China International Studies (English)
The US Strategy of Competitive Infrastructure Investment in the Indo-pacific Region
As a major economic pillar of its overall Indo-pacific strategy, the US competitive infrastructure investment in the Indo-pacific is a crucial leverage to conduct comprehensive strategic competition with China. In the future, China’s Belt and Road cooperation are bound to confront growing competition from the US and the negative effect of US political intervention.
Since the Trump administration put forward the concept of Indopacific, and even before the recent release of the Indo-pacific Strategy Report, the United States’ Indo-pacific strategy has consistently been a hotly discussed and heavily researched topic in the strategic and academic communities of China and abroad. Various works have investigated the background of Washington’s proposal and its underlying intention, as well as the geopolitical connotations and future prospects of the strategy. However, these are rich in macro-qualitative research while falling short in down-toearth positive analysis, and they have focused excessively on the political and security dimensions of the strategy. The strategy of competitive infrastructure investment, as a crucial economic pillar of Washington’s Indo-pacific strategic framework, has so far not been adequately subject to in-depth discussion. This article tries to focus on this perspective and analyze the objectives, path and prospects of the US infrastructure investment strategy in the Indopacific, while making a tentative assessment of its potential impact on the cooperation under the China-led Belt and Road Initiative (BRI).
Notable Measures
In November 2017, US President Donald Trump promulgated the concept of “free and open Indo-pacific” at the APEC CEO Summit, and voiced support for high-quality infrastructure investment in the region by the
World Bank and the Asian Development Bank. He also encouraged more intensive private financial input as an alternative to government-led investment in the region.1 Although Trump’s concept of the Indo-pacific strategy at the time was still unclear and a policy framework had yet to take shape, he had, however, explicitly expressed a preliminary intention to enhance infrastructure investment in the Indo-pacific. Later, with the successive release of relevant mechanisms and investment policies, advancing competition in Indo-pacific infrastructure investment became a major policy instrument for the Trump administration to implement its overall Indopacific strategy and conduct strategic competition with China. Below are some notable measures.
Establishing the USDFC
For a long time, the United States’ international development and investment assistance missions have been jointly fulfilled by the US Agency for International Development (USAID), the Millennium Challenge Corporation (MCC), the US Trade and Development Agency (USTDA) and the Overseas Private Investment Corporation (OPIC). Since taking office, Trump has been making efforts to reform the foreign aid system. In 2018, the US Congress passed the Better Utilization of Investments Leading to Development Act, or the BUILD Act for short, which authorizes merging the USAID’S Development Credit Authority with OPIC and establishing a new US International Development Finance Corporation (USDFC). By so doing, a dual-track mechanism is taking shape whereby the USAID and the MCC assume responsibility for development assistance while the USDFC and the USTDA focus on investment assistance. Besides such traditional functions as loan issuance, loan guarantees, insurance and reinsurance, and technical assistance which were already present in OPIC, the USDFC is additionally authorized to make equity investment to joint ventures, as well as investing and providing guarantees with local currencies. It is also made
clear that the United States’ investment assistance specifically targets low- and middle-income countries and nations in transition to market economies.2 Moreover, the BUILD Act removes the environmental protection requirements that OPIC was once subject to which imposed responsibilities for addressing climate change. The elimination of that requirement allows the new USDFC to invest and finance in a freer and more relaxed manner.
Building partnerships for Indo-pacific infrastructure investment
The Trump administration relies mainly on bilateral and trilateral relations in building a network of infrastructure investment partnerships in the region. During Trump’s visit to Japan in 2017, OPIC signed memoranda of understanding with the Japan Bank for International Cooperation and Nippon Export and Investment Insurance highlighting their commitment to providing quality infrastructure investment for the Indo-pacific region. Meanwhile, the USTDA signed a memorandum of cooperation with Japan’s Ministry of Economy, Trade and Industry (METI) to advance quality energy infrastructure in third-country emerging markets in the Indo-pacific, marking the establishment of a Us-japan strategic energy partnership under which the two countries are dedicated to developing liquified natural gas projects and relevant infrastructure investment in the region. In addition, the US has set up a new “smart cities partnership” with ASEAN, and launched such bilateral cooperation frameworks as infrastructure cooperation platforms with Singapore’s Infrastructure Asia agency and with India.
