The US is preparing to create an agency that can invest up to $60bn in the developing world in an effort to counter what some in Washington describe as China’s use of debt to wage “economic warfare”.
In what observers say is the biggest shake-up of US commercial lending to developing countries in 50 years, the Overseas Private Investment Corporation will be folded into the new agency and allowed to invest in equity. At present Opic can invest only in debt, putting it at a disadvantage to European development finance institutions (DFIs).
Ray Washburne, President and Chief Executive of Opic, told the FInancial Times that China – by using what he called “loan-to-own programmes” – was “creating countries that have the shackles of debt around them”. That amounted to “economic warfare”, he said.
By more than doubling Opic’s lending ceiling to $60bn and allowing it to invest in equity, he said, it would be put on “an equal footing with other DFIs”.
Riva Levinson, President of KRL, a Washington-based emerging markets consultancy, said she hoped legislation could be passed by the Senate before midterm elections in November. “This is the first real attempt to recognise that the US needs to support its companies in the commercial battlefield in the developing world,” she said. “Because China is taking it all.”
The Better Utilization of Investments Leading to Development act (Build Act), which passed the House in August, has bipartisan support, including from close allies of President Donald Trump such as Wilbur Ross, secretary of commerce.
Opic will be folded into the new agency, called the International Development Finance Corporation. The arrangement has been sold to the president, as spearheading private-sector investment and countering China’s so-called debt diplomacy, while making a profit for the US taxpayer, according to those involved in talks.
“Opic started out being viewed as corporate welfare and within a year the office of management and budget was giving it an extra $30bn,” said Ms Levinson. “It’s a blueprint of how to get things done in Trump’s Washington.”
In August, 16 senators wrote to Steven Mnuchin, US Treasury secretary, complaining that the International Monetary Fund was bailing out countries that had got into trouble because of what they called “predatory Chinese infrastructure financing”.
The letter expressed concern that Chinese lending to Djibouti in the Horn of Africa could enable Beijing to take control of the country’s container port. Last year, Beijing opened its first overseas military base in Djibouti on the Red Sea.
“The Chinese are all state-owned enterprises and it’s part of their foreign policy to go in and control things for the benefit of the Chinese state,” said Mr Washburne.
Some recipient countries have also begun to question Chinese lending practices. In June, Malaysia suspended $22bn of China-backed projects while it reviewed financing terms.
In Africa, some citizens’ groups have said Chinese deals favour corrupt officials more than the state.
“The Chinese have an edge with the African political elites, but not so much with the people,” said Kwasi Prempeh, executive director of the Center for Democratic Development in Ghana. “African elites are doing business with them because there’s not a lot of transparency. But at the popular level, the Chinese cannot muster the soft power of the west.”