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U.S. soft power agency CEO: China’s New Silk Road is 'the WeWork of development finance'

Aarthi Swaminathan
·Reporter
·6 min read

Amid reports that China is slowing down its investments in a trillion-dollar project called the Belt and Road Initiative (BRI), one U.S. aid agency says it’s still going full steam ahead.

The BRI, or the New Silk Road, is a colossal undertaking by the Chinese government, announced in 2013, to build networks — infrastructure, maritime, digital, and more — across the world.

(Source: CSIS, Graphic: David Foster)
(Source: CSIS, Graphic: David Foster)

The fact that China is scaling back on its investments abroad “doesn’t surprise me,” Adam Boehler, CEO of the U.S. International Development Finance Corporation (DFC), which was created to counter that influence, told Yahoo Finance. “I think of it almost like they’re the WeWork of development finance — you cannot extend a trillion dollars of credit with no sustainable deals.”

Boehler’s reference to WeWork — a troubled co-working startup that was downgraded by Fitch Ratings — refers to the fact that the company had accumulated huge losses as it tried to expand aggressively, which ultimately led to a failed public offering.

Under Boehler’s leadership during DFC’s first year in operation, the agency has mobilized $8 billion in private investments in projects across the world.

“I always feel like we have to be vigilant, but I’m always cautiously optimistic about our position,” Boehler said about taking on the BRI. “Every single time we meet a head of a state in an emerging country, they say: ‘I did not want to take money from China, I had no alternative.’”

(200808) -- VIENTIANE, Aug. 8, 2020 (Xinhua) -- Xu Zhou inspects the construction site of the China-Laos Railway project in the northern outskirts of Vientiane, capital of Laos, Aug. 8, 2020.   The China-Laos Railway is a strategic docking project between the China-proposed Belt and Road Initiative and Laos' strategy to convert the landlocked country into a land-linked hub.     Chinese engineer Xu Zhou, who was awarded the May Fourth Medal, a national top honor for young Chinese, is leading his group from the China Railway No. 2 Engineering Group (CREC-2) to perform the task in the suburbs of Vientiane.    "Our pressure mainly comes from two aspects: in this time of pandemic, we must attach great importance to virus prevention, which allows for no sloppiness; meanwhile our supply of materials and equipment is affected by the pandemic, but the online railing job cannot be put off by our offline engineering," he told Xinhua.     Xu can now breathe a sigh of relief as his team "has not only ensured the staff's health and well-being, but also laid the timely foundation for the start of the China-Laos Railway on March 27."      "With the joint efforts of the Chinese and Lao engineers, we will be able to realize the dream of opening the China-Laos railway as soon as possible," said Xu. (Photo by Pan Longzhu/Xinhua) (Xinhua/Pan Longzhu via Getty Images)
Xu Zhou inspects the construction site of the China-Laos Railway project in the northern outskirts of Vientiane, capital of Laos, Aug. 8, 2020. (Xinhua/Pan Longzhu via Getty Images)

New Silk Road

The BRI is both an economic policy tool and a foreign policy tool, connecting various countries from China to the Middle East to Europe in addition to building infrastructure in sub-Saharan Africa and Latin America.

BRI investments — through Chinese state-owned banks — had been steadily climbing before reaching a peak in 2017, according to data compiled by researchers at Boston University. Most projects involved construction and infrastructure such as airports, ports, and power generation plants.

Data from two of the banks that finance the BRI — China Development Bank and the Export-Import Bank of China — suggested a sharp drop in lending from $75 billion in 2016 to $4 billion in 2019.

(Boston University)
(Boston University)

While “I suspect activity will pick up again post-pandemic, … I don’t expect a return to the peak years of 2016 and 2017,” Jonathan Hillman, author of “The Emperor’s New Road” and senior fellow at D.C.-based think tank CSIS, told Yahoo Finance.

“Participating countries have less room to borrow,” Hillman added, “and Chinese officials have been learning the hard way what happens when projects without solid commercial fundamentals get the green light.”

In Pakistan, one of the countries which have borrowed heavily from China, reports have surfaced of Pakistani militant groups attacking Chinese engineers and security checkpoints connected to BRI projects. These groups believe that the BRI projects — such as the $60 million China-Pakistan Economic Corridor (CPEC) — unfairly exploit the region’s vast mineral wealth.

China-Pakistan Economic Corridor. (Reuters)
The China-Pakistan Economic Corridor. (Reuters)

Pakistan moved to give its military more control of the Chinese projects in an effort to appease tensions. And according to one report by the Asia Times, China even “principally agreed to allow Pakistan” to form joint ventures with non-Chinese investors to make progress on CPEC.