At the trilateral level, the US, together with Japan and Australia, announced the establishment of a partnership for Indo-pacific infrastructure investment in July 2018.3 In November of the same year, the three parties signed a memorandum of understanding setting the partnership into motion, vowing to “mobilize and support the deployment of private sector
investment capital to deliver major new infrastructure projects, enhance digital connectivity and energy infrastructure,” and intending to “work with other members of the G20 to promote quality infrastructure development” at the upcoming G20 summit in Osaka.4 Moreover, a trilateral working group on infrastructure has been set up under the framework of the Us-japan-india dialogue, as the three sides reached an agreement of intent on developing infrastructure in South and Southeast Asian countries like Nepal, Bangladesh and Myanmar. Specifically, India would be helping with port development, Japan leading on industrial parks and the US working on power plants.5
Jointly contributing to the funding pool
At the 2018 Indo-pacific Business Forum hosted by the US Chamber of Commerce, US Secretary of State Mike Pompeo put forward three initiatives on Indo-pacific infrastructure investment, namely the Digital Connectivity and Cybersecurity Partnership, Asia EDGE, which stands for Enhancing Development and Growth through Energy, and the Infrastructure Transaction and Assistance Network.
To expand economic engagement in the Indo-pacific, he announced the allocation of $113 million as supporting funds.6 Subsequently, as per the BUILD Act, the US Congress provided $60 billion in development funding for the USDFC.7 Meanwhile, Japan has pledged $10 billion under the framework of the partnership for Indo-pacific infrastructure investment, and intends to provide financing of approximately $200 billion in the next five years to be allocated to infrastructure projects across the world under its Expanded Partnership for Quality Infrastructure initiative. One major project will be the joint construction of the Asia-africa Growth Corridor
(AAGC) with India.8 On the Australian side, the AUD$2 billion Australian Infrastructure Financing Facility for the Pacific was declared operational by the government, and the Export Finance and Insurance Corporation (EFIC) was providing AUD$1 billion for supporting infrastructure investment in the Pacific island countries.9
Promoting standards for quality infrastructure investment with Japan
At the Us-japan Working Group on Economic and Structural Policies convened in November 2018, the two countries committed to promote quality infrastructure investment rooted in principles of transparency, market-based financing, open infrastructure, and debt sustainability. They also made it a priority objective to upgrade the APEC Guidebook on Quality of Infrastructure Development and Investment, which was adopted in 2014, and have agreed to cooperate to achieve consensus on this under the APEC framework.10 The US and Japan have also decided to jointly promote international best practices for public procurement, synergizing Japanese METI’S Partnership for Quality Infrastructure and USTDA’S Global Procurement Initiative to offer training programs in third countries in the Indo-pacific region.11
Creating flagship projects through multiple channels
Under the partnership for Indo-pacific infrastructure investment, the United States and Japan have agreed to cooperate on multiple concrete projects in the
region, including the Jawa-1 gas-to-power project in Indonesia, the LNG project in Bangladesh, the Sharjah power plant project in the United Arab Emirates, and the Japan-guam-australia fiber-optic submarine cable system project.12 The US will join Australia in expanding the Lombrum Naval Base on Papua New Guinea’s Manus Island, and OPIC will provide India’s Renew Power with debt financing of up to $350 million for six solar power stations and wind power farms. At the multilateral level, the US, Japan, Australia, New Zealand and Papua New Guinea announced their joint efforts to enhance the PNG’S power infrastructure, with the goal of connecting 70% of its population to electricity by 2030.13 Under the bilateral aid framework, the MCC signed the Nepal Compact with the Nepali government in September 2017, committing $500 million in funding for two major projects of electricity transmission and road maintenance in the country.14 In September 2018, the MCC signed the Mongolia Water Compact with the Mongolian government, promising $350 million to expand the available water supply to the Mongolian capital city of Ulaanbaatar.15 US Vice President Mike Pence claimed at the 2018 APEC CEO Summit that during the first two years of the Trump administration, American businesses have announced more than 1500 new projects and more than $61 billion in new investments across the Indopacific region.16
Policy Considerations
Trump’s proactive promotion of Indo-pacific infrastructure investment, through establishing mechanisms, building partnerships, taking the lead
in financing, and joining other countries in concrete projects, is based on strategic, economic and political considerations. The core of the considerations is to comprehensively hedge against the influence of the BRI, and strive for an advantageous position in the strategic competition with China.
