Charged Affairs

Tim Rosenberger and Victoria Freeman | YPFP Members | November 1, 2024 | Photo Credit: Flickr

The battle for power in a bipolar world has expanded from the Earth into space. The US seeks to prove it remains the world’s leading technological power by being the first on the moon. And the year is not 1969, but 2024; the competitor is not Russia, but China. A Chinese mission just brought down rock samples from the far side of the moon, the next step in China’s plan to build a lunar base by 2035 – a plan with which the US is trying its hardest (and thus far failing) to keep pace. While the new space race is a particularly cinematic manifestation of American and Chinese competition, the countries’ terrestrial battle for influence may have a more significant impact on global stability.

China’s flagship Belt and Road Initiative (BRI) seeks to increase Chinese influence, often coupling infrastructure development with human rights abuses. By contrast, America generally relies on multi-lateral approaches to infrastructural development that promote democratic values alongside economic growth.

As China’s ambitions heighten, the Asian Development Bank (ADB) will become an important tool in democratic nations’ arsenals. The bank was initiated during the Cold War to create prosperity through free markets in developing countries and decrease the appeal of Soviet communism. While the global world order has shifted with the rise of China, the US remains the most potent promoter of free markets and democratic values. The US can counter Chinese influence in Asia by using the ADB’s mechanisms for loans and technical assistance.

China’s BRI is exploitative, expanding Chinese power through debt trapping. Projects come with hefty loans that developing countries often are unable to repay. Because these countries are indebted, they can be coerced into ceding economic control or diplomatic influence to China.

The BRI is also a human rights issue – its projects sometimes feature forced labor, arbitrary wage withholding, or threats of physical violence. One project in Papua New Guinea did not allow its workers to return home to China during the pandemic. Overall, China has an estimated 5.77 million people in modern slavery, or state-imposed forced labor. The BRI’s facilitation of human rights violations underscores that this competition is more than economic – the US must subvert China’s authoritarian vision for the globe with one of freedom.

If pushed to its full potential, the ADB can combat the BRI, grow the American economy, and allow the US to spread democratic values. In response to the BRI, the ADB has already ramped up its lending capacity from only $21 billion in 2013 to $35 billion in 2020. In recent years, America has shown increasingly strong leadership at the bank. Jason M. Chung represented the US on the ADB Board of Directors from August 2018 through January 2021. Chung ensured the ADB worked with the US Trade and Development Agency to promote US exports abroad. Memorialized by a Memorandum of Understanding signed in 2022, the framework exists for US companies to contract on deals created by ADB loans create.

Throughout Chung’s tenure, the ADB took two significant steps to counteract the BRI. First, it implemented Diversification of Financing Terms to charge higher interest rates on loans to upper-middle-income nations. This step simultaneously made it more expensive for China to borrow and ensured that the ADB remains able to make concessional loans to the countries that need it most. Second, the ADB sought to prevent countries from taking BRI loans without lending safeguards. As such, in 2021, the ADB sent technical assistance about debt management to the Kyrgyz Republic, Pakistan, Tajikistan, and Uzbekistan.

These strides forward beg the question: why hasn’t the US already been able to subvert the BRI with the ADB? Indeed, 70% of ASEAN countries are wary of accepting BRI projects, precisely because of the threat of a debt trap.

First, developing countries’ regulatory frameworks often inhibit private investment. Companies hesitate to invest in countries where they fear their assets may be seized or even face high tax rates. Low-income countries also lack the robust financial sectors to finance long-maturity transactions – which infrastructure projects require. For this reason, low-income countries receive less than 1% of total project allocations in the water and sanitation sector.

To fulfill the $50 billion needed investment in water and sanitation, across the ADB’s area of coverage, private companies must be able to trust the host country’s capital market. Thus, to encourage American investment, the ADB must ramp up technical assistance on financial markets and better broadcast its political risk insurance. Indeed, financing infrastructure with private sector investment teaches developing governments to value austerity over public spending.

Second, ADB projects must meet developing countries’ most significant areas of demand and compete with China. Currently, China dominates high-speed rail (HSR), having made 25,000 miles of progress on its goal to connect all of Southeast Asia by HSR – and aiming for 43,495 miles by 2035. China is now working to connect its Laos-China Railway with Thailand. China’s control of transport networks is a threat. Not only does it make China a leader in global manufacturing, but the deals also deepen its bilateral ties with the countries involved. HSR features in the Chinese diplomatic model because it exports Chinese technology and expertise.

The ADB should fund HSR built by American or Japanese companies. While the American Brightline is beginning work on rail connecting Las Vegas to Southern California, Japanese Shinkansen technology may be a more realistic candidate for Asian expansion. Having existed since 1964, the HSR company now carries over a million passengers per day.

Problematically, Japan has been hesitant to export Shinkansen because it is a symbol of national pride. Japan does not want to alter its technology to be compatible internationally and refuses to risk its unscathed brand – boasting zero customer fatalities in 60 years. As such, Japan’s current collaboration with the ADB on the South Commuter Railway Project in the Philippines is… rail, not high-speed rail. Indonesia demonstrates the geopolitical consequences of Japan’s hesitancy to export – in its place, China has fulfilled the demand for a Jakarta-Bandung HSR line. China offered a faster project with fewer conditions, so Indonesia chose China for its $7.3 billion project, not Japan.

However, the governments of Japan and the US just agreed that Shinkansen will build a HSR line connecting Dallas to Houston. The US should capitalize on this demonstrated willingness to expand Shinkansen to export the technology around Asia through the ADB, fulfilling demand for HSR and subverting China’s monopoly.

China also dominates digital connectivity in developing countries. The BRI’s ‘Digital Silk Road’ arm provides wireless phone networks and broadband internet coverage through Chinese exporters such as Huawei. Problematically, Chinese control of digital networks affords it immense amounts of data that it can leverage for both espionage and political blackmail. The US should also prevent China from establishing global technology standards, which could eventually be used to make whole countries’ data networks incompatible with American (and all foreign) technology.

The ADB has the power to orient digital connectivity away from China. It has researched policy recommendations, including streamlining the administrative process of network installation and licensing internet service providers. The ADB should further mobilize this technical assistance.

The ADB can also stack the cards against Huawei, China’s state-supported telecom company. In countries such as Indonesia, Huawei has made contracts, cooperated with domestic tech companies, and trained tens of thousands of workers. In response, the US should use its significant voting share in the ADB to encourage partnerships with Huawei’s American and Japanese competitors. For example, Cisco has demonstrated willingness to invest in the digitization of the Asia-Pacific.

The next administration must take up Chung’s legacy to better mobilize the ADB. The US must seize the opportunity to partner American exporters with developing countries. In a world in which China never hesitates to subject a developing country to the whims of its expansion, the US must provide these same countries with a mutually advantageous alternative – that demonstrates the unique promise of freedom and democracy.

Tim Rosenberger is a Legal Policy Fellow and Victoria Freeman is a Collegiate Associate and at the Manhattan Institute.