China’s Belt and Road: Implications for the United States

China’s Belt and Road:
CFR.org
Task Force Report No. 79
China’s Belt and Road: Implications for the United States
Updated March 2021
Recommendations
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Recommendations
 

The Task Force recommends that the United States implement policies aimed at lowering the macroeconomic risk of BRI, providing alternatives to BRI, increasing digital choices in the developing world, and upholding high environmental standards.

In order to pursue these objectives, the United States has to mitigate the risks to countries receiving Chinese loans, improve its competitiveness, coordinate with allies and partners to meet the needs of developing countries in responsible and sustainable ways, and protect U.S. security interests along the Belt and Road.

Mitigate Economic Risks of BRI

BRI has demonstrated its ability to saddle countries with unsustainable debt, displace U.S. companies from emerging markets by tilting the playing field in favor of Chinese firms, push countries to adopt technical standards that are not compatible with U.S. products, and spread corruption through its opaque financing.

The United States should address each of these concerns in order to ensure its companies remain globally competitive and to promote global macroeconomic stability. The COVID-19 crisis has made the issue of debt sustainability a more immediate concern, and heading off debt crises in BRI countries should be a priority of the United States.

Lead a global effort to mitigate the effects of an emerging debt crisis.
 

The United States should lead efforts to extend a full debt repayment moratorium for low-income countries through the end of 2021 and consider more far-reaching debt relief initiatives if needed. Extending the G20 debt freeze to the end of 2021 could make available an estimated $50 billion for domestic spending to combat COVID-19 within the seventy-six International Development Association (IDA) countries.345

The United States should work to ensure that China lives up to its responsibilities by treating BRI-related claims as official debt and subject to generous restructuring terms in line with other official creditors.

To facilitate effective and coordinated responses to debt problems in the future, the United States should work to bring China into the Paris Club, an informal group of twenty-two of the largest official creditors that work together to coordinate approaches to countries experiencing debt distress.

Partner with other countries to demand that China publish official data on its overseas lending.
 

In order to provide reliable macroeconomic oversight, the IMF, World Bank, G20, and large creditors need a shared understanding of how much the most vulnerable countries owe and on what terms. China’s opaque lending practices, however, distort debt sustainability analysis and impair economic surveillance.

Although members of the Organization for Economic Cooperation and Development (OECD) and Paris Club are required to report their official loans, China is not a member of these organizations, and as a result its lending is not published. CDB and China EXIM do not report the terms of their loans, and China has not published an official foreign aid report since 2014.346 Estimates of its overseas lending therefore vary by orders of magnitude.347  One recent study analyzed five thousand Chinese loans totaling $520 billion and found that as much as half of the country’s lending to developing countries is not reported to the World Bank or IMF.348

China pushes BRI countries to keep their books closed and only discuss renegotiations with China on a bilateral basis. The United States and its partners should insist that China report its loans.

Promote U.S. companies in the face of unfair Chinese competition, educate foreign governments on the advantages of working with U.S. firms, and raise awareness among publics of the risks of BRI.
 

Raising awareness of the benefits of partnering with U.S. firms requires a robust set of U.S. institutions dedicated to that goal. The U.S. government should bolster its ability to conduct economic and commercial advocacy for U.S. companies through partnership with the private sector and bilateral coordination with BRI host countries.

U.S. ambassadors to BRI countries should be advised through their presidential letter of instruction to seek opportunities for U.S. companies to compete against BRI investments from China.

U.S. embassies should be tasked with helping governments in BRI countries understand that, though China could offer faster or cheaper infrastructure projects, factors such as environmental impact mitigation, the transfer of skills and knowledge to local workforces, and transparency in terms, financial sustainability, product quality, and longevity are far more important in the long run and that U.S. firms could be better partners.

To further assist U.S. commercial efforts in BRI countries, the United States should ensure the Foreign Commercial Service is fully supported in its mission, including by staffing all global markets positions, especially its digital attachés and officials at the deputy assistant secretary level and above.

A fully staffed International Trade Administration should organize a set of trade missions, including executive-led ones, in BRI nations, targeting competition for projects and exports typical to BRI but consistent with other U.S. goals and standards.349

Further, the Departments of Commerce and State should jointly convene an advisory group consisting of representatives from academia, development organizations, and significant private-sector actors, including infrastructure construction companies, to facilitate the exchange of information on commercial opportunities and conditions around BRI, which can then be shared and applied to the benefit of U.S. commercial interests. The advisory group should include representation from U.S. EXIM and DFC to ensure awareness of available financial support for qualifying deals.

