A top US development finance official has warned that China’s $1.3tn global spending spree on infrastructure is destined to collapse, shattering some emerging market economies.
Adam Boehler, the chief executive of the US International Development Finance Corporation, told the Financial Times that China’s international investments were “100 per cent” like a house of cards because of “debt overload, poor infrastructure, bribes [and] lack of transparency”.
“Everything comes around, it’s only a matter of time. It was only a matter of time before WeWork came around, right?,” Mr Boehler said, referring to the distressed office rental start-up that unravelled this year. “We have to be there as an alternative because I could see China take down a whole bunch of emerging countries . . . there will be more and more cracks and then the glass will break,” he added.
Mr Boehler, a former US healthcare official and executive, became head of the DFC late this year after the agency received a big funding boost from Congress that doubled its war chest to up to $60bn and allowed it to make equity investments.
As well as ensuring that US businesses pump more money into developing countries, the DFC is also much more explicitly tying its deals — including loans, loan guarantees and risk insurance — to the Trump administration’s national security priorities, including challenging China’s growing economic and strategic influence around the world.
“My job isn’t to go out and make up American foreign policy,” Mr Boehler said. “[But] we co-ordinate very heavily with [the] NSC, with State, USAID, USTR, to get a US government view when we approach things. We’re cognisant of what China is doing, but it’s not a reaction to China . . . playing offence not defence here,” he added.
Although the DFC — which was previously known as the Overseas Private Investment Corporation — is not ruling out investments in traditional infrastructure such as ports, motorways and bridges, it is increasingly looking to compete with China in funding advanced technologies, including 5G, both in terms of building out the networks and participating in spectrum auctions. “It doesn’t have to be the United States, it doesn’t have to be a US-based company. But we do care quite a bit about that data being secure,” Mr Boehler said.
The DFC is also part of the US government’s broader effort to stop countries from using technology run by Huawei, the Chinese telecommunications company that is accused by Washington of espionage and being a threat to national security. “The answer to Huawei is not ‘don’t buy Huawei and that’s it. You need an effective and credible alternative,” he said.
While many in Washington fear that the US is struggling to persuade countries to reject Huawei as they build out their 5G networks, Mr Boehler was more upbeat, saying he detected “changing winds” as governments were “getting smart” on these issues. “More and more you’re seeing people say no”.
He called Chinese investment a “drug” but said more countries were becoming sceptical of it in terms of the sustainability of the debt. “I think people are pretty circumspect about it,” Mr Boehler added. “There is a lot of concern where there’s over-leverage toward China in the market right now, a lot.”
The agency’s disbursements remain well below its caps, but it has already started to ramp up spending this year, from $3.3bn in 2018 to $5.3bn this year, its highest level in more than 20 years.
At a time when the Trump administration’s relations with US allies is rocky and the White House has struggled to mount a united front to confront Beijing on trade, Mr Boehler said he would like to do more business alongside similar agencies in Japan, Europe and beyond.
“I would rather write a smaller cheque and do it with JBIC,[ the Japanese development finance agency] or our friends at African Development Bank or others,” he said. With the Japanese in particular, he added that there was a live “conversation about how do we drive our goals in Indo-Pac together because they are shared goals”.
“We should be holding hands on that. That’s a strong message, not just against China but against anybody that wants outsized influence in a sovereign nation and that’s going to push a closed system instead of an open one,” he added.
Mr Boehler was sceptical that the DFC could ever work with the Beijing-backed Asian Investment Infrastructure Bank, unless there was a big change in China’s approach. “To the extent we have concerns about transparency, rule of law and outsized influence, it would be difficult to work together,” he said.
Criticism of Beijing’s global investments, including through its Belt & Road Initiative, have increased sharply in Washington in recent years, forming an important dimension of Sino-American rivalry. Many developing countries in Asia, Africa and even Latin America have benefited from an inflow of Chinese money to help them fund projects more cheaply and with fewer restrictions. But Mr Boehler said that even though US funding may not be quite as swift, it came with higher standards and better outcomes.
“It’s a sovereign country’s decision which way they want to go and how they want to go. But I’ll let the results speak for themselves,” he said. “China’s biggest investment in the western hemisphere at 60 per cent of their dollars is Venezuela. There’s a direction that looks like that.
“And there’s a direction that looks like some of the countries that you’ve seen develop over the last bunch of years in a very positive light,” Mr Boehler added, citing Colombia.