Foreign direct investment
China is outpacing and outspending the US in diplomacy and development
Published 16 August 2018
At the same time the United States is considering cutting funding for diplomacy and development by 30 percent, China doubled its diplomacy budget over the last five years, proposing to increase its foreign affairs budget by 15 percent in 2018 alone.
China’s Marshall Plan
China’s global influence has grown dramatically in recent years, surpassing the United States as the largest trading partner with many countries in Africa and Latin America. China doubled its diplomacy budget over the last five years, proposing to increase its foreign affairs budget by 15 percent in 2018 alone, at the same time that the United States considers proposals to its cut funding for diplomacy and development by 30 percent.
How much is China spending and on what?
China is expected to spend over US$1 trillion on its “Belt and Road” initiative – seven times the size of the Marshall Plan in real dollars. This initiative is already building new markets for Chinese goods and increasing economic connectivity from Asia to Africa to the Americas, encompassing more than 60 percent of the world’s population and one-third of global GDP. In the last year alone, China invested over US$20 billion into seaports in other countries, doubling the amount spent in the previous year.
China recently announced plans to create a new foreign aid agency to better coordinate and advance China’s commercial and foreign policy interests. China is also creating new international development institutions, launching the BRICS Development Bank in 2014, as well as the Asian Infrastructure Investment Bank in 2016 that already has 61 member states including many of America’s strategic allies.
China‘s Belt and Road investments are expected to top US$1 trillion – 7 times the size of the Marshall Plan in today’s dollars.
Loans and dependencies
While the US promotes economic development to help countries achieve self-sufficiency, China has leveraged its massive economic investments to create dependencies in some countries unable to repay Chinese loans. For example, when Sri Lanka faced major debt problems from Chinese infrastructure projects, China negotiated a swap of its debt for a 99-year leasehold in a Sri Lankan port project, giving China access to a key trade and shipping route to enhance its Belt and Road Initiative.
Chinese infrastructure projects have already left another 8 countries – Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan and Tajikistan – at significant risk of economic distress with large debt owed to China.
China’s focus: Africa and Latin America
China has increased its development investments in Africa by more than 520 percent over the last 15 years. To put the size of its investments in context, China’s Export-Import bank loaned nearly US$67 billion to Africa throughout the 2000s, more than 500 percent of the World Bank’s combined US$12.5 billion worth of loans. Between 2015 and 2016, Chinese-funded projects in Africa increased by more than 100 percent, while America’s foreign direct investment (FDI) to Africa is falling.
China also surpassed the United States as the largest trading partner to Africa in 2009 and has become the top exporter to 19 out of 48 countries in sub-Saharan Africa. In 2016, China exported US$82.5 billion worth of goods to the continent, while the US companies exported only a quarter of that amount. According to McKinsey and Company, there are now over 10,000 Chinese firms in Africa, potentially generating US$440 billion in revenues by 2025.
Given our proximity, the United States has historically been the largest trading partner for many South American countries, but China has now surpassed the United States as the leading trading partner for several South American countries, including Brazil – the continent’s largest economy. China recently pledged US$500 billion in trade with Latin American countries and US$250 billion in Chinese direct investment over the next ten years.
China has also committed to train 10,000 political elites in Latin American by 2020. By investing resources in foreign media and think tanks along with the cultural and academic sectors, China is leveraging its resources to create a positive view of China in the region.
Why does it matter?
From concerns about commercial and security risks, to the long-term consequences of mounting debt in developing countries, to the loss of American foreign policy influence, here are some perspectives from current US officials as to why China’s approach engagement in developing countries matters:
- “Increased reach to key global access points like Panama create commercial and security vulnerabilities for the United States, as do Chinese telecommunications and space ventures with dual-use potential, which could facilitate intelligence collection, compromise communication networks, and ultimately constrain our ability to work with our partners.” – Admiral Kurt Tidd, Commander, U.S. Southern Command
- “While they pose separate challenges with unique attributes, both China and Russia seek to reshape the world order and change territorial borders. Consequently, they pose increasing security threats to us, our allies, and our partners.” – John Rood, Under Secretary of Defense for Policy, Department of Defense
- “China had been stepping in and offering an alternative that simply wasn’t as good as the one offered by the US. China often is using export credit agencies…that use subsidized finance to attract deals that then require procurement or end up generating procurement from China. So, it’s an unbalanced relationship that leaves the country with a whole bunch of debt.” – David Malpass, Under Secretary for International Affairs, Treasury Department.
- “By supporting good governance, by supporting pro-American governance, by supporting leaders who are trying to do the right thing, we can support democracy and the rule of law, we can provide governments with an alternative to the Cubas, the Venezuelas, the Chinas, the Russias.” – Senator Marco Rubio (R-FL)
- “Our engagement in Africa is in the strategic interest of the US not only to address urgent humanitarian aid, but also to advance economic, political and security interests. Now is not the time to pull back.” – House Foreign Affairs Chairman Ed Royce (R-CA)
- “The Administration’s proposed cuts to the FY 2018 international affairs budget would have a devastating impact on our global leadership and make the American people less safe. These cuts are a gift to countries like Russia and China who are already filling the void left by America’s diminishing role in the world.” – House Foreign Affairs Ranking Member Eliot Engel (D-NY)
“America stands to lose as China places bets on developing world,” op-ed in The Hill by Liz Schrayer is president and CEO of the U.S. Global Leadership Coalition
China’s Growing Influence, U.S. Global Leadership Coalition, May 2018