The Chinese Communist Party Congress, which recently concluded in Beijing, gave President Xi Jinping a second five-year term and embraced his ambitious plans to turn the country into a global superpower. While it will take time for China to match U.S. military capability and surpass the United States in the overall size of its economy, the strides it has made in driving international economic development in strategically important parts of the world are at once impressive and alarming. It is impressive because it entails hundreds of billions of dollars invested in critical infrastructure such as roads, railroads, port terminals, and power plants. It is alarming because with that development comes increased economic and political influence, the ability to dominate, if not control, access to economic markets, and hostility towards Western values.
Indeed, Xi makes the argument that China offers a new model for development that does not require a country to imitate Western values. One must assume that means that deals can be “negotiated” behind closed doors rather than through open and transparent bids, and that there is no pressure on host governments to move toward more political or economic freedom for their citizens. As Xi has said, “It offers a new option for other countries and nations who want to speed up their development while preserving their independence.” Yet, the day a host government agrees to let the Chinese build a huge infrastructure project in their country, which the Chinese will finance and the host country will pay over time, is not a day of independence, but rather a day of long-term debt dependence on China.
The centerpiece of the strategy is the “One Belt, One Road” initiative launched by Xi four years ago. It is focused primarily on connecting and integrating the economies of China and its Eurasian neighbors. Since inception, it has expanded to include some 60 countries in Asia and Europe and has been augmented by the economic corridor of China, Bangladesh, India, and Myanmar, and the economic corridor between China and Pakistan The latter consists of infrastructure project commitments totaling $57 billion. Although the United States has struggled to maintain a productive relationship with Pakistan, particularly given their strategic importance as a nuclear power, the breadth and depth of Chinese investment in Pakistan over the last few years cannot help but diminish U.S. influence in that pivotal country.
China also has moved aggressively into Africa. At the present time, China is Africa’s number one trading partner, its number one infrastructure financier, and its number one source of foreign direct investment growth, according to a recent study by McKinsey & Company. There are currently more than 10,000 Chinese firms operating on the continent, over 30 percent of which are in manufacturing, and roughly 90 percent are privately owned Chinese businesses. Some 89 percent of the employees are local Africans. So their Africa strategy is about more than just infrastructure projects, large state owned enterprises, and exporting Chinese workers. It is also about dominating economic markets, often at the expense of U.S. and European firms.
Some may take comfort in the fact that the West has won the battle of political ideologies and that few, if any, nations aspire to adopt a communist system. However, in the global marketplace of today, money talks and economic strength is a critically important soft power tool. If China were merely engaged in a benign effort to expand its own economy, increase trade, and address the enormous need for investment in the developing world, it would represent a challenge to the West, but not necessarily a threat. However, Xi’s description of a “new era” in which he “sees China moving closer to the center stage,” backed up by a “world class” military, sounds more like a threat than a challenge, particularly for those who value freedom and democracy, and work for open, transparent, and competitive markets.
The question is how best to contain and compete with China’s plans for economic expansion. It is not to imitate or replicate its development approach, but rather to dramatically modernize and upgrade our own economic diplomacy and development toolkit, and work much more collaboratively with our allies in Europe and Japan. A new economic development strategy led by the United States should play to our strengths of entrepreneurship, technological innovation, and private capital investment. It should rely more on encouraging and enabling private sector investment than on foreign assistance.
The U.S. government agency with the responsibility for what is called development finance is the Overseas Private Investment Corporation. Although it makes money every year, this agency should be replaced with a new development finance corporation that consolidates various programs spread across different parts of the executive branch. It should have the same tools as its European and Asian counterparts. With the same tools for facilitating private capital investment in high risk developing countries, the United States should lead an initiative to leverage and blend financing with our European and Japanese allies to provide the scale necessary to compete with China.
The United States should also work more closely with the multilateral development banks that share our commitment to private sector driven economic growth and level playing fields for competitive markets. When the United States reduces its support for those institutions, the Chinese are happy to fill the void. This is no time to retreat, or think small. If we want to maintain a level of influence in the world commensurate with our economic and military might, we must engage quickly and smartly.