As part of this effort, the United States should support civil society actors in BRI countries to empower them to gain and disseminate information about the pros and cons of working with China on BRI projects and to ensure their capacity to provide input to impact assessments and to take advantage of grievance mechanisms.

To do so, the United States should devote more resources to funding investigative journalism and civil society in BRI countries, with the aim of providing tools to people that allow them to look into BRI’s lending terms, environmental and economic sustainability, forced displacement of populations, and corruption.

Offer technical support to BRI countries to help them vet prospective projects for economic and environmental sustainability.
 

The 2015 Addis Ababa Action Agenda recognized that developing countries often lack the technical expertise needed to evaluate infrastructure projects, determine debt sustainability, and navigate dispute resolution processes.350 BRI has made this issue more pressing, as countries find themselves saddled with projects that will never pay for themselves and loaded with debt they cannot repay because they did not have the technical capabilities needed to scrutinize prospective projects.

In order to reduce the likelihood that future BRI projects will be white elephants, the United States should offer technical assistance to BRI countries by expanding the Department of Commerce’s Infrastructure Transaction and Assistance Network and enlarging the Department of the Treasury’s Office of Technical Assistance, including sending analysts to BRI countries to work with them on conducting macroeconomic assessments of projects.

The creation of the Transaction Advisory Fund (TAF) within the Department of State is a welcome initiative and has already proven successful in helping BRI countries negotiate more favorable contracts with China; indeed, with the help of U.S. economists, diplomats, and lawyers, Myanmar was able to negotiate the cost of the Kyaukpyu port down from $7.3 billion to $1.3 billon.351  TAF’s funding, which stands at $10 million, should be doubled in order to allow for more comprehensive assessment of a greater number of projects.

The United States should also work through the IMF and World Bank to strengthen their analytical tools for assessing debt sustainability and encourage BRI countries to adopt this framework for all projects. In every instance, it is imperative that the United States become involved early in the planning phase, as the ability of countries to change course and get out from under bad projects rapidly diminishes as projects progress.

In addition to helping BRI countries vet individual projects, the United States should assist them in setting up their own national screening mechanisms for evaluating Chinese infrastructure investments and associated security risks. This can include collaborating with the World Bank’s International Finance Corporation and the OECD to assist BRI countries in developing the legal infrastructure and human resources needed to conduct robust investment screening.

The common investment criteria should guard against “corrosive capital” that lacks transparency, accountability, and market orientation.352 It should set high standards around sustainability, financial viability, transparency, and labor standards and could build upon the OECD’s FDI Qualities Indicators but also include specific criteria related to protections against cyber theft and using technology to enhance authoritarian regimes.353  

Embark on a robust anticorruption campaign.
 

The United States should leverage the global reach of its laws, programs, and influence in a coordinated, global anticorruption campaign, including fighting BRI-related corruption, amplifying host country government and civil society efforts at reform, and advocating for more transparent procurement and bidding practices.

To that end, the United States should prioritize and cultivate international support, including through renewed commitment to the Open Government Partnership and increased support for USTDA’s Global Procurement Initiative. Such efforts should be integrated into its diplomatic agenda; all U.S. ambassadors should be instructed to promote anticorruption principles and fair business practices, especially in BRI nations.

The United States should also fill critical State Department roles with responsibilities related to fighting corruption, including the undersecretary for civilian security, democracy, and human rights, with permanent, Senate-confirmed appointees, and create a new special representative for combatting corruption empowered to convene experts and decision-makers across functional and regional groups.354 Further, the Department of State and USAID should cultivate internal anticorruption expertise and provide surge technical and political support to local embassies as needed.

The United States should also increase resources dedicated to the Department of Justice’s prosecution of Foreign Corrupt Practices Act (FCPA) violations, including by non-U.S. individuals and corporations.355  Further, Congress should pass proposed legislation to direct funds collected from FCPA enforcement to a new Anticorruption Action Fund, to augment rigid and limited existing anticorruption funding.356

Finally, the United States should better integrate the Commercial Law Development Program into cross-government anticorruption efforts, both existing and newly created, particularly those aimed at BRI nations.

Improve U.S. Competitiveness

The U.S. approach to BRI should focus on U.S. strengths. U.S. free-market principles, an innovative private sector, deep pools of private capital, leading educational institutions, a commitment to the rule of law, and a historical openness to immigration have nurtured the world’s most innovative economy.

