environmental concerns."

Franklin Research & Development Corp., which calls itself a socially responsible investment firm, also plans to ask large investors not to buy bonds issued to finance Three Gorges, said Simon Billenness, a senior analyst at the Boston-based company.

Critics of the dam assert it will create an environmental disaster due to a lack of pollution controls and the vast changes it will inflict on the area's ecosystem. Other complaints are that the dam would be built with prison labor and would violate the rights of 1.3 million people being relocated along a 360-mile stretch of river.

"Unless foreign investment banks' investors can obtain verifiable guarantees that the rights of those to be relocated will be protected, they could become complicit in serious human-rights abuse," said Richard Dicker, associate council of Human Rights Watch-Asia, which recently issued a report critical of Three Gorges.

Dam supporters say the 18,200 megawatts of electricity that would be produced by the generators would power impoverished interior areas that have been left behind as living standards rise along China's eastern seaboard.

They also say it will protect millions of residents downstream from floods that often rage through the mountainous gorge.

China, in a twist that highlights the project's controversial nature, has not asked the World Bank, which is financing a number of large infrastructure projects in China, to fund the Three Gorges dam, said Joseph Goldberg, chief of the bank's agricultural division for China.

In not asking for funding, China hopes to avoid the international scrutiny that often accompanies large, controversial projects funded by the bank. The bank, severely criticized for its role in another controversial dam, in India, hopes to avoid reliving that nightmare.

"They have been gentlemen and haven't asked us to participate," Goldberg said. "And frankly, we wouldn't mind if no one asked us about Three Gorges again."

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