US competes with China’s ‘Belt and Road Initiative’ with US$113 million Asian investment programme

The US government is expanding its infrastructure drive in the Asia-Pacific region using new investment programmes amid rising anxiety in Washington about China’s aggressive overseas development policies.

Announced by Secretary of State Mike Pompeo on Monday, the initiative follows concerns about the Trump administration’s commitment to engaging with countries in the Indo-Pacific region. Pompeo will visit Southeast Asia from Wednesday to Sunday, when he is expected to announce funding plans for the region.

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Pompeo’s “Indo-Pacific Economic Vision” will increase the financial support that the US government provides to countries in the region through a proposed merged agency, the US International Development Finance Corporation (USIDFC).

Along with US$113 million in direct government investment, the plan would double the global spending cap for the development finance corporation to US$60 billion, which could be used to provide private companies with loans for projects overseas.

The move comes in response to China’s ambitious “Belt and Road Initiative” – a group of multibillion-dollar transport and power projects that Beijing has used to assert its influence in Asia and beyond – and is likely to fuel suspicions from Beijing.

That and could in turn worsen relations that are already fraught with trade tensions, even though senior officials have not said – and probably will not say – the new initiative intentionally targets China.

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Announcing the plan at the Indo-Pacific Business Forum in Washington on Monday, Pompeo said greater investment would become a pillar of US President Donald Trump’s Indo-Pacific strategy. The new initiative will be bolstered by a trilateral investment agreement among the US, Japan and Australia that was introduced at Monday's event.

“We all want all nations, every nation, to be able to protect their sovereignty from coercion by other countries. We want the peaceful resolution of territorial and maritime disputes,” Pompeo said.

“Our engagement excludes no nation,” he said, without mentioning China.

“Where America goes, we seek partnership, not domination. We believe in strategic partnerships, not strategic dependency. The American people and the whole world have a stake in the Indo-Pacific’s peace and prosperity, and that’s why it must be free and open,” he said.

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Pompeo said the US would invest US$113 million in new technology, energy and infrastructure initiatives in emerging Asia.

It would also spend US$25 million to expand US technology exports to the region, add nearly US$50 million this year to help countries produce and store their energy resources and create a new support network to boost infrastructure development.

The US has also signed a US$350 million investment deal with Mongolia to develop new sources of water and was setting an agreement with the Millennium Challenge Corp, a development agency of the US government, to invest hundreds of millions of dollars in transport and other projects in Sri Lanka, Pompeo said.

He left the event, which was organised and hosted by the US Chamber of Commerce, without taking questions from the media.

Brian Hook, a senior policy adviser to Pompeo, said Indo-Pacific was the most consequential region of the globe.

“We want to create local wealth, we want to create local economic growth and then we do that by bringing private sector money off the sidelines and into markets,” he said.

“We want nations in the region to defend their sovereignty. We think, we know that America’s model of economic engagement is the healthiest for nations in the region. It is high quality, it is transparent and it is financially sustainable.”

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Eswar Prasad, a Cornell University trade professor and former head of the IMF’s China division, called the US initiatives small compared with the billions of US dollars in investments that China is pouring into the region.

But US Secretary of Commerce Wilbur Ross said the new initiative’s focus on seeking private investment for energy and infrastructure sectors in the Asia-Pacific region would help cut trade deficits.

Under the plan, for example, the US, one of the world’s biggest oil and liquid natural gas exporters, could help the Indo-Pacific region overcome its lack of hydrocarbon resources, Ross said.

Noting that the belt and road had been criticised for its lack of use of local labour and materials, Ross invoked US Defence Secretary James Mattis’s comment last year, saying: “There’s more than one belt and more than one road. There are many belts and many roads to the Indo-Pacific.”

The announcement comes as the world’s two biggest economies are locked in both a multi-domain geopolitical struggle for regional dominance and their worst trade confrontation in decades.

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Bonnie Glaser, director of the China Power Project at the Centre for Strategic and International Studies, called Pompeo’s initiative a positive vision that could reassert America’s influence in the region and ease mounting scepticism about America’s ability to sustain regional commitments beyond military ones.

“I don’t think it should be seen as anti-China or anti-BRI [belt and road] strategy,” she said. “We cannot compete with China in terms of the amount of money.”

But, she said, in terms of quality of investment, loans based on each country’s need, high-skilled labour and the protection of the environment, the United States “can do things differently alongside China”.

Polls in the region have shown that America’s reputation has deteriorated immensely since Trump withdrew the US from the Trans-Pacific Partnership (TPP) free-trade deal, with a growing number of Asian nations questioning Washington’s dependability.

Ross, seeking to allay those concerns, commented that “withdrawal from the TPP is not withdrawal from the region”.

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Despite the broad tone of Pompeo’s remarks, some analysts saw the new programme as an aggressive tactic aimed squarely at China, coming in the midst of the trade war that has seen each side impose a barrage of multibillion-dollar tariffs.

“The new economic vision is obviously targeting China and the ‘Belt and Road Initiative’, and will further complicate US-China relations,” said Pang Zhongying, a Beijing-based international affairs analyst.

“The introduction of the economic pillar of the Indo-Pacific Strategy comes at a delicate time when Beijing’s overall relations with the Trump administration have seen rapid deterioration,” he said.