High domestic standards for quality, reliability, and transparency have led to companies known around the world for delivering results beneficial to host countries, along with the production of excellent goods and the delivery of first-rate services. Relatively open markets in much of the world have allowed highly competitive U.S. companies to establish a global presence. These advantages, however, are in danger of eroding.

As China closes the innovation gap with the United States and surpasses it in areas such as electronic payment systems, high-speed rail, and 5G, the United States is in danger of offering equal or inferior products while demanding higher standards—a losing combination. Improving U.S. competitiveness is essential to addressing BRI.

Boost federal funding for research and development.
 

To be competitive in international markets, the United States will need to continue to generate the world’s leading technologies, and, to do this, it has to increase investments in R&D, as China is doing. This is even more important for technologies such as AI, where first-mover advantages quickly establish dominant winners. Federally funded research contributed to the development of the internet, touch screens, the Global Positioning System (GPS), advanced battery technology, and light-emitting diode (LED) technology, among others.

The federal government is able to make investments that are too big and risky for the private sector to undertake, and public R&D incentivizes greater R&D funding in the private sector. As a result, federal funding for R&D is a critical tool to foster innovation.

To retain an innovation edge over China, the U.S. government should

  • boost federal funding for R&D from 0.7 percent to its historical average of 1.1 percent of GDP, devoting roughly $100 billion in additional spending on R&D annually;357
  • direct some R&D funding to emerging digital technologies, such as AI, quantum computing, and next-generation telecommunications, which could be channeled through the Department of Energy’s national laboratories;
  • invest in universities to support cutting-edge research, which is even more urgent given that universities will likely have to cut funding to various programs because of budget shortfalls caused by COVID-19; and
  • make additional investments in basic science, technology, engineering, and mathematics (STEM) education at all levels.

Increase investments in next-generation technologies, such as AI, 6G, clean energy, and health-care technology.
 

The United States led the world in rolling out a 4G long-term evolution (LTE) network, which provided U.S. companies with a significant first-mover advantage, enabling them to build applications and services that utilized this bandwidth and become dominant in wireless services. Leadership in LTE drove an expansion in the U.S. wireless industry, generating jobs and increasing U.S. GDP.358

As the world worked to develop the next generation of wireless networks—5G, which promises to offer speeds twenty times faster than 4G LTE—the United States abdicated its leadership role. The United States does not and will not have a company that is competitive in the full stack of 5G equipment, despite the critical role that 5G will play as the backbone for AI, automated vehicles, and the Internet of Things.

Countries around the world building their 5G infrastructure have only five companies to choose from: Ericsson, Huawei, Nokia, Samsung, and ZTE. This outcome is the result of a series of regulatory (primarily spectrum availability), tax, investment, research, and trade decisions that left the United States unprepared to compete in the next generation of communications technology.359 Because of China’s dominance in 5G, its companies will be the first to roll out the next generation of wireless services and applications, forcing U.S. companies to play catch-up.

This could happen again in other areas of technology and should serve as a wakeup call. A U.S. failure to lead in the competition to develop AI and the technical standards and norms surrounding it would be a much more significant setback than its failure to develop 5G, as AI promises to underpin innovation in an array of fields as diverse as biotechnology and national defense.360

To maintain its leadership role in innovation and technology development, the United States should

  • make additional, significant investments in emerging technologies, particularly AI, quantum computing, advanced semiconductors, advanced battery storage, and 6G;
  • prioritize high-risk, years-long investments that the private sector is often unable to finance (China invested $180 billion over five years to cement its leadership in 5G, and investment at a similar scale is needed to lead the race to 6G);361
  • fund R&D centers at universities that focus on 6G technologies, which are likely to replace 5G within fifteen years;
  • devote more attention to integrating its investments in next-generation technologies, with Congress playing a leadership role by appropriating resources for this effort;
  • expand Power Africa’s Clean Energy Solutions Center to a global program, targeting assistance to developing countries to help them design and adopt policies and programs that support clean energy;
  • increase support for sustainable energy funds investing in developing countries; and
  • invest in health-care technologies to ensure that the United States maintains its leading role as a developer and provider of state-of-the-art medical devices and pharmaceuticals.

Attract and retain the most talented immigrants and foreign-born students.
 

