WASHINGTON -- The U.S. is boosting its foreign development funding to counter China's effort to expand its sphere of influence in Asia and Africa through the Belt and Road infrastructure initiative.
The Senate voted Wednesday to create a $60 billion investment fund under a new framework that combines the Overseas Private Investment Corp. and other sister agencies. The bill was already approved by the House of Representatives and now just requires President Donald Trump's signature.
With many developing countries racking up debt with China, Washington is increasingly concerned about the powerful leverage Beijing has gained over those nations. The latest move by the U.S. signals that the confrontation over trade and the military between the world's two largest economies is spreading to infrastructure investment as well.
The administration looks to use public money to attract private-sector investment. The new agency can issue government-guaranteed bonds, providing a source of low-cost financing. Unlike its predecessor, the new U.S. International Development Finance Corp. will also be able to take equity stakes in projects.
The legislation was supported by Trump's Republican Party -- traditionally the party of small government -- thanks to the efforts of China hawks. Trump himself initially sought to eliminate government financing agencies like OPIC. But as he has toughened his stance on Beijing, he has reportedly come to see state-led support as a necessary counterweight to its Belt and Road spending.
The bill's lead sponsor in the House, Republican lawmaker Ted Yoho, blasted China in an interview with Nikkei. "They [China] are exporting authoritarianism and communism," he said, adding that "They are offering their brand of an alternative to democracy."
Yoho sees Beijing's aggresive lending to such countries as Sri Lanka and El Salvador as an attempt to meddle in their internal affairs. The expanded U.S. framework aims to offer an alternative to Chinese financing, he said.
The legislation offers "a better alternative to state-directed investments," Secretary of State Mike Pompeo said in a statement Wednesday, adding that he looks forward to "working with allies and partners" to advance the new agency's goals.
China uses public lenders as well as state-owned enterprises to fund Belt and Road projects, with spending expected to top $1 trillion by some estimates. A senior U.S. official acknowledged that competing with Beijing on the quantity and terms of financing is difficult, but asserted that international pressure must be placed on China to follow the economic rules established by America and Europe.
The Trump administration worries that Beijing is using its massive investments to pull developing countries into its sphere of influence. China's loans to the Republic of Congo swelled 10-fold in five years, according to a source in international finance, to a sum that many observers say will be difficult to repay. A senior U.S. official expressed concern that Beijing could lend even more to the African country to strengthen its leverage.
When countries default on debt, the typical response is to discuss steps such as debt restructuring within the framework of the Paris Club, an informal group of mainly developed creditor nations. But China is not a full member, making it difficult to apply the group's rules. In the case of Congo, some see Beijing looking to get a jump on the Paris Club by launching its own negotiations first with an eye toward limiting its own losses.
The possibility of countries such as crisis-stricken Pakistan failing to repay loans to China and seeking support from the International Monetary Fund is another concern for the U.S. As the largest contributor to the organization, Washington does not want to see its funds going to bail out Chinese lenders.
The U.S. is putting pressure on China to play by the West's rules, but their clash over the global economic order is unlikely to be resolved quickly. The tug of war over infrastructure looks set to drag on as well.