US International Development Finance Corporation targets Asia as Washington seeks to offer alternative to Chinese cash

Kinling Lo

A new US aid agency has started operating in Asia in the hope of offering an “alternative source” of funding to China’s increasing infrastructure investment in the world’s most populous region.

The US$60 billion United States International Development Finance Corporation (DFC) had its funding officially approved by Congress at the end of December.

It has already started reaching out to allies and partner countries in the Asia-Pacific.

“Right away, we wanted to come to the Indo-Pacific, and that’s because the region is critically important to the United States and critically important from an investment perspective,” Adam Boehler, the group’s chief executive, said on Wednesday as he started a tour of Japan, Vietnam and Indonesia to meet government leaders and potential investment partners.

“We have had repeated requests and it is the most common thread in every meeting where people say, ‘Hey, I may have taken capital, whether it’s from China or from others, and there may be certain risks associated with it, but we didn’t have an alternative here.’ And so there is no question that the DFC is meant to be a strong investment alternative for nations,” Boehler said.

A digital Silk Road inspired by China’s Belt and Road Initiative

The newly established agency is the latest attempt by the US to deepen its foothold in Asia – where it is the dominant military power, but is struggling to match China’s economic leverage, through investments made as part of the Belt and Road Initiative.

Under the initiative, which started in 2013, Beijing has offered to spent more than US$1 trillion on infrastructure projects around the world.

Beijing also played a key role in the foundation of the US$100 billion Asian Infrastructure Investment Bank (AIIB) in 2015 and the BRICS-led New Development Bank in 2014.

Chinese state banks such as the Export-Import Bank of China have also helped source capital and loans from Asia to Africa.

US President Donald Trump’s “America first” agenda and attempts to cut foreign aid have also helped drive traditional US allies such as the Philippines and Indonesia closer to China in recent years.

But after Trump started the trade war with China, the two countries’ rivalry has moved into other spheres such as culture and geopolitics, prompting a renewed US focus on its international relations.

The creation of the DFC follows a bipartisan initiative, the Better Utilisation of Investment Leading to Development (BUILD) Act that was passed by the House in October last year and later signed into law.

China slimming down Belt and Road Initiative as new project value plunges

The formation of the DFC, now the biggest development agency, required the merger of the Overseas Private Investment Corporation and one branch of the US Agency for International Development’s Development Credit Authority.

It is designed to provide equity investment, insurance and financing via loans to private companies.

Boehler said the DFC was part of Trump’s “Indo-Pacific” strategy, which aims to cast the United States as a trustworthy partner in the region. He also said the DFC was open to working with partners such as Japan, South Korea, and Britain.

Adam Boehler is chief executive of the newly formed International Development Finance Corporation. Photo: Handout

Critics of Beijing’s Belt and Road Initiative have said it is more about spreading Chinese influence and creating a “debt trap” for lower income countries to align them with Beijing’s geopolitical position. Beijing insists it is simply a development project that any country is welcome to join and that funding comes with no strings attached”

The rivalry between the world’s two biggest economic powers means that Asian countries are also under increasing pressure to consider political factors as well as economic ones when choosing partners for development projects.

However, some analysts questioned how much impact the DFC would have on the geopolitical map of Asia.

Charles Kenny, the director of technology and development at the Washington-based think tank Centre for Global Development, said DFC support was a drop in the ocean compared to the huge need Asia has in infrastructure building.

In 2017, the Asian Development Bank suggested that Asia would need US$1,700 billion each year in infrastructure investment for the next decade.

“My guess is that most countries will say ‘yes please’ to support under the belt and road and ‘yes please’ to AIIB investments as well as ‘yes, please’ to support from the DFC. If anything, the three initiatives will be seen by recipient countries as complementary rather than competing,” Kenny said.

EU and Japan play ‘guardians of universal values’ in effort to challenge China’s Belt and Road Initiative

Malcolm Cook, a senior fellow at Singapore’s ISEAS-Yusof Ishak Institute, shared Kenny’s view that Asian countries would welcome the DFC as an alternative source of funding for projects, especially when the Belt and Road Initiative may not be attractive or suitable for certain projects.

But he argued there were limits on far it could expand US influence, saying: “As the DFC has a global mandate, I doubt it will have a significant geopolitical effect in Asia.”

Wang Yiwei, the director of the Institute of International Affairs at Renmin University, said China should welcome DFC funding for development in Asia, but warned uncertainty lay ahead if countries chose to work with the US.

“The US may have enjoyed good reputation of being a reliable partner in economic deals, but I doubt how sustainable this policy can be when we do not even know if Trump can win a second term as president, and even if he does, what comes after that,” Wang said.

For Asian countries that have been active belt and road participants, the DFC may be too little too late.

Sam Seun, a foreign policy researcher at the Royal Academy of Cambodia, highlighted the example of Cambodia, which has received billions of dollars from China in loans and funding, but only attracted foreign attention after agreeing to a major port project with Beijing.

“The US abandoned Cambodia and ignored the geopolitics of Cambodia for many decades,” Seun said.

But he said belt and road funding as a “mixed blessing” for the country, as it brought both domestic and diplomatic problems.

“As Cambodia enthusiastically supports China’s belt and road and continues to receive China’s ‘no strings attached’ aid and loans, its foreign policy will be undermined and formulated in favour of China’s broader interests and influence,” Seun said.

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