The United States’ historical openness to immigrants and ability to attract the world’s best students, researchers, scientists, and engineers has traditionally been one of the country’s enduring strengths. Immigrants are roughly twice as likely as native-born Americans to start a new business, and 60 percent of the country’s largest technology companies were founded by immigrants or the children of immigrants.362  Nearly 80 percent of graduate students in electrical engineering and computer science are foreign nationals.363  Immigrants have been critical to the development of the U.S. semiconductor industry, helping to establish U.S. leadership in a critical field.364  

Recent policies, however, have made it more difficult for students to study in the United States and remain in the country after graduation, yet the ability to work in the United States is what attracts top students and allows the United States to reap the benefits of their talent. Nearly 80 percent of foreign-born PhD students in AI stay in the United States for at least five years after graduating.365 COVID-19 has also made international students more reticent about enrolling in U.S. schools given that a virtual education does not provide the full complement of experiences that draws international students to the United States. Increased restrictions on the movement of professionals into the United States has limited talent recruitment, with the Trump administration’s limits on H-1B visas proving particularly counterproductive.

While the United States is closing its doors to top talent, China is trying to recruit top foreign experts, offering generous bonuses and incentives to recruit scientists, among others.366

To maintain its competitiveness, the United States should

  • revamp and revitalize its visa programs to make it clear that it welcomes foreign talent;
  • raise the cap on H-1B visas, grant green cards to postgraduate degree holders, and ensure that students wishing to study in the United States have ready access to visas that allow them to stay in the United States for the duration of their studies, including postgraduate externship through codification and expansion of the Optional Practical Training program;367 and
  • use its embassies overseas to promote research and study opportunities in the United States.

Increase U.S. participation in international standards-setting bodies to ensure that standards meet the highest levels of security, quality, and sustainability and are not barriers to U.S. exports.
 

Whereas China develops its standards in a top-down process directed by the Standardization Administration of China with research from state-sponsored institutes, and Europe often develops its standards based exclusively on input from EU-based participants, the United States has traditionally relied on an industry-based, consensus-driven, voluntary, and open process.

The current industry-led U.S. process for setting standards should be maintained but strengthened through enhanced support from the U.S. government. Robust U.S. participation in the ISO, IEC, ITU, Codex Alimentarius, World Organization of Animal Health (OIE), and International Plant Protection Convention is critical to ensuring that any standards that are adopted, and the process for the development of such standards, reflects U.S. interests.

To facilitate greater U.S. participation, the National Institute of Standards and Technology (NIST) should provide grants to support U.S. companies, particularly SMEs, to participate in standardization processes, including personnel funding for the development, writing, and submission of technical comments; support for required entry participation fees; and funds for travel to standards-setting events.

The United States should allow private companies to write off such participation as R&D tax credits. Ensuring U.S. private-sector participation is essential, particularly for technology and telecommunications standards, but recent decisions to place certain foreign companies and officials on blocked lists means representatives from U.S. companies could be unable to attend important meetings if an entity on the blocked entities list is also participating.368

The Department of Commerce should issue new guidance to clarify that its inclusion of standards in the advisory opinion accompanying the May 2019 notice adding Huawei to the U.S. Entity List does not preclude Americans from attending standards-setting meetings, even if Huawei officials could also be in attendance.369

In addition, direct U.S. government participation at meetings of standards bodies, which has often been hampered by intermittent funding and competing priorities, needs to be consistent and sustained:

  • U.S. government participation in standards-setting processes should be prioritized and provided with steady funding.370
  • Congress should encourage interagency coordination that brings together officials from the Departments of State, Commerce, Justice, Defense, as well as NIST and that consults regularly with U.S. industry, including the possible establishment of a formal interagency committee.371
  • The process for providing input to support U.S. government participation should be streamlined, particularly for smaller firms, so that U.S. government officials can go to standards-setting meetings well prepared to promote and defend U.S. interests.

Being able to host standards-setting meetings also boosts the United States’ chance to achieve standards based on its own input and data. The State Department should help facilitate the conduct of the standards-setting process on U.S. soil by streamlining the visa process for foreign participants, and should coordinate a standards strategy with U.S. allies and partners.372

Because many U.S. allies and partners share the United States’ desire for technical standards that meet high standards of security, quality, sustainability, and protection of civil liberties and human rights, U.S. officials attending standards-setting meetings should work with allies and partners to encourage BRI countries to adopt international standards wherever they exist and to develop such high standards where they do not.

In addition, the United States should work with its partners to press for governance reforms in the ITU, such as banning sitting government officials from assuming leadership roles in the organization and limiting the number of senior positions that can be held by nationals from any single country.

The United States should also work with its partners to improve the diversity, transparency, and merit-based decision-making at the ITU and other international standards organizations.

