In China, Opportunities Trump Risks
The US should not fear China’s ambitious infrastructure projects. It should jump onboard.
The first freight train shipment from Britain to China began its journey in April following the first freight rail shipment from China to Britain in January. Traveling from one end of the vast Eurasian landmass to the other, this achievement is one of the best symbols yet of China’s ambitious plans to link itself with economic partners across the world.
So far, most observers in the United States have looked warily at China’s regional infrastructure programs, viewing them as a tool for geopolitical leverage. However, the White House and Congress should instead focus on what the US could gain by steering China’s bold initiatives in the right direction. By diplomatically backing China’s flagship One Belt, One Road (OBOR) infrastructure initiative, becoming a member of the China-led Asian Infrastructure Investment Bank (AIIB) and concluding a long-sought bilateral investment treaty, the US has a chance to coax Beijing into deeper integration within a rules-based global economic order and to secure new opportunities for US businesses.
ONE BELT, ONE ROAD
The Chinese government is currently investing in the OBOR program. The initiative aims to greatly expand trade and logistics infrastructure linking Europe and Asia. Although future plans for the OBOR initiative remain fuzzy and face serious risks, Chinese government-backed entities responsible for supporting it have been seeking investment opportunities from Europe to New Zealand. However, the success of OBOR is far from certain.
So far, the impact of OBOR projects has been handicapped by domestic Chinese politics, inefficient and politicized state-owned enterprises, and an emphasis on short-term diplomatic concerns over sustainable economic development. By becoming a vocal diplomatic proponent of the initiative’s economic value to both domestic and international audiences, the US government could encourage Chinese officials to reemphasize the benefits of OBOR.
At the same time, the US could put pressure on other participating countries to uphold fair and transparent legal and economic standards that would allow American businesses to take advantage of investment opportunities related to OBOR. The US could also help other players manage risks facing key targets for investment by offering assistance to less-developed participant countries seeking to improve governance.
ASIAN INFRASTRUCTURE INVESTMENT BANK
The second key step for US policymakers is to apply for membership in the AIIB. American and Japanese officials initially worried that the bank would seek to undermine existing international economic development institutions in favor of narrower Chinese interests. Instead, the nonprofit development bank has worked with preexisting institutions, like the World Bank and the Asian Development Bank, on regional infrastructure development and has brought onboard key US allies like the United Kingdom and South Korea. The head of the AIIB and Chinese government officials have continued to suggest that the institution is open to US membership amid questions about the AIIB’s future economic stability.
By joining the AIIB and leveraging US economic and diplomatic influence, American officials could work with European members and others to push the AIIB to uphold higher standards of transparency and prioritize less controversial development projects over those that appear biased toward Chinese interests. An internal push for greater accountability and focus on market conditions over politics, with US backing, might even boost the profitability and economic impact of the AIIB going forward.
The crown jewel of this approach would be the successful conclusion of a rigorous bilateral investment treaty between the US and China to set investment rules and to adjudicate related business disputes. This would allow Washington and Beijing to solidify the economic and political gain made through US participation in OBOR and the AIIB.
Despite work on such a treaty under the Obama administration, there are still serious concerns about the current degree of fairness, reciprocity and transparency between aggressively state-directed Chinese investment in the United States and the restrictive environment for American businesses operating in China. Fortunately, Chinese leaders themselves remain interested in making a deal and could be persuaded to make greater concessions on governance issues in exchange for benefits to China’s economy.
In addition to making it safer for US businesses to invest in China, a bilateral investment treaty would establish solid shared rules and standards that would improve transparency and accountability for any joint projects between American and Chinese businesses.
US President Donald Trump’s recent summit with Chinese President Xi Jinping turned out to be both calmer and more cordial than expected, which indicates that both administrations may be more open to joint projects than heated campaign rhetoric suggested. A concerted US push for involvement in OBOR, membership in the AIIB and the completion of a strong bilateral investment treaty could help reinforce the rules-based international order and global economic development at the same time.
Rather than stand by and wait for Chinese initiatives to either bolster the country’s geopolitical power or to simply sputter out, the US would be better served by jumping in and helping steer China in an economically viable and mutually beneficial direction.
*[Young Professionals in Foreign Policy is a partner institution of Fair Observer.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
Photo Credit: Nikada