How is the United States Preparing to Compete with China Over Financing the Development of the World?

Photo by Erik Odiin on Unsplash

The United States is moving forward to challenge China’s grip in financing the development of infrastructure around the globe. While the American proposal arrives delayed to a world that is increasingly influenced by China its consequences will shape US-China relations and its engagement with the developing world. Considering that the US is outlying a different approach to address this issue, could it manage to gain momentum in a changing global economic environment?

Last October, the US administration signed into law the Better Utilization of Investment Leading to Development (BUILD) Act, creating the United States International Development Finance Corporation (USIDFC). The new institution is one step forward into a foreign policy shift and a response to the advancement of China’s economic interests around the globe.

During the last five years, China has embarked on the ambitious project of the Belt and Road Initiative. The main interest in this transnational infrastructure effort is to position China at the center of the global economy. Its strength lays in the creation of a series of interconnecting networks that facilitate investment and trade flows between Europe, Africa, and Asia. Considering China’s economy remains highly dependent on exports, in the midst of the Trade War, the country is eager to invest and access new markets.

As the BRI has unfolded all around the globe, it is evident that China is pursuing a major increase in its geopolitical influence. Further, its target will continue to be directing resources towards low and middle-income countries. The USIDFC will act as a new American Development Finance Institution, and according to the law, will be focusing on “creating sustainable pathways of investment”. It will lead to the financing of projects that are aligned with its national goals on foreign policy, creating a new approach to address its economic ties around the world.

The USIDFC will center its attention mainly on transforming undeveloped nations into opportunities for investments. Resources will be directed to financially sustainable projects that incentivize the participation of private capitals and contribute to the development of industries in recipient nations. These could create a new framework to engage in places such as Central America’s Northern Triangle, where social unrest, lack of economic development, and security challenges have persisted over time.

The US pretends to design a compelling alternative; however, the USIDFC initial funding of 60 billion dollars is largely surpassed by China’s promises to achieve a total of 1 trillion dollars in the BRI alone. In addition, China’s upper hand will continue to be its capacity to pull together one concept of one ideal integrated world led by its interests and that now focus on the developing world.

One of the biggest threats facing China’s ambitions is to multilaterally manage and coordinate with unstable governments and fragile states that form part of the BRI. As more countries have incorporated into the initiative, ensuring the social, economic, and environmental viability of its projects will be a struggle for China. One failed project could propose an unavoidable risk to the entire initiative. Moreover, doubts have been raised by the now called debt-trap diplomacy, where highly indebted countries are forced to grant China control of their local resources as they are incapable of repaying their loans.

The US is taking the opposite direction in terms of government and legitimacy. As China promised to support countries without discriminating on the type of government, America claims to support democracies and governments only in accordance with its interests, intending to engage with allies around the world. Traditional allies of the US could have an important role in creating new partnerships, increasing its capacities to address China’s growing influence in their own regions.

China characterizes the concerns about the financial sustainability of its projects as an attack by the US with the purpose of justifying the Trade War. In regards to the American interest of being an investment alternative, China questions American credibility and capacity on engaging in international agreements. Within the tumultuous current administration and the political climate in the US, China claims its interests are a powerful win-win opportunity for economic success.

World Powers and their quest for influencing the globe and promote its national interests, currently, are a main driver of investment. Globalization has entered a new stage, defined by the struggle to establish a model of economic development and progress. This proposes a challenge for the rest of the world, especially to the developing countries, these projects are designed to incorporate.

Economist writing about Latin America