Provide DFC and U.S. EXIM with additional authorities to allow them to better compete with China.
 

In order to better compete with Chinese offerings in BRI countries, the United States should further empower DFC and U.S. EXIM. The BUILD Act, which established DFC, prioritized providing support to low-income and lower-middle-income economies and placed restrictions on DFC assistance to upper-middle-income economies.373 Recognizing that 30 percent of BRI participants are in the upper-middle-income bracket, the United States should lift this restriction and allow DFC to compete in these markets.

Multiple reforms should be made to U.S. EXIM to allow it to better compete with China’s BRI offerings. U.S. EXIM’s decision to relax U.S. content requirements for ten specific industries identified in its Program on China and Transformational Exports is a welcome development, as it recognizes that in a world of global value chains, U.S. content is not the best proxy for support of U.S. jobs. This new content policy should be broadened to cover all U.S. EXIM loans because the ten areas identified do not encompass every sector in which the United States should compete with China—for example, in nuclear energy and traditional infrastructure, such as ports. Congress should also provide at least $20 million in dedicated funding and an increase in staffing for the Program.

In addition to directly supporting U.S. companies’ activity abroad, DFC and U.S. EXIM should also focus on collaborative efforts between the public and private sectors in the United States and in its allies and partners. Without a U.S. 5G alternative, DFC could partner with its counterparts in Finland, South Korea, and Sweden to cofinance Nokia, Samsung, and Ericsson in their quest to gain 5G market share. Similarly, DFC should join other development finance institutions from around the world in the Currency Exchange Fund (TCX), which provides a variety of financial instruments, including swaps and forward contracts, to minimize exchange-rate risks, thereby giving emerging economies the ability to continue borrowing funds in their local currency.374

By pooling both private- and public-sector funds, capacity, and expertise, a coalition would have the linguistic skills, cultural connections, technical expertise, and financial resources to invest strategically in those areas where coalition-financed and built infrastructure would serve as a superior alternative to Chinese projects. Specifically, DFC should provide developing countries with loans or loan guarantees for telecommunications equipment and financial assistance through USAID to incentivize countries to choose alternatives to Chinese technology where that technology poses a risk to national security.375 DFC and U.S. EXIM should also follow the Power Africa model of bringing together technical and regulatory experts, private-sector capital and production capabilities, and NGOs to create a coalition to provide a clean-energy alternative to China’s carbon-intensive power projects. DFC should seek additional partnerships similar to the one created by its late 2020 partnership with the Rockefeller Foundation, whereby the Rockefeller Foundation committed to providing $50 million to de-risk DFC’s investments in renewable energy.376 Such partnerships would enable DFC and U.S. EXIM to invest more of its funds in supporting technological transformation and sustainable infrastructure.

Promote U.S. technological options in BRI countries by simplifying digital transformation.
 

Cloud computing represents the next generation of computing, shifting computing power away from computers and individual server rooms to cloud storage. Businesses that want to be competitive need to shift their processes to the cloud, a transition that holds promise but also risk. The cloud-computing provider can see all of the data stored on the cloud, and although U.S. companies are contractually obligated to view only metadata, the truth is that any cloud-computing provider has the technical capability to access individual data.

The danger is that Chinese cloud-computing providers—Alibaba, Huawei, and Tencent—that are already globally competitive can access and compromise data. This represents a potentially larger threat than 5G. Although the most capable cloud providers are U.S. companies—Amazon, HP, IBM, Microsoft, and Oracle, among others—Chinese companies are competent in this area and offer a cheaper option for developing countries.

In order to promote the adoption of U.S. products in this critical area, the United States should create a model that allows countries to have a simple, one-stop shop for cloud solutions. The United States should establish regional hubs in Africa, Latin America, and Southeast Asia, staffed with officials from U.S. EXIM, DFC, the Department of Commerce, and the Department of State, which can offer packages to regional governments and facilitate a competitive tender process for U.S. companies to bid. This effort would emphasize that the total cost of ownership a U.S. company can offer is competitive with its Chinese counterparts, particularly when a country factors in the software and management necessary to manage cloud computing.

Develop Partnerships and Strengthen Multilateral Organizations to Meet Developing Country Needs

A successful response to BRI should include U.S. allies and partners. In addition to making necessary domestic reforms to become more competitive with China’s offering in BRI countries, the United States should deepen its multilateral partnerships and strengthen multilateral institutions. This includes ensuring that international financial institutions—including the World Bank, IMF, and regional development banks—have the resources and policies in place to meet the challenges, exacerbated by COVID-19, facing the developing world.