Facilitating transition of foreign investment assistance toward strengthening an “America First” policy
Since early in his election campaign, Trump has been harshly critical of the United States’ foreign aid policy, declaring that the US should “stop sending foreign aid to countries that hate us.” In his opinion, investment assistance for such countries as Iraq and Afghanistan is a total waste of money; instead, the funds should be allocated for rebuilding American domestic infrastructure.17 After taking office, Trump identified three directions for transitioning US foreign aid policy.
First, reducing budgets for foreign aid. The Trump administration’s budget proposals for fiscal years 2018 and 2019 both included over 30% cuts to foreign aid funding. Even though the requests were rejected by the Congress, the gradual decline of the foreign assistance budget has become a trend. In fact, continuous reduction of US foreign aid has been a major policy orientation of the Trump administration.18
Second, aligning foreign aid more closely with US foreign policy objectives. At the 73rd session of the United Nations General Assembly in 2018, Trump claimed that while the US is the world’s largest contributor of foreign aid in the world, few countries give anything to the US in return. “Moving forward,” he said, “we are only going to give foreign aid to those who respect us and, frankly, are our friends.”19 Therefore, the US has
announced a reduction of aid for such countries as Pakistan and Cambodia.
Third, cutting down on aid and turning the focus toward investment assistance. The USDFC, once formally in operation, will maintain close cooperation with the USAID, as the development assistance projects undertaken by the USAID, once mature, will be handed over to the USDFC for management in due time. This will achieve the successful transition from development assistance to investment assistance projects. By cutting down on aid measures and expanding investment assistance, the US can effectively avoid a decline of its influence in developing countries due to the reduced size of its foreign aid.
Maintaining US economic interests and investment dominance in the Indo-pacific
First, it is the level of growth of the U.S. economy which will determine whether the US can get on board the economic “express train” of Asia, a region which will continue to serve as the major engine of the world economy for a long time to come. The OECD forecast that, led by the two economies of China and India, Asia will continue to experience the world’s fastest economic growth in the next decade.20 Standard Chartered Bank predicts that by 2030, the proportion of Asian countries’ GDP will increase to 35% from the current level of 28% of the world’s total and be equivalent to the share of the US and Europe.21 The 2013 Human Development Report also projects that by 2030, more than 80% of the world’s middle class will reside in the South, and the Asia-pacific region will be home to about twothirds of the new global middle class.22
Second, the US has tremendous business and investment interests
in the Indo-pacific region. In his article in The Washington Post Mike Pence put prosperity before security, rule of law and human rights, as the foremost pillar of US Indo-pacific strategy. As he emphasized, “US trade in the region is worth more than $1.8 trillion annually, supporting more than 3.3 million US jobs, and our total regional investment in the Indo-pacific is nearly $1 trillion — more than China, Japan and South Korea’s investment combined.”23
Third, Asia’s infrastructure investment market holds enormous appeal to American private capital. The Asian Development Bank estimated that from 2016 to 2030, developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion per year.24 However, the region currently invests an estimated $881 billion in infrastructure annually, with the capital gap amounting to nearly half of the demand.
And fourth, while China has taken the lead in the field of infrastructure investment in Asia through its BRI, the US, as the largest investor in the Indo-pacific, is neither willing to be absent nor resigned to being left behind.
Weakening the BRI’S regional and international influence
As a proposal for international development put forward by China, the BRI adheres to the principle of wide consultation, joint contribution and shared benefits, with distinct features of equality, openness and inclusiveness. However, conservative forces in the United States prefer to interpret the initiative as a geostrategic instrument, or even view it as a strategic threat to the US. then-us National Security Advisor John Bolton once claimed that the BRI is China’s “plan to develop a series of trade routes leading to and from China with the ultimate goal of advancing Chinese global
dominance.”25
In Washington’s opinion, the geostrategic challenges posed to the US by the BRI mainly lie in the following areas.
First is the issue of militarization. As the Belt and Road construction advances, China’s overseas interests are also rapidly expanding, which calls for the input of military forces to protect assets. The US accuses China of promoting a “string of pearls” project26 across the Indian Ocean, namely building dual-use ports and docks on the “maritime silk road” to facilitate the deployment of Chinese overseas military forces. The routine patrols by the Chinese navy in the Indian Ocean and the establishment of the People’s Liberation Army support base in Djibouti are both presented as evidence of the US claims with regard to that trend.