Renegotiations between China and multiple debtor countries — from Pakistan to Zambia — are currently underway. A report by research and consulting firm Rhodium Group group estimated as many as 1 in 4 dollars lent to countries by China has come under renegotiation.

At the same time, private Chinese companies that participate in the Digital Silk Road are increasingly being scrutinized: A recent report by Foreign Policy detailed how U.S. intelligence operatives saw private Chinese companies as extensions of the Beijing government.

And overall, in countries across the world, according to Pew Research, views of China have turned negative. The share of adults with an unfavorable opinion of China rose the most in Australia, by 24 percentage points. (In December, the Australian parliament voted to give government the ability to stop new and previously signed agreements with foreign countries, which could include a BRI project.)

BEIJING, June 8, 2020 -- A China-Europe freight train bound for Madrid of Spain, which carries two containers of medical supplies as well as other goods, departs the city of Yiwu, east China's Zhejiang Province, March 21, 2020. Initiated in 2011, the China-Europe rail transport service is considered a significant part of the Belt and Road Initiative to boost trade between China and countries participating in the program.   Amid the coronavirus pandemic, the service remained a reliable transportation channel as air, sea and road transportation have been severely affected.  The freight trains have also been playing a crucial role in helping with the fight against the pandemic in Europe, sending massive quantities of medical supplies such as face masks and goggles. (Photo by Gong Xianming/Xinhua via Getty) (Xinhua/Gong Xianming via Getty Images)
A China-Europe freight train bound for Madrid of Spain, which carries two containers of medical supplies as well as other goods, departs the city of Yiwu, east China's Zhejiang Province, March 21, 2020. (Xinhua/Gong Xianming via Getty Images)

DFC an ‘important part of the U.S. economic toolkit’

Amid all these geopolitical moves, the DFC, which was created as a strategic tool for the U.S. to deploy internationally, has ramped up investment since it became operational at the end of 2019.

The agency, which combines the Overseas Private Investment Corporation (OPIC) and USAID’s Development Credit Authority (DCA), was created with bipartisan support. It essentially helps private businesses expand into overseas markets by extending financial assistance.

The DFC is undoubtedly a “strategic tool of the U.S. government,” Boehler noted.

U.S. President Donald Trump listens as Adam Boehler, the CEO of the U.S. International Development Finance Corporation, addresses the daily coronavirus task force briefing in the Rose Garden at the White House in Washington, U.S., April 14, 2020. REUTERS/Leah Millis
U.S. President Donald Trump listens as Adam Boehler, the CEO of the U.S. International Development Finance Corporation, addresses the daily coronavirus task force briefing in the Rose Garden at the White House in Washington, U.S., April 14, 2020. REUTERS/Leah Millis

The agency recently committed up to $2 billion in distributed renewable energy projects in developing countries to improve access to electricity after the incoming Biden administration signaled that renewable energy would be a priority in coming years.

DFC has also been approved to loan nearly $27 million to insurtech firm Parsyl to help with insurance costs regarding shipments of COVID-19 vaccines and treatments to developing countries.

The agency is also partnering with other development finance organizations to provide loans to businesses in lower income countries facing liquidity challenges because of COVID-19.

A recently-inked U.S. partnership with Australia, Japan, and Palau aims to finance the construction of a $30 million undersea fiber optic cable project. This undersea cable project ultimately will connect to another similar one financed by the DFC to create the world’s longest telecommunications cable, spanning from Singapore to Indonesia to the U.S.

A look at the existing Investment Funds and Technical Development currently being managed by the DFC.
A look at the existing Investment Funds and Technical Development currently being managed by the DFC.

And while playing the same geopolitical sport as BRI, the DFC would need to do a lot more to match China’s soft power push. Hillman stressed that DFC is an “important part of the U.S. economic toolkit, but it could be sharpened to further realize its potential.

For example, Hillman noted that DFC investments are “treated like foreign aid, and the assumption is that there is no return on these equity positions.” If the Office of Management and Budget treated DFC’s efforts as equity — and that it could turn a profit on its investments — “DFC could do more with its portfolio.”

Ian Bremmer, who heads political risk consultancy Eurasia Group, told Yahoo Finance that DFC “is a soft power agency … but I wouldn’t say it’s a game-changer, certainly not in the context of Belt and Road.”

Despite BRI investment slowing, China is still “a state capitalist country and drives industrial policy directly through Belt and Road,” Bremmer added. “There’s nothing remotely close to that coming from the U.S.”

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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