Ensure that the IFIs have the resources and policies to meet the needs of developing countries.
 

In its earliest years, the World Bank primarily funded infrastructure, focusing on transportation, energy, and water projects. But in recent decades, it has moved away from financing infrastructure, particularly coal-fired power plants and other projects inconsistent with UN Sustainable Development Goals. As a result, and because World Bank funding is tied to requirements for transparency, high standards, environmental impact assessments, and sustainability that some developing countries find difficult to comply with, China has been able to capture much of the pent-up demand for roads, railways, ports, power, and technology.

The United States has a strong interest in offering an infrastructure program that promotes sustainable and inclusive development, sets high standards, enables U.S. firms to compete on a level playing field, and promotes macroeconomic growth and stability. Borrowing countries ultimately benefit from the higher standards, greater transparency, and a stronger commitment to sustainability present in lending from the World Bank and other MDBs. The planet is also better off from attention devoted to the environmental consequences of projects.

For these reasons, and despite its recent turn away from infrastructure, the World Bank and its related institutions remain the best alternative to BRI. Given its long history of leadership in the World Bank and its unique position in World Bank governance, the United States is well positioned to spearhead much-needed reforms to the institution.

In order to ensure the World Bank has sufficient resources, the United States should lead an international effort to increase its funding, particularly the IDA window for the poorest countries. Although the United States led a $13 billion paid-in capital increase in 2018, because of the economic catastrophe brought on by COVID-19, an additional capital increase is necessary.377 In light of the concerns about debt sustainability, the focus should be on lending with high levels of concessionality.

In addition, the United States should contribute to the World Bank’s Global Infrastructure Facility to ensure recipient countries get enough help with project financing, planning, and structuring at the outset of project development to allow them to make smart choices in favor of high-quality, sustainable, cost-effective infrastructure projects. During this process, the United States should work with partners to ensure that the World Bank’s facilities are as responsive as possible to the needs of its borrowers.

The United States should also work to reorient the World Bank toward increased funding for digital connectivity, infrastructure, and energy access while emphasizing sustainable development, transparency, and promotion of the rule of law.

The United States should support the World Bank’s collaborating with other multilateral lenders—including the Asian Infrastructure Investment Bank—as a way of strengthening international adherence to high lending standards.

The United States should ensure developing countries have a greater voice at the World Bank so they have more confidence that the World Bank understands their needs and is working to address them. It should also make sure the World Bank and IMF’s Debt Management Facility is well equipped to offer training for government officials and technical assistance to countries to help them better manage their debt.

Finally, it would appear anomalous that China, which through BRI has become a major source of development finance, itself borrows from the World Bank. China is essentially borrowing at concessionary rates to fund its own domestic development priorities and then lending at higher rates to developing countries through BRI. The World Bank should assess the appropriateness of its policies that allow China to continue to borrow from it.

Work with allies and members of the BRI Green Development Coalition to insist that China live up to its Green Belt and Road pledges.
 

The potential for BRI to cause lasting damage to the environment and set back any chance to meet the Paris Accord pledges for reduction in greenhouse gas emissions can be avoided only through a concerted effort to hold China to its Green Belt and Road pledges.

Efforts should begin with requiring pre-project environmental assessments under both the “green, yellow, red” framework classification system recently crafted by the BRIGC and by encouraging China to join the Espoo Convention, which requires parties to assess environmental impacts at an early stage of planning and to consult the other parties to the Convention on all major projects likely to have significant adverse environmental effects across boundaries.378

The United States and its partners should press China to establish strict regulations on the monitoring and financing of all BRI projects based on its BRIGC classification, while requiring a phase-out of any financing for red projects, starting with coal and other fossil fuel energy investments whose severe and irreversible damage cannot be mitigated.

Similarly, Beijing should be pushed to make the provision of an environmental impact assessment a prerequisite for insurance coverage from Sinosure or other Chinese insurance companies.379

China should be encouraged to adopt binding standards for what constitutes a green BRI investment so that clear, internationally recognized standards are applied rather than the status quo of counting anything that complies with local, often low-level, environmental standards as a green investment.

Beijing should be pressed to require its banks to adopt carbon-limiting lending standards consistent with either domestic Chinese standards or those of the MDBs, including the MDBs’ 2019 Framework and Principles for Climate Resilience Metrics in Financing Operations.380

Chinese policy banks should also be required to follow the World Bank’s lead in setting up environmental departments to oversee environmental assessments for all of their BRI lending.381

Finally, a transparent process to ensure compliance with Green Belt and Road pledges is essential. China should be encouraged to establish a compliance mechanism, potentially accompanied by inspectors in BRI countries, to assess adherence to the Green Investment Principles and China’s Guidance on Promoting a Green Belt and Road.

