China is the world’s biggest investor in other countries, financing infrastructure construction such as roads, railways, energy supplies and communications. Through these efforts, China is expanding its influence globally and posing serious challenges to the economic, political, and security interests of the United States.
Today’s WatchBlog post looks at recent reporting on Chinese investment and what it means for the United States.
Chinese investment helps now, hurts later
Through the Belt and Road Initiative, China invested $679 billion in infrastructure projects in approximately 150 countries from 2013 to 2022. These investments not only help developing countries meet critical immediate infrastructure needs, but also have the potential to have meaningful economic impacts.
However, these projects can contribute to unsustainable debt, labor problems, and environmental degradation.
Countries that have signed agreements with China to participate in the Belt and Road Initiative (by year of entry)
Unsustainable debt. China is the world’s largest debt collector, with outstanding debt owed by borrowers ranging from $1.1 trillion to $1.5 trillion. However, countries receiving Chinese investment may end up with unsustainable debt and be forced to support China’s global goals. The leaders we spoke to said the agreements their countries have with China are often opaque. Officials were surprised by the high interest rates and did not know exactly how much their country was owed. This lack of transparency can lead to corruption. For example, agreements often exclude public reporting of principal and interest amounts and limit civil society oversight.
Labor issues caused by Chinese transportation projects: China also helps connect countries through the development of roads and railways. For example, China financed the Nairobi-Mombasa Standard Gauge Railway. This is Kenya’s largest infrastructure project since it gained independence from Britain in 1963.
Transport projects can be transformative, but Chinese-funded projects often do not create jobs for local workers or share infrastructure development knowledge with the countries receiving funding. Officials in some countries said these projects provide limited employment and training opportunities for local workers. For example, in Indonesia, the high-speed rail link between Jakarta and Bandung relies heavily on Chinese labor, so much so that construction was halted after Chinese workers returned home during the coronavirus outbreak.
Environmental impact of China’s energy investments: China is the world’s largest investor in energy, financing 226 power plants in 64 countries between 2013 and 2022. For example, Chinese investments in Angola have increased energy production in Angola. This growth may eventually allow Angola to export surplus energy to southern Africa.
While China has helped some countries transition to renewable energy such as solar and wind, it is also the world’s biggest source of financing for coal-fired power plants. Other international donors are also cutting support for energy sources such as coal and hydropower, which have negative environmental and social impacts.
Preventing competition in telecommunications: Many developing countries are in dire need of telecommunications infrastructure. Chinese investments have enabled the rapid construction of networks, giving China a long-term foothold in other countries. For example, telecommunications projects in China use Chinese technical standards that are incompatible with those of other countries, including the United States. Control of this telecommunications network would potentially allow China to use the network to gather intelligence and influence countries to take actions in its favor. China.
China continues to invest in the world’s infrastructure and take steps to address some of the more egregious environmental and labor-related problems, while also exerting influence, extracting resources and military power. and expanding the network of debtor countries over which it can mobilize military power. market forces.
China’s investment by type through the Belt and Road Initiative, 2013-2021
What can the United States do to counter China’s growing global influence?
The United States spent $76 billion and China $679 billion on similar global infrastructure projects in transportation, energy, communications, industry, water supply and sanitation, mining, and construction. The US cannot spend more than China. But according to GAO’s Naglaa El Hodiri, that’s not necessary. Listen to our interview with Nagla’a in the podcast below.
We met with experts and stakeholders on this issue who provided suggestions on what the United States could do to strengthen its approach to investment.
Take some more risks. The United States follows different criteria for selecting international infrastructure projects while avoiding risky investments. Experts said the United States could tolerate more risk and shorten the investment approval process while protecting its own interests.
Put your boots on the ground all over the world. Increasing the federal government’s presence on the ground overseas could help the United States learn more about potential projects. It also allows agencies to respond more quickly to these opportunities and build relationships with host country leaders.
Coordinate across agencies and adopt shared plans. Most of the United States’ international investment activities are divided among six federal agencies. National strategies help government agencies collaborate by clearly defining project roles, investment objectives, and criteria. Additionally, part of the appeal of China’s Belt and Road Initiative is the convenience and flexibility the program provides. The average project funded through this initiative takes approximately three years to complete. Similar projects funded by the World Bank and other regional development banks took five to 10 years to complete. Sharing plans will also accelerate America’s efforts to establish itself as a global infrastructure player.
GAO’s fact-based, bipartisan information helps Congress and federal agencies improve government. WatchBlog allows us to contextualize GAO’s efforts a little more for the public. See more posts at GAO.gov/blog.
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