Second is the so-called “sharp power” issue. China is said to increasingly prefer the use of economic “sticks” in its recent diplomacy in order to fulfill its foreign policy goals, and punish those countries that do not act in line with its objectives. Japan, South Korea and the Philippines were all once targets of this Chinese punitive action. Meanwhile, taking advantage of its strong economic clout, China is also accused of political and social penetration in the affected countries.27
Third is the issue of the future world order. With the BRI as a platform, China has set up financial mechanisms such as the Asian Infrastructure Investment Bank and the Silk Road Fund, which are regarded as the Chinese version of the World Bank and the International Monetary Fund. Therefore, China’s proposal of the BRI is deemed to ultimately serve the goal of shaping
a China-centered world order.28 Economically, this means that China would control both supply and value chains. On the political level, China would use its dominant position in supply and value chains to coerce neighboring countries into toeing its diplomatic line.
When talking about China’s global strategic intentions, Pompeo claimed that “China has a plan that is different than the one that they had five years ago or even two or three years ago,” which can be seen in “their ability to use their money around the world.” According to the US Secretary of State, the “treasury-run empire build” is bad for countries that receive Chinese money and presents risk to American interests, and the US is prepared to “oppose them at every turn.”29 Obviously, to hedge against and weaken the international influence and attractiveness of the BRI, the US has been poised to launch a cutthroat competition against China.
Seizing rules-making dominance in Indo-pacific infrastructure investment
Compared to Indo-pacific infrastructure investment initiatives by the US and Japan, China’s BRI has an explicit frontrunner advantage. As the Chinese initiative extends from the Eurasian continent to Africa and Latin America, the technical codes and quality standards of Chinese infrastructure construction are also becoming systematic, which brings serious impacts to the system of international investment rules long dominated by the West. During a speech at the Atlantic Council, then US Secretary of State Rex Tillerson asserted that “China’s economic development … should take place in the system of international rules and norms,” but through the BRI China seems to “define its own rules and norms.”30
Comparing the 2014 APEC Guidebook on Quality of Infrastructure Development and Investment with the revised version in 2018 proposed by the US and Japan, one sees that while the former identified only life cycle cost (LCC), environmental and other impacts, and safety assurance as the three elements that ensure the quality of infrastructure projects, the latter incorporated such factors as openness and transparency, economic and financial soundness, job creation and capacity building, expanding the number of core indicators used to examine infrastructure quality from three to five. In fact, this quality system jointly advanced by the US and Japan develops the standards for high-quality infrastructure construction into controversial “high-quality investment standards.” In particular, their attempt to incorporate the concept of “debt trap” in the mix demonstrates their real intention to formulate tailored rules for the BRI and restrain Chinese overseas operations.31
Diluting the influence of China’s soft power
The China-us infrastructure investment competition involves their deep-rooted rivalry on investment assistance models. According to OPIC, “At a time when China is investing heavily in emerging markets under a state-directed model, the US model offers an alternative for advancing development in a manner that is financially sound, adheres to high standards and avoids debt traps.”32 Jeff Smith, Research Fellow at the Heritage Foundation’s Asian Studies Center, also highlighted the significant differences and striking contrast between the two countries’ investment and assistance patterns. In his opinion, China focuses on state-run enterprises and highprofile infrastructure projects that are at times economically unviable, and saddles the country with unsustainable debt levels. The benefits of these
projects often accrue exclusively to China: Chinese banks are paid interest on Chinese loans to fund projects being built by Chinese companies and workers. Moreover, due to a lack of transparency and accountability, the projects are also prone to fueling corruption. On the other hand, the US model “focuses on private-sector-driven growth, economic sustainability, high standards, and transparency,” under which the US government is mainly providing no-cost assistance in mine clearing, cultural preservation, health care, agriculture aid, legal training, etc. The assistance is also more “generous” and “equitable” in terms of relationship with recipient countries.33 The first US National Security Strategy under the Trump administration, which was released in December 2017, claimed that China wants to “expand the reaches of its state-driven economic model, reorder the region in its favor,” and “seeks to displace the United States in the Indo-pacific region.”34 A report by the US Congressional Research Service believes that “a key policy rationale for the BUILD Act was to respond to China’s BRI and China’s growing economic influence in developing countries,” and the USDFC “aims to advance US influence in developing countries by incentivizing private investment as an alternative to a state-directed investment model.”35 Despite the bias inherent in these opinions, there do exist some major differences between foreign aid patterns of China and the US, including whether the investment is driven by the government or enterprises, whether state-owned or private enterprises play the dominant role, and whether there is a clear division between costfree aid and investment assistance.