Similarly, China’s compliance with its own commendable pledge to achieve carbon neutrality before 2060 should be monitored, particularly to ensure that China does not achieve it by simply moving its coal-fired power and other high-carbon-emitting plants outside of its borders. Carbon emissions from such Chinese outsourced plants could be attributed to China rather than the host country.

Just as the United States began publishing data on air quality in Beijing, which helped prompt China to take this issue seriously, it should work with allies and partners to tabulate emissions of BRI projects and publicly report them.

Reenergize the U.S.-led trade agenda to write the rules for the twenty-first-century global economy.
 

The United States should prioritize multilateral trade diplomacy in order to create a high-standards, rules-based alternative to Chinese-backed pacts, starting with the rules on digital trade, subsidies, and fintech:

  • The United States should work to expand on the U.S.-Japan Digital Trade Agreement by bringing other countries into that agreement or negotiating comparable arrangements with other countries. Such an agreement would ensure nondiscriminatory treatment of digital products and cross-border data flows while establishing collaboration and supplier adherence to common principles to address cybersecurity.
  • Additional efforts should be made to cooperate on maintaining a free and open internet that would link the U.S. economy and society to other open countries while protecting against China's misuse of the internet.
  • The United States should prioritize finishing the U.S.-EU-Japan trilateral project to develop new disciplines on subsidies and the coerced transfer of technology.
  • The United States should continue to press China and its BRI partners to open their markets to foreign competition, both in bilateral negotiations and by joining with allies at the WTO, APEC, and other multilateral forums.
  • The United States should work within the G7, G20, and the Financial Services Board to develop standards and protocols to monitor and safeguard financial technology, including developing risk-assessment standards.

All of these efforts represent a U.S.-led alternative to RCEP, an opportunity to create high-standards agreements, and the most viable way to give U.S. technology companies a better chance to compete in BRI markets.

Second, the United States should work to improve and then join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. CPTPP currently provides tariff preferences, binding commitments on access to services markets, rules on digital trade and intellectual property protections, restrictions on state-owned enterprises, requirements for domestic adoption of internationally agreed-upon labor and environmental commitments, and a strong dispute settlement system applicable to trade among its eleven members (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam), seven of which have signed on to BRI.

By reopening negotiations to join CPTPP, the United States would signal to those seven BRI countries that they should remain committed to trade and investment with the United States on terms that are more favorable than with China and are grounded in a cooperative, rules-based system.

Signaling an interest in joining the CPTPP could be accompanied by indications of changes the United States is likely to seek, including improved labor and environmental standards, cutbacks in investor protections, and potentially strengthened currency provisions. A clear expression of interest by the United States would give all current and potential CPTPP members hope for a stronger, larger, higher-standards alternative to RCEP while demonstrating a commitment to U.S. economic leadership in Asia. The United States should also welcome China’s joining CPTPP, provided China implements changes to ensure that its laws, regulations, and practices are consistent with CPTPP upon its entry.

Protect U.S. Security Interests in BRI Countries

The U.S. response to BRI should focus predominantly on mitigating its economic and environmental harms, maintaining U.S. competitiveness in important BRI markets, and minimizing China’s ability to leverage its economic influence to extract political concessions that harm U.S. interests.

The U.S. response, however, also has to ensure BRI projects do not impede its ability to defend its allies or operate out of strategic ports during a crisis. The United States should clearly communicate to its allies the limits of what they can accept under BRI and, in contingency plans, assume China will attempt to disrupt critical infrastructure in BRI countries by applying political and economic leverage.

Create mitigation plans for possible Chinese disruption of critical infrastructure in BRI countries during a conflict to ensure defense capabilities.
 

China’s ability to shut down a BRI country’s telecommunications infrastructure, power grid, or railroads during a conflict in which the United States needs to operate from that BRI country in order to defend an ally represents a more serious threat to the United States than China’s ability to collect intelligence on U.S. military operations.

Therefore, when planning for any contingency that calls for the United States to operate out of a BRI country in which China has built its critical infrastructure, the Department of Defense should assume the United States will be operating in a degraded or compromised information environment.