US investment in the new programme will be aided in part by an agency currently known as the Overseas Private Investment Corporation (OPIC), which is to be merged with a wing of the US Agency for International Development to create USIDFC.

“Economics is a stronger pillar than it ever has been” thanks to the US national security strategy the White House rolled out in December, said David Bohigian, executive vice-president of OPIC.

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OPIC, which offers financing and political risk insurance to US companies investing in development projects abroad, was earmarked for termination last year amid government streamlining.

Yet it has since found new life as Washington seeks to deepen strategic investment abroad in the face of China’s expanding state-funded ventures on a number of continents.

“There's a realisation throughout Washington that development, defence and diplomacy need to work hand in hand,” Bohigian said.

The new economic vision, he said, could become “the successor to the Marshall Plan of 70 years ago”, referring to the US-led economic initiative to rebuild western Europe after the second world war.

Not so long ago, however, on the tails of Trump’s ascent to the White House, outward-facing government agencies like OPIC found themselves at odds with the “America first” philosophy of his campaign.

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After the release of the 2018 fiscal budget, which requested the elimination of OPIC, the agency was told to cease all further ventures and wind down its outstanding portfolio.

But under Pompeo’s plan, the agency’s fortunes could be changing. With a board of directors featuring cabinet members with significant lobbying clout – including deputy secretary of state John Sullivan, an outspoken China critic – OPIC looks set to secure its own survival, albeit under the guise of USIDFC.

Having passed the US House of Representatives on July 17 but pending Senate approval, the “Better Utilisation of Investments Leading to Development Act of 2018” – or BUILD Act – will initiate a merger between OPIC and the development credit authority of USAID.

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As well as a doubled spending cap, USIDFC will enjoy new equity authority that will allow it to diversify beyond OPIC's current debt-only services, such as allowing it to take equity stakes in development projects.

A OPIC spokeswoman said the head of the new body would be chosen “at the pleasure of the president”.

Despite the new name, and possibly new management, Bohigian said he still viewed the development as a success, given the alternative, and as a testament to the value of development financing in the bigger picture of protecting US interests abroad.

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Support for OPIC’s renewed strength came from the “increasing realisation of what a potent soft-power tool that development finance is”, he said.

“Advancing foreign policy goals and development outcomes animates people on both the left and right,” said Bohigian, particularly as concern grows in Washington that China is bolstering its global connections through international infrastructure and financing projects in developing countries.

“Whether [an OPIC partner is] visiting an eye hospital in Cameroon or building heavy infrastructure throughout the Asia-Pacific, [we want] to make sure there are alternatives to the Chinese model,” he said.

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Speaking out against what the US House called China’s “predatory development finance models”, Representative Ed Royce, a California Republican, called attention to Beijing’s recent acquisition of a major port in Sri Lanka after the country could not repay China’s loans that had funded its construction.

This loan-to-own model of financing, said Royce, had “[granted] Beijing a foothold in the Indian Ocean and its critical shipping lanes”.

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Critics outside the US, too, have voiced concern about China’s financing strategy.

During an April visit to Hong Kong, International Monetary Fund Managing Director Christine Lagarde issued a rare warning about a “problematic” increase in potential debt risks for countries involved in joint projects with China, cautioning that Chinese financing should not be considered “a free lunch”.

Despite Washington’s latest effort to provide economic assurances to its regional allies, the Trump administration has a lot to do to convince the world of the benefits of its Indo-Pacific strategy.

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Gal Luft, a co-director of the Institute for the Analysis of Global Security in Washington, said the Indo-Pacific economic vision could claim resemblance to the Marshall Plan only if it is backed up by substantial resources.

“Otherwise it’s no more than a bumper sticker,” he said, citing lingering concerns among American allies about a lack of predictability and coherence in Trump’s White House.

In a Senate hearing on July 24, former government advisers Ely Ratner and Dan Blumenthal issued a blunt criticism of Chinese President Xi Jinping’s economic and trade initiatives, and called on the Trump administration to roll out a “comprehensive, competitive” China policy rather than be purely confrontational.

Ratner, vice-president and director of studies at the Centre for a New American Security, a Washington-based think tank, noted that – thanks to the fear of economic punishments from Beijing – countries and companies are increasingly wary of standing up to Chinese illiberalism and revisionism.

“Economic coercion has become a fundamental part of Chinese economic statecraft and has had a chilling demonstration effect on the world,” he said.

Blumenthal, director of Asian Studies at the Washington-based American Enterprise Institute, said the US must “consider a more proactive trade agenda that targets the countries that will become increasingly important to the US in the future – Vietnam, Indonesia and the Philippines – as well as programmes to help strengthen the rule of law in these countries so that they are not as susceptible to outright Chinese bribery”.

Beijing was apparently not deterred by such criticism, which was often portrayed by Chinese state media as attempts to demonise the country and “half-cooked” bias to tie China’s hands.

During a visit to the Middle East and Africa in the past week, Xi vowed to seek closer alignment with emerging economies globally and further invest in the “Belt and Road Initiative”, which covers more than 80 countries and international bodies.

Additional reporting by Robert Delaney