Trump’s infrastructure dream for the Indo-Pacific lacks one crucial element – money
Anthony Rowley says the US’ recently launched Indo-Pacific Business Forum pales in comparison to China’s Belt and Road Initiative because of its lack of funding and vague institutional structure
The battle for “spheres of influence” – economic, financial and geostrategic – in Asia has been joined afresh this week with the launch by the US government of its Indo-Pacific Business Forum. This appears at first to herald a battle royal between the US and China for domination of the region but the “war” has probably been lost before it has really begun.
Washington’s initiative aims at marshalling US and other public and private investment into Asian energy, infrastructure and digital economy projects, and is an attempt to reassert the primacy of private enterprise over (China-style) state capitalism. However, securing sufficient resources to finance the programme is likely to prove highly problematical.
A key element of the US-led initiative (which also involves Japan, India, Australia, Indonesia and others) is to secure funding for massive infrastructure building in the Indo-Pacific region. But private funding for this key sector has proved very difficult to come by compared to the state resources available under China’s Belt and Road Initiative.
China uses part of its US$3 trillion official foreign exchange reserves, supplemented by borrowing from state-owned enterprises plus finance from the Asian Infrastructure Investment Bank, which is able to borrow on international capital markets, to fund the Belt and Road Initiative. Beijing may opt to sell more US Treasury securities, which could further boost the plan.
By contrast, governments in most market economies have relatively fewer funds at their disposal for infrastructure finance. And while private institutional investors in these countries hold an estimated US$120 trillion of savings, the risk-reward ratio of infrastructure investment is not perceived as attractive by pension funds, insurance companies and the like.
The inability of the US to fund its own infrastructure spending needs, let alone those of Asian nations, was highlighted when US President Donald Trump announced a US$1 trillion infrastructure spending plan, of which his government is able to meet only a fraction. He has been discussing a new public-private infrastructure bank to remedy this but it is a long shot.
Announcing the Indo-Pacific forum at the US Chamber of Commerce in Washington, US Secretary of State Mike Pompeo said developing countries in the region will need to attract nearly US$26 trillion in capital to fund their infrastructure needs. Beyond pledging a nominal US initial contribution of US$113 million, he made no mention of where such money can come from.
Lack of detail on this and other aspects the plan suggest a rather hurried attempt to regain some of the diplomatic initiative and credibility the US is seen to have forfeited since Trump withdrew the US from the Trans-Pacific Partnership (TPP), at a time when China's Belt and Road Initiative and other ventures have moved to centre stage.
The Belt and Road Initiative, announced in 2013 by President Xi Jinping, has run into heavy weather in places such as Sri Lanka, where it forced the government into debt, causing it to convert debt to equity and lose control of strategic infrastructure and other assets in the process. The US appears to be trying now to capitalise on these problems.
Pompeo’s aides claim that the US approach to development of the Indo-Pacific region is not aimed at countering China’s initiatives. But at the same time, they deplore the alleged tendency by (unidentified) sponsors of infrastructure and other-projects to lure borrowers into debt, and to disregard international standards and the “rule of law” in their approach.
“Our way of doing things is to keep the government's role very modest and is focused on helping businesses do what they do best,” Pompeo’s senior policy adviser Brian Hook has said, implying that this is preferable to China’s state sector-led approach. Yet, in China where the government’s role has been central, progress on infrastructure has been dramatic compared to that elsewhere.
The latest US initiative appears to have been triggered also by a Japan-India joint scheme announced last year by their respective prime ministers, Shinzo Abe and Narendra Modi, for an Asia-Africa Growth Corridor. This in effect counters China's belt and road project with a proposed infrastructure nexus connecting Asia to the Middle East and parts of North Africa.
Japan, India and Australia have also been upgrading their security cooperation with a view to countering the growing influence of China as a power in Asia. Their use of the term “Indo-Pacific”, while having geographical legitimacy, has meanwhile become common to strengthen the concept of an India-centred (rather than China-centred) East Asia region.
All this adds up to a divided Asia. What is clear from the latest development involving the Indo-Pacific forum is that it is an ideological as well as strategic divide. The TPP was designed to limit the power of state-owned enterprises and now that it is dead (in its original form), the US is reprising bilaterally the idea of private enterprise-led development.
So far the US has been unwilling or unable to show evidence that the private sector shares its official vision of Indo-Pacific development, beyond mentioning a couple of international corporations that might participate in infrastructure ventures. The corporate or institutional structure of the Indo-Pacific Business Forum meanwhile remains vague.
Trump’s response to former US President Barack Obama’s “pivot to Asia” (centred upon the TPP), and to Xi Jinping’s belt and road concept and other initiatives, likewise looks more like a public relations exercise than an example of convincing diplomacy. Only if he can muster Marshall Plan-like funds behind it will the Indo-Pacific initiative be taken seriously.
Anthony Rowley is a veteran journalist specialising in Asian economic and financial affairs