The framework for the Biden administration's long-awaited China policy announced by Secretary of State Antony Blinken last month can be summed as follows: "Invest, align, compete."
Blinken's speech at George Washington University on May 26, coming on the heels of the Indo Pacific Economic Framework (IPEF) announcement, was a major step forward past the purely confrontational posture adopted by the previous administration that has dominated ties with Beijing ever since.
The Biden administration recognizes that China is not Russia. And that while China is a great power rival that must be carefully managed, there are massive risks to confrontation and significant advantages to all parties if Beijing can be brought more fully into the international order.
If the administration wants to make rapid progress toward a better China engagement, then infrastructure is the right place to start.
Secretary Blinken cited research and development investment as a domain where China has overtaken the U.S. It is the same with infrastructure -- another field where the U.S. has lost its edge.
China now invests 8% of its gross domestic product in infrastructure compared to 1% in the U.S. Not only does Beijing use infrastructure to advance its international standing through the Belt and Road Initiative (BRI) and other programs, but it has capacity to spare.
Despite the scope of the Biden administration's $1.2 trillion Infrastructure Investment and Jobs Act (IIJA), the U.S. is scrambling to catch up.
Combining cooperation with China on infrastructure with competition, what I am calling "coopetition," would help redress that imbalance, meet both nations' pressing needs and support all three pillars of the Biden administration's China policy.
With regard to the first pillar, invest, Secretary Blinken spoke of U.S. investment in our own capabilities to put us on a firmer competitive footing. The IIJA is Exhibit A in this regard, thanks to the Biden administration's bipartisan effort. But it does not come close to covering America's full infrastructure needs.
While the IIJA provides $1.2 trillion in infrastructure funding over an eight-year period, the American Society of Civil Engineers in 2021 estimated that U.S. infrastructure funding over a 10-year period will fall $2.6 trillion short of the level needed just to keep existing infrastructure in adequate repair, that is, without starting any new projects.
Private investment will be needed to make up the gap. An infrastructure bank is the right investment mechanism.
It would serve to galvanize private investment and put funding on a long-term basis, driving sustainable economic growth. It would operate independently of the political cycle that currently drives short-term thinking. It would benefit private investors as well as public investors such as state pension funds by serving as a project clearinghouse, selecting the most promising projects. And it would serve as a source of project management expertise to state and local governments, which often lack such resources.
Concerning the second pillar, align, engagement with U.S. allies and multilateral institutions on infrastructure could restore U.S. international influence and set boundaries on China's. To compete with BRI, the U.S. and Europe should inject capital into existing multilateral institutions such as the World Bank and the regional development banks.
We can also work with China's BRI to integrate it more fully into the international rules-based system. That should include closer cooperation between China and multilateral institutions that have undertaken such development projects for decades and have established recognized standards for responsible investment.
Better-funded development finance institutions, including national ones such as the U.S. International Development Finance Corporation, can provide such a platform.
In addition, the U.S. and Japan should join the Asian Infrastructure Investment Bank. It was a mistake for the U.S. to boycott this organization. U.S. and Japanese involvement would help ensure that the AIIB and the Chinese companies it supports are integrated into the rules-based global system.
The headquarters of Asian Infrastructure Investment Bank in Beijing: The U.S. and Japan should join the AIIB. © Imaginechina/AP
Finally, when it comes to the third pillar, compete, modernizing our infrastructure makes us more competitive with China. But there is room for cooperation as well.
China has more infrastructure capacity than it can use at home. And it has investment capital to spare. We need capital for infrastructure, and we need a basis for constructive engagement with Beijing. Inviting China to invest in our domestic infrastructure build-out is a logical solution.
Such an investment must be carefully managed in the context of comprehensive agreements that would address a wider range of U.S. and international objectives. China should not be given carte blanche. The opportunity to invest would be a point of leverage. Terms and conditions must be imposed, both on investment specifics and in support of U.S. policy goals.
But there are several potential advantages to this and to the entire program: A cooperative effort to meet Eurasia's pressing infrastructure needs, the potential that cooperation will raise China's standards and practices, including lending practices for international projects, and the prospect that Chinese companies that raise their standards in order to participate will carry those best practices back into China, with global benefits.
Make no mistake, "coopetition" with China is not a panacea and should not be approached naively. But Secretary Blinken's speech signals that will not be the case. "Invest, align, compete" is a platform for avoiding a Russia-style confrontation with Beijing.
Constructive engagement is the answer. Infrastructure is the place to start.
Source: This opinion article was written for the Nikkei Asia by Adek Wahba a member of the Council on Foreign Relations and the Wilson Center's global advisory council. He is chairman of private equity group I Squared Capital. .jpg)
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