In fact, the China-us rivalry over investment assistance patterns is the extension and expansion of their competition between the “Washington Consensus” and the “Beijing Consensus.” The institutional superiority long held by the West is now under pressure across the world.
As of August 2019, 136 countries and 30 international organizations have signed a total of 195 documents on Belt and Road cooperation with China.36 This means that the Chinese investment assistance pattern represented by the BRI has demonstrated strong competitiveness and vitality.
Pacifying and winning over regional allies and partners
More than two years into his administration, Trump has taken a series of unilateralist actions under the “America First” concept, which have damaged the United States’ image and broken the trust of allies. For example, despite advice from major allies and partners like Japan, Australia and Singapore, the US adamantly withdrew from the Transpacific Partnership (TPP). It forced South Korea into renegotiation of their bilateral free trade agreement (FTA), and continuously pressured the country on its share of the cost for US forces in South Korea. It threatened Japan with tariffs while the negotiation of a bilateral FTA is underway. For Australia, Trump openly expressed dissatisfaction with the bilateral refugee resettlement agreement, and even abruptly ended a call with the Australian Prime Minister. Trump returned to Washington from his Asia tour while the East Asia Summit was being held in 2017, and was even absent from the 2018 series of leaders’ meetings on East Asian cooperation and the APEC summit. In addition, the US unilaterally announced withdrawal from multilateral agreements like the Paris Agreement on climate change and the Iran nuclear deal, as well as international organizations like the United Nations Human Rights Council.
These unilateralist actions by the Trump administration maximized the United States’ interests in the short term, but have triggered concerns from its Asian allies. In his book Fear of Abandonment, Allan Gyngell, National President of the Australian Institute of International Affairs (AIIA), questioned whether Australia, once deserted by Britain, is now again facing the strategic dilemma
of being abandoned by the US.37 Given that Australia, as a loyal US ally, took part in all Us-launched wars since World War I, such change of attitude by a mainstream Australian scholar toward the US is indicative of the mood in the Asia-pacific region, indicating that even the staunchest ally has cast doubts on Washington’s credibility. In this context, the introduction of BUILD Act by the establishment in the US Congress is a demonstration of US determination to maintain its dominance in Asia as well as its regional allies and partners.
Impact Assessment
While the Trump administration’s promotion of Indo-pacific infrastructure investment involves an inherent logic of accommodating the transition of foreign aid policy, in order to gain economic benefits, and to have a positive
influence on infrastructure construction in the Asia-pacific, its core appeal in policy design is to restrain the momentum of the BRI and to weaken China’s regional and international influence. In other words, Washington’s active advance of Indo-pacific infrastructure investment does not solely target the Belt and Road, but the challenges brought about by the Belt and Road are obviously a major consideration for the US. In the future, China’s efforts to expand Belt and Road cooperation are bound to confront growing competition from the US and the negative effect of US political intervention.
Exacerbating international public opinion for Belt and Road construction
In the initial years after China’s proposal of the BRI, media in the United States and some other Western countries have played a major part in tarnishing the initiative’s image. A series of deliberately trumped-up accusations, including labeling it “a new Marshall Plan,” neo-imperialism, “checkbook diplomacy” and “a debt trap,” have imposed obstacles for China’s overseas Belt and Road cooperation.
