July 8, 2022 | Policy Brief

Strict Oversight Needed for New U.S-Backed Counter-China Infrastructure Initiative

July 8, 2022 | Policy Brief

Strict Oversight Needed for New U.S-Backed Counter-China Infrastructure Initiative

The United States, in partnership with other Group of 7 (G7) nations, launched an initiative last week aimed at raising $600 billion to fund infrastructure projects in low- and middle-income countries over the next five years. While President Joe Biden hailed the program as an alternative to China’s Belt and Road Initiative (BRI), the White House has released scant details about how Washington will fund or monitor the projects, raising important questions for Congress as it seeks to counter China’s overseas influence responsibly.

Since 2013, China has signed more than 170 BRI cooperation agreements with 125 countries, committing nearly $800 billion in loans for emerging countries to build infrastructure such as ports, roads, and bridges. Western governments have called BRI a “debt trap” because some projects force debt-saddled countries to cede key assets if they fail to meet debt repayment obligations. A 2018 study by the College of William and Mary found that unreported Chinese loans to overseas borrowers, mostly developing countries, amounted to nearly 15 percent of these countries’ gross domestic product on average.

While outbound Chinese development loans have dropped considerably, from $75 billion in 2016 to $4 billion in 2020, many BRI recipients are facing challenges repaying their loans. In response, China has offered $12 billion of debt-service postponements and restructuring to BRI recipients since the start of the pandemic. Nevertheless, Beijing has resisted calls to forgive BRI-related debts, because doing so would devastate the balance sheets of China’s state-owned banks at a time when the country’s economy is facing considerable headwinds.

In announcing Washington’s participation in the G7 initiative, formally known as the Partnership for Global Infrastructure and Investment (PGII), Biden pledged to mobilize $200 billion in American financing. This financing will reportedly consist of a combination of government funding and private capital from pension funds, private equity funds, and insurance funds, among others.

Unlike the BRI, which focuses on physical infrastructure financing, PGII will exclusively support projects that “advance climate and energy security, digital connectivity, health and health security, and gender equality and equity priorities,” according to a memorandum issued by Biden. National Security Advisor Jake Sullivan will lead a six-month interagency process to craft PGII’s implementation, after which he will deliver recommendations to the president.

A coordinated, U.S.-led effort to undermine BRI’s predatory model has been a long time coming. However, many questions remain about PGII’s scope as well as the fiduciary risks stemming from providing already debt-laden countries with access to even more infrastructure financing.

For instance, Biden noted that the PGII “isn’t aid or charity” but rather an “investment that will deliver returns for everyone, including the American people.” If PGII funds are not grants but rather loans, it remains unclear whether and how U.S. taxpayers could recoup losses if some recipient countries prove unable to pay the loans back. The White House has also not explained how it will prioritize PGII projects or if it will distribute funds to countries deemed neither free nor fair.

Likewise, still uncertain is whether the White House intends to redirect funding from existing development programming, including security assistance or training programs, to projects that fall under the PGII’s umbrella. Also unclear is how the United States intends to evaluate and manage the risks associated with PGII investments in countries with high levels of corruption or political instability.

The PGII’s sheer size necessitates close congressional scrutiny as well as the appointment of an independent inspector general to conduct audits and inspections of PGII activities. This new entity could be modeled on the Special Inspector General for Afghanistan Reconstruction, which documented rampant waste, fraud, and abuse of the $146 billion appropriated by Congress to support reconstruction efforts in Afghanistan.

Congress should push for the establishment of an appropriate monitoring mechanism at the PGII’s inception. Lawmakers should also wield their appropriations authorities to ensure PGII financing aligns squarely with America’s long-term national security interests vis-à-vis China rather than the domestic policy priorities of any one administration.

Craig Singleton, a national security expert and former U.S. diplomat, is a senior fellow at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s China Program and International Organizations Program. For more analysis from Craig, the China Program, and the International Organizations Program, please subscribe HERE. Follow Craig on Twitter @CraigMSingleton. Follow FDD on Twitter @FDD. FDD is a Washington, DC-based, nonpartisan research institute focused on national security and foreign policy.


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