U.S. Fights China for
Influence, One Project at a Time
By Niharika Mandhana
(WSJ)
Updated Nov. 13, 2018 3:16 p.m. ET
Washington prods private sector and focuses on financing as Beijing’s ‘Belt and Road’ hits obstacles
HONG KONG—The U.S. has launched a new strategy aimed at
ramping up investment in Asia to vie with Chinese President Xi Jinping’s
overseas infrastructure-building spree, as Beijing grapples with setbacks to
its sprawling program.
But China has a head start—and a state-led model that makes
it easier to finance and build on a large scale. Mr. Xi’s Belt and Road
initiative has offered hundreds of billions of dollars for railways, bridges
and ports in dozens of countries, expanding its strategic influence along the
way.
Among the recipients are economies that have struggled to
attract U.S. investment or adequate financing from multilateral banks.
The Trump administration is looking to change that by
helping the private sector invest. In October, President Trump signed into law
the Build Act, which creates a new development finance agency that offers
loans, loan guarantees and political-risk insurance to private companies.
Mr. Trump said last year that this strategy would offer
“strong alternatives to state-directed initiatives that come with many strings
attached,” a reference to Beijing’s plan. The goal, proponents say, is to
encourage businesses to invest in low-income countries and spur growth with
projects that make economic sense.
The Build Act allows for $60 billion in U.S. development
financing around the world under the new agency, the U.S. International
Development Finance Corp. The IDFC merges existing programs, doubles the
current agency’s spending cap and has the authority to own equity stakes in
projects, giving it more flexibility to choose and guide them.
The U.S. sees Belt and Road as a tool used by Beijing to
advance its strategic and military interests. A number of Trump administration
officials and U.S. lawmakers describe the risks of China using “debt traps” to
gain control of sensitive infrastructure and “predatory economics” to undermine
the autonomy of debt-burdened countries.
Some new governments in Asia also see it that way. Many
developing economies initially embraced China’s plans, which pledged to
address, at least in part, Asia’s infrastructure spending needs, estimated by
the Asian Development Bank at $1.7 trillion each year through 2030.
But elections have delivered setbacks to China, including
the suspension of $20 billion in projects in Malaysia, Pakistan’s shifting
strategy to combat an emerging financial meltdown and the ouster of a
China-leaning government in the Maldives. Some newly empowered politicians said
China-backed projects approved by previous governments promoted corruption,
saddled their countries with debt and threatened their sovereignty.
So far, however, for countries facing dire infrastructure
needs, “there aren’t many specific or visible alternatives to China,” said Amitendu Palit, a senior research
fellow at the Singapore-based Institute of South Asian Studies. “China is still
their best bet.”
China’s political leaders are able to steer investment decisions,
and the country is often willing to fund projects in high-risk markets that
others avoid.
The first section of Pakistan’s Multan-Sukkur Motorway, a
key leg in the China-Pakistan Economic Corridor, was inaugurated in May. The
new government in Islamabad is looking for help to manage the debt burden of
its Belt and Road projects.
The first section of Pakistan’s Multan-Sukkur Motorway, a
key leg in the China-Pakistan Economic Corridor, was inaugurated in May. The
new government in Islamabad is looking for help to manage the debt burden of
its Belt and Road projects. PHOTO: AHMAD KAMAL/XINHUA/ZUMA PRESS
“China has giant state-owned enterprises that are directed
by organs of the state to make huge investments, even investments that are of
questionable commercial value,” said Jeff Smith, a research fellow in the Asian
studies program at the Heritage Foundation. “The U.S. political and economic
system is not designed to play this game.”
The Trump administration has earmarked $113 million for
digital, energy and infrastructure projects in the Indo-Pacific region, in what
Secretary of State Mike Pompeo described as a “down payment on a new era in
U.S. economic commitment.”
“With American companies, citizens around the world know
that what you see is what you get: honest contracts, honest terms, and no need
for off-the-books mischief,” Mr. Pompeo said in July.
China has said its Belt and Road loans aren’t debt traps,
and that its financing is aimed at boosting economic and trade links.
In Washington, there is “a lot of debate and consternation
about how to respond” to China’s plans, said Mr. Smith.
One effort involves leveraging regional alliances. A U.S.
government agency that will be absorbed into the IDFC signed an agreement with
Japan and Australia in July to jointly mobilize investments, echoing U.S.
security alliances in the Indo-Pacific.
Tokyo has experience in infrastructure financing in
developing countries in Southeast Asia, where it is involved in a range of
projects, including railways and energy production. Prime Minister Shinzo Abe
said in 2015 that Japan would provide $110 billion to fund Asian infrastructure
projects over five years.
Japan has expanded its operations, searching for investment
opportunities in South Asia and offering loans to countries such as Bangladesh
for ports and bridges.
Tokyo has sought to differentiate itself from Beijing by
emphasizing “quality infrastructure,” and framed its efforts increasingly as
part of the broader Indo-Pacific strategy designed to counterbalance China.
Japanese money remains more selective than China’s and isn’t available to many
countries.
Infrastructure projects should “increase employment, help
grow education opportunities for the workers, attract even more FDI and as a
result make the loans easy to pay back,” Mr. Abe said in June, when he announced
new efforts to mobilize billions of dollars in funding. “Infrastructure that
stimulates self-sustaining cycles in this way is high-quality infrastructure.”
Write to Niharika
Mandhana at niharika.mandhana@wsj.com