The Defense Department should invest additional resources in creating redundancies for the U.S. military, including securing additional access agreements to offset the possibility of access loss. It should also invest in network resiliency, or the ability to withstand exploitation of any single node or transmission path to optimize security and continuity of operations. Proactive information-sharing protocols and host nation agreements should be in place to enhance operations and safeguard information in countries with Chinese built or sourced physical and digital infrastructure.

Train cyber diplomats who can work with host governments to reduce the national security vulnerabilities of potentially sensitive BRI projects.
 

By using Chinese companies and technologies to build out critical infrastructure, such as 5G networks, allied nations can leave themselves especially vulnerable to political and economic coercion and even make mutual defense more difficult down the road. In some cases, the United States could seek to prevent a deal from being struck at all; in others, it could seek to ensure that Chinese components are not used to build the backbone of a network.

To help BRI countries assess the security risk of digital projects, the United States should develop a coterie of Foreign Service officers with deep expertise in cybersecurity and create cyber officer positions in embassies around the world. Currently, the International Communications and Information Policy division of the Bureau of Economic and Business Affairs is tasked with promoting secure 5G networks and working with partners on internet governance, but that office is overtaxed.

The State Department should elevate cyber policy, creating a unified Bureau for Cyberspace and the Digital Economy with an assistant secretary. Congress has introduced the bipartisan Cyber Diplomacy Act, which proposes to do just this, and should move forward with passage of the bill.382

Finally, the United States should work with allies and partners that cannot ban Chinese components fully from their networks to assess their network security and minimize the potential for harm.383  

Invest in undersea cables and undersea cable security to prevent them from being damaged or tapped.
 

More than 97 percent of all intercontinental electronic communications are transmitted through undersea cables, enabling government communications, international trade, and financial transactions.384 To this point, undersea cable networks have proven remarkably resilient, but the possibility remains that an adversary could attempt to secretly tap a cable during peacetime in order to gather intelligence or sever cables entirely during a conflict in an effort to cut off communications, impede military operations, and cripple global financial markets. If a country wanted to do this, it would likely target the last mile of the cable and its landing station, the most vulnerable parts.385

Although the United States has access to many undersea cables, providing it with much-needed redundancy, many BRI countries are far more vulnerable. Greece, a NATO ally, relies on only three undersea cables, all of which share Athens as their landing point, to carry all of its traffic.386 With China controlling the nearby port of Piraeus, its ability to threaten those cable systems should be taken seriously.

Undersea cables play a critical role in facilitating transcontinental communications and the ability of the U.S. military to operate during a crisis, and China has an increasing presence in ports around the world that are located near cable terminuses. The United States should minimize the chances that China can compromise these cables:

  • It should encourage countries it could have to operate from in the future to bolster the physical security of their cable systems by mandating that manholes be welded shut, surveillance cameras be installed, and routine cable protection patrols be carried out.
  • These countries should also ensure that they are continuously monitoring data usage flowing through the cables so they can detect abnormal activity.
  • The United States should offer training programs and liaison opportunities with the Department of Homeland Security to build the capacity of countries to increase the security of their undersea cable systems and detect attempted intrusions.
  • DFC should redouble its efforts to back new telecommunications cables, building off its recent investment in a cable directly connecting the United States with Indonesia and Singapore.387

Conclusion

The Belt and Road Initiative, Xi Jinping’s signature foreign policy undertaking, is being recalibrated for a post–COVID-19 world. The building of roads, railways, ports, and power plants is giving way to a BRI centered on technology—primarily telecommunications, connectivity, health care, and financial services. China will also have to contend with the debt and environmental burdens that have accompanied BRI’s signature infrastructure projects.

Facing the economic, political, climate, security, and health risks posed by BRI requires the United States to put in place a strategy that draws on its strengths—its innovative companies, deep capital markets, world-class research and educational institutions, strong alliances and partnerships with other countries, and a tradition of leadership in international organizations—to offer an alternative where it can and to push back where it needs to.

Through BRI, China began addressing long-standing needs of people living in developing countries for power and transportation, filling a void created when the United States and many of its partners and allies refrained from similar investments.

Although the United States cannot—and should not—completely fill that gap, it should strategically respond to BRI by

  • addressing economic risks through support for debt relief and a reinvigoration of U.S. commercial diplomacy;
  • improving its own competitiveness, particularly in the technology sector;
  • working with allies, partners, and international organizations to offer an alternative to BRI and to promote higher standards; and
  • shoring up its defenses against potential disruption of infrastructure.

The United States needs a smart, tailored response that recognizes BRI is here to stay, albeit in a different form.

Full list of endnotes
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