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Creativity Key for U.S. to Best China in Infrastructure Race

Biden's Partnership for Global Infrastructure and Investment can take lessons from successes involving the private sector.


The White House has styled the Partnership for Global Infrastructure and Investment announced by U.S. President Joe Biden in June as a $40 billion pathway to work with allies, partners and the private sector to offer sustainable, green infrastructure alternatives. The authors of this article argue that the approach needs three components to be successful:


First, the U.S. should build on its recent appointment of a global infrastructure coordinator at the State Department by moving that position to the White House. It should give the coordinator authority to bring together personnel from different agencies and ample staff of his or her own and provide a clear mandate to identify and pursue priority infrastructure projects aggressively.


Second, the U.S. must make better use of existing tools by bolstering the DFC's flexibility, requiring each embassy to assign an officer to identify potential projects and ensuring senior officials match Beijing's aggressive lobbying efforts.


Third, the U.S. infrastructure team should forge partnerships with private companies on specific infrastructure projects and redouble efforts to overcome the obstacles that have hindered cooperation with allies, including Japan, which on its own has achieved success on the infrastructure front, to co-finance and coordinate so as to avoid needless competition.


Adapted from article by James Carouso and Scot Marciel on October 21st, 2022

Photo: Sean Gallup/ Getty Images


The White House has styled the Partnership for Global Infrastructure and Investment announced by U.S. President Joe Biden in June as a $40 billion pathway to work with allies, partners and the private sector to offer sustainable, green infrastructure alternatives.