Trans-Pacific View

The US Needs a Reality Check on China’s Belt and Road

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Trans-Pacific View

The US Needs a Reality Check on China’s Belt and Road

Washington’s confusion about China’s Belt and Road Initiative stands in the way of an effective alternative.

The US Needs a Reality Check on China’s Belt and Road
Credit: Flickr/ Recon Asia

In Washington, heads are spinning trying to apprise China’s global Belt and Road Initiative (BRI). Totaling nearly $500 billion in projects and pledges to date, the BRI seeks to provide much-needed infrastructure financing to underdeveloped countries and rewrite the map of global commerce by linking international markets to Beijing. Washington policy wonks are busy penning op-eds in an attempt to make sense of Beijing’s sweeping ambitions. But until U.S. policymakers come to terms with the nature of the challenge posed by China’s BRI, they will not be able to mount a credible alternative.

Many Western analysts have expressed concerns about the unfair terms of investment and weak governance precedent that BRI projects set for developing countries. If you listen to certain voices, a shadow is spreading across Central Asia, the Indian Ocean, and Southeast Asia, as the tentacles of a limitless, illiberal China are tightening their grip over needy, cash-strapped economies. A recent piece by Richard Fontaine and Dan Kliman warned that if Washington and liberal partners did not soon mount a credible alternative to Chinese infrastructure spending, “Belt and Road-fueled illiberalism will spread across the globe unchecked.”

Yet despite occasional alarmism, most China or global trade policy experts in Washington express skepticism or mild indifference to China’s global infrastructure push. The logic of those who scoff at the Belt and Road usually revolves around four reasons:

1. Pledges don’t always equal projects: Many projects pledged by Beijing never materialize. One frequently cited example is the Bandung-to-Jakarta railway line, a $5.5 billion deal Indonesia signed with China in 2015, which has faltered due to incomplete paperwork, inadequate consideration of land rights, and reports of the China Development Bank withholding funds. Even Malaysia, heretofore one of the largest beneficiaries of BRI investment, is reconsidering an expensive Chinese-backed rail project following the recent election of former Prime Minister Mahathir Mohamad. The total dollar values floated in informal pledges overshadows the actual investment in projects. Therefore, BRI skeptics note, much of the hype surrounding the initiative is a bunch of hot air.

2. BRI is a debt trap to poor countries and therefore ultimately unsustainable: Others point to Sri Lanka as evidence that BRI is unsustainable. They reason that it places an enormous Chinese debt trap on small, cash-strapped countries. Following Sri Lanka’s inability to pay off massive loans for the construction of a $1.5 billion port at Hambantota (which has not spurred commercial use), the government of Colombo worked out an uncomfortable debt-for-equity swap whereby Beijing secured a 99-year lease over the port. Surely, such a debt-reliant investment model cannot be sustainable nor outcompete more responsible financing by other actors.

3. Japan remains the dominant player in infrastructure investment: Still others point out that across Southeast Asia, Japan has long been the biggest and best source of infrastructure spending. So, some insist, we shouldn’t worry too much about China’s new spending. And after all, new and better infrastructure means improved connectivity, which benefits everyone. By linking markets, all economic participants stand to gain. So why not let China pay to build such connectivity?

4. Private sector investment from American companies still outweighs that of Chinese investors: Again, taking Southeast Asia as the primary example, many analysts note that U.S. foreign direct investment (FDI) in the region remains larger than that of China, Japan, and South Korea combined. From this vantage point, why worry about Chinese investment threatening the United States’ lofty position atop regional FDI flows?

How are we to reconcile these competing views of China’s Belt and Road? One camp discounts the threat as overblown, while another raises the specter of hegemonic Chinese influence, urging action to mount a counter challenge.

Though the spread of illiberalism may be overly fearful and ultimately unrealistic, it is nevertheless important policy leaders in Washington not underestimate BRI’s potential to rewrite the map.

“It would be unwise to simply brush off BRI as unsustainable or exaggerated,” Garima Mohan, a research fellow at the Global Public Policy Institute in Berlin, told me. “A number of BRI projects with large Chinese loans have already led to financial instability in several South and Southeast Asian countries.”

Mohan believes that BRI has serious security and political implications as well: “Increasing Chinese military presence along the Maritime Silk Road and the Indian Ocean is another visible trend. The impact of BRI on domestic politics and increase in Chinese political influence along with economic investments can already be seen in most of South Asia and even Europe. These direct and indirect consequences of BRI can have far reaching implications for regional stability.”

A reality check regarding both the challenges and limitations of BRI will benefit the U.S. business community and provide ballast to U.S. government efforts to come up with alternative strategies. If it is to remain competitive, the United States needs to offer a credible alternative to interested countries in need of development financing. Careful reflection also provides an opportunity for a much-needed dialogue about the value of U.S. overseas engagement amidst the populist backlash of America First-ism at home.

Americans need to take BRI seriously for several primary reasons. First, it is in the United States’ economic interest to maintain a competitive advantage in trade and investment across Asia, which is emerging as the center of economic growth for the 21st century. U.S. investment helps American companies and trade, thereby benefiting American consumers and creating further markets for the export of our own goods and services.

Secondly, Washington has important security considerations to take into account. The United States has guaranteed the security for East Asia which has underwritten the conditions for its rapid economic growth over the last seven decades. U.S. military presence and economic ties are intimately connected and mutually reinforcing. U.S. investment in allied countries like South Korea and Japan (as well as the Philippines and Thailand) have buttressed security cooperation and confirmed shared interests, ensuring that countries who prosper under the U.S. security guarantee form strong trade ties with the United States. Competition in the form of BRI could undermine the U.S. security guarantee while tilting the balance of economic power in the region toward China. If Washington wants to maintain economic and military primacy in the Indo-Pacific, it must craft a strategy that continues to work with allies and partners in the region. A more balanced Asia policy, coupling economic engagement with diplomacy and security, would reassure jittery friends and project an image of strength to would-be challengers.

Beyond region-wide security concerns, some analysts have noted the fraught connection between BRI projects and subregional conflicts. In Myanmar, land grabs connected to Chinese infrastructure investment have led to resentment on the part of ethnic minorities and provided fodder to armed insurgencies raging inside the country. U.S. investment and diplomatic engagement could help stabilize conflict zones while strengthening potential trade and security partners.

Finally, the values of transparency and accountability that U.S. business promotes are still important across the globe. Developing nations in need of infrastructure investment have a hard time turning down Chinese money, but many still prefer American companies for their corporate social responsibility and respect for the environment and labor standards. Additionally, they will create jobs for local citizens, whereas many Chinese projects import their own labor with no benefit to the local community.

Any successful counter-initiative begins with confidence in the strength of existing U.S. investment and the model for transparency and accountability that American projects offer. The United States along with Japan represent extremely credible alternative providers to infrastructure lending across Asia, based on the high quality of their past work and the degree of confidence they inspire in recipient partner countries.

Confidence in the American brand should stem from a clear-eyed view of China’s Belt and Road Initiative. Washington should understand what makes BRI funds attractive to cash-strapped developing economies with weak infrastructure and massive needs. But it should also recognize the flaws of the Chinese development model and the inherent advantages that U.S. investors boast. Coupling the private sector’s knowledge and experience with government resources under a comprehensive strategy to “out-bid” China’s BRI can keep the United States competitive and foster a peaceful and prosperous 21st century Indo-Pacific.

Hunter Marston (@hmarston4) is an independent Asia analyst based in Washington, DC. He writes frequently on U.S.-China competition and Southeast Asian politics.