Since Trump took office, the US government has begun to play the leading role in public denigration and out-right suppression of China’s Belt and Road cooperation. In his public speech, Pence accused China of expanding influence by so-called “debt diplomacy,” offering hundreds of billions of dollars in infrastructure loans to governments from Asia to Africa to Europe and even Latin America, while “the terms of those loans are opaque at best” and “the benefits invariably flow overwhelmingly to Beijing.”38 At the 2018 APEC CEO Summit, Pence further explicitly denounced some countries that “are offering infrastructure loans to governments across the Indo-pacific and the wider world” with terms of those loans often at best opaque and projects supported by them often of poor quality. He asserted that “the United States offers a better option” and does not “drown our partners in a sea of debt” or “coerce
or compromise your independence.” “We do not offer a constricting belt or a one-way road,” he said.39 Tillerson, in his then capacity as Secretary of State, also claimed that China’s infrastructure investment in Asian countries results in “saddling them with enormous levels of debt” while often not creating jobs for local economies. On the contrary, there is “very subtle triggers in the financing that results in financing default and the conversion of debt to equity.”40 Alice Wells, US Principal Deputy Assistant Secretary of State for South and Central Asian Affairs, told a group of South Asian journalists during a media tour to the US, “In many cases, Chinese investment has harmed rather than helping the economic wellbeing of communities within the region by burdening the governments with unsustainable debts and funding projects that have no commercial job creation value.”41
Creating political obstacles for international Belt and Road cooperation
Not only has it publicly vilified Belt and Road-related cooperation, the Trump administration has also stood in the way of third countries’ cooperation with China by either sowing discord or resorting to coercion. With regard to India’s position on the BRI, then US Secretary of Defense James Mattis once said in a testimony at the Senate Committee on Armed Services, “I think in a globalized world, there are many belts and many roads, and no one nation should put itself into a position of dictating ‘One Belt, One Road’.”42 The fact that some Belt and Road routes would cross disputed territories demonstrates in itself the vulnerability of advancing the initiative by fiat. What Mattis said was actually a reiteration of Washington’s support for India’s opposition to the China-pakistan Economic Corridor, which was
totally in line with the spirit of the bilateral joint statement during Indian Prime Minister Narendra Modi’s visit to the US in June 2017.43
Concerning Italy’s plan to participate in the BRI, US National Security Council officials publicly commented that there is no necessity for the Italian government to lend legitimacy to China’s showcase infrastructure project. US Senator Marco Rubio even denounced Italy’s “reported desire to curry favor with” China as “stunningly naïve.”44 China’s goal is to “undermine foreign competition by stealing intellectual property and trade secrets, and artificially propping up Chinese state-directed actors at the expense of its trading ‘partners’,” he said. “As we in the US are learning, the long-term economic and national security risks far outweigh any increases in Chinese foreign investment or increased exports to China. Until the Chinese government fundamentally alters its goals and methods, the US and its allies should remain wary of tighter economic engagement.” On the issue of China-panama economic cooperation, Pompeo publicly warned the Panama government against the opacity and non-market nature of operations by Chinese state-owned enterprises, whose goal is “not to benefit the people of Panama, but rather to benefit the Chinese government.”45
Intensifying the tendency of Chinese neighbors and other developing countries to vacillate between China and the US
Since the 2008 global financial crisis, China has increasingly become a major engine of Asian economic growth, with its international status and regional influence expanding daily. Meanwhile, the Obama administration in the US actively promoted the rebalancing strategy and pivoted its strategic
focus toward the Asia-pacific, continuously strengthening its regional system of alliances and network of partnerships. For some time now, middle and small countries in the Asia-pacific had been accustomed to relying on the US in terms of security while engaging economically with China. Since Trump took office, due to his “America First” concept as well as his series of unilateralist policies, mutual trust between the US and its Asia-pacific allies has come under pressure.
However, for Southeast Asian countries’ declining trust in the US does not necessarily mean growing confidence in China. In fact, these countries still harbor an expectation of hedging against and balancing China by leveraging Washington’s power. They are mostly concerned about over-dependence on China, which they fear would make the region totally China’s “sphere of influence.” According to the opinion poll conducted by Singapore’s Yusof-ishak Institute, 68.1% of the respondents are unsure of or have little confidence in the United States’ reliability as a strategic partner and provider of regional security, while 45.4% think “China will become a revisionist power with an intent to turn Southeast Asia into its sphere of influence.” In addition, less than 10% of respondents see China as a “benign and benevolent power.” In terms of perception of trust in the major powers, Japan is viewed most favorably (65.9%) by Southeast Asians, followed by the European Union (41.3%), the US (27.3%), India (21.7%) and China (19.6%). Regarding the perception of distrust of major powers, China ranks the highest (51.5%), followed by the US (50.6%), India (45.6%), the EU (35.2%) and Japan (17%).46 Both China and the US face the challenge of overcoming the low level of trust in Southeast Asia.
As shown by the above survey, for Southeast Asian countries, two uncertainties surrounding China and the US have played a key role in contributing to their strategic confusion. On the one hand, the prospect of China as a regional leader and the type of leadership it will demonstrate remains to be confirmed by the test of time. On the other, while the status
and pattern of US leadership in the region has been evident, the greatest uncertainty at this point is to what extent the US under Trump will retreat from Asia. Therefore, the real concern of Southeast Asian countries is that Trump’s determination and willingness to maintain US regional leadership seems not as strong as his predecessors’ as China gradually moves toward the very same status.
In this context, the return of Trump’s policy to the rebalancing strategy in the Obama era, in whatever sense, will be felt by regional countries as a “Trumpian US pivot to Asia.” In hope of recovering their comfortable position between China and the US, ASEAN countries have announced their “Outlook on the Indo-pacific” with the objective to maintain ASEAN centrality and balance the two major external powers.
Consistent pressure from the US and Japan on standards of infrastructure investment
During the APEC summit in Papua New Guinea in November 2018, the US and Japan agreed to incorporate the so-called “debt trap” into the APEC Guidebook on Quality of Infrastructure Development and Investment. The United States’ further attempt to include in the final document such protectionist content as so-called unfair trade practices and mandatory requirement of equal competition between state-owned and private enterprises eventually led for the first time in APEC history to a leaders’ declaration failed to be announced.47 Washington’s advance of its priority agenda even at the expense of the largest regional economic cooperation mechanism in the Asia-pacific is evidence of its resolute attitude on promoting so-called high standards of infrastructure development and investment. In June 2019, the G20 Osaka summit adopted the Principles for Quality Infrastructure Investment. Given this, promoting the implementation of standards for quality infrastructure investment is likely to become the focus of the US and
Japan in their future efforts to counter Belt and Road cooperation.
Restraining Factors
While the US actively promotes Indo-pacific infrastructure investment with an eye on hedging against the BRI’S influence, it still faces multiple subjective and objective obstacles before it develops into a competitive “alternative choice.”
Over-politicization brings counterproductive results
Under the “America First” concept, Trump has criticized the US foreign aid policy on multiple occasions since his presidential election campaign. After taking office, he announced a plan to cut down on foreign aid on a large scale. In fact, OPIC was once listed as one of the 19 bodies to be abolished in Trump’s budget proposal in the first financial year. Eventually, not only did it escape the fate of being canceled, but was in fact upgraded to the USDFC with expanded functions and operational funds. A crucial factor in the U-turn of Trump’s attitude is the geopolitical considerations, particularly with regard to the strategic competition with China.
Ted Yoho, Co-sponsor of the BUILD Act and Chairman of the House Foreign Affairs Subcommittee on Asia and the Pacific, indicated that Trump’s policy shift “has less to do with a sudden embrace of foreign aid than a desire to block Beijing’s plan for economic, technological and political dominance.”48 The statement of policy at the beginning of the BUILD Act does not shy away from its ideological overtones, claiming an objective of the act is “to provide countries a robust alternative to state-directed investments by authoritarian governments and United States strategic competitors using best practices with respect to transparency and environmental and social safeguards, and which take into account the debt sustainability of partner countries.”49
Washington’s politicization of Indo-pacific infrastructure investment has distorted investment assistance, which has generally been judged on the basis of economic and development needs, but has now been shaped with regard to a straightforward zero-sum competition strategy. Not only does the U.S. resort to coercion rather than simply attempting to maintain coordination or cooperation within its alliances, it has even made a country’s refusal to participate in China’s BRI into a litmus test of loyalty to the US. Washington’s politicization is a bit over the top even given its hegemonic standing, and is bound to incur opposition and boycott from developing countries and even from its traditional allies. Italy’s participation in Belt and Road cooperation regardless of US pressure and the United Kingdom and Germany’s rejection to follow suit on the 5G issue both indicate that the US has fallen into a self-made political trap.
Lack of comparative advantage in infrastructure investment in developing countries
The history of China-us competition in investment assistance in Africa may give a hint at the prospects of Washington’s current promotion of Indopacific infrastructure investment. Before Trump took office, the US had been the largest investor on the continent for a long time, while China outshone others in infrastructure investment. In terms of scale, in 2017, the world’s total committed investment in African infrastructure amounted to $81.6 billion, of which $19.4 billion, or 23.8%, came from China and a slightly greater amount, or 24.1%, came from the Infrastructure Consortium for Africa (ICA), which was launched by the original G8 countries.50 In terms of investment fields, the US investment in Africa is concentrated in mining, oil, finance, services, textile and renewable energy,51 while Chinese investment is devoted primarily to architecture, transportation, mining, oil and natural
gas. Even in those overlapping fields, there are differences between the two countries with regard to the emphasis of the investment. In the electricity industry for example, China usually invests in fossil fuel power while the US prefers renewable energy. From the above comparisons, it can be seen that the investments in developing countries by China and the US are to a greater extent complementary. Despite touting “high standards” in public opinion, the US has no substantial comparative advantage in Indo-pacific infrastructure investment.
Obvious aversion to political and economic risks
OPIC’S operational history has demonstrated the organization’s strong aversion to political and economic risks similar to that of private capital. Analysis shows that only 16% of OPIC’S active projects were directly located in low-income countries. As of March 2018, OPIC has had 175 active projects in upper-middle-income countries, more than 94 in low-income countries. Of the 20 countries with 10 or more active OPIC projects, only four are low-income countries, while six are upper-middle-income countries. In addition, OPIC’S $2.1 billion in financial commitments for 16 active projects in high-income countries far exceeds that of the $1.5 billion in financial commitments for projects in low-income countries.52 As the BUILD Act does not clearly limit the USDFC’S investment and financing activities to middle- and low-income countries, the preference for risk aversion is highly unlikely to change. It remains to be seen whether the US is willing to take greater economic and political risks for the sake of competing with China.
Moreover, although there is much ado about the United States’ advance of Indo-pacific infrastructure investment, the financing capacity for that is still relatively low. The potential financing scale of more than $150 billion,
including the USDFC’S $60-billion capacity and the private investment capacity, which is 1.6 times that, is still far from bridging the gap in the tremendous financial demands for Asian infrastructure.
Private-sector motivation in foreign investment assistance remains to be seen
There is an inherent conflict of government and private-sector interests in the USDFC’S operational and management mechanism. The US government has reiterated that the USDFC’S establishment serves to mobilize private capital in Indo-pacific infrastructure investment and provide regional countries an alternative to state-directed investments, but the USDFC is in fact a wholly owned government corporation and its Board of Directors are also mostly appointed by the President with advice from both majority and minority party leaders in the House and the Senate. Its projects are mainly obtained through top-down cooperation under official partnerships. Given this, the Usdfcfunded projects are hardly private ones, making the government’s investment assistance objectives difficult to be consistent with the private sector’s goal of reaping profits. It remains to be seen whether the new investment and financing pattern will really encourage participation from the private sector.
Conclusion
The US strategy of competitive infrastructure investment in the Indo-pacific is not only a major economic pillar of the implementation of its overall Indo-pacific strategy; it is also a crucial leverage of Washington to conduct comprehensive strategic competition with China. Objectively speaking, the US strategy has to some extent positive significance in meeting Asian infrastructure investment needs, but due to Washington’s interpretation of the BRI through an excessively strategic lens and its over-politicization in operating the Indo-pacific investment initiative, two issues are to be raised with regard to the influence of the American Indo-pacific infrastructure investment strategy on China’s Belt and Road cooperation in the next stage.
In the short term, the political negative impact of the opposition will significantly outweigh any adverse economic competitive pressure. The US has launched its efforts to obstruct the Belt and Road on a broad front. While going all out to tout the US proposal, Pompeo does not shy away from attacking and vilifying China’s BRI. It cannot be more evident that the US is neither willing to accept nor able to tolerate the Belt and Road’s success. In the initial stage of the USDFC’S operation and for a long time to come, the pressure on the Belt and Road will mostly come from political intervention rather than from economic competitive pressures.
In the long run, political pressures are likely to diminish while economic competitive pressures may rise. To maintain its global supremacy, the US will not easily abandon its preconception of a zero-sum game. As China’s power and status further grows, Washington’s impetus to contain and restrain China’s development will only become stronger, with its obstruction of the BRI intensified. However, if the US clings to the concept of zero-sum game and remains obsessed over China’s Belt and Road, it will probably face a backlash from China as well as from other development partners, and lose even more opportunities to participate in Asian infrastructure investment and particularly to participate in Belt and Road cooperation. In fact, the US initiative on Indo-pacific infrastructure investment and China’s BRI are inherently complementary. Generally, China is better at building roads, bridges, ports and other infrastructure projects, while the US has competitive edges in electricity, energy facilities, and smart city building. As a precondition for the two countries to avoid a lose-lose scenario and return to constructive cooperation and competition, the US needs to recognize that the diversity of development aid patterns is conducive to the vast number of developing countries and poses no harm to US interests. Through a new round of strategic interactions, the two countries can jointly find a path of major-power coexistence featuring a balance of competition and cooperation, and cultivate a benign competitive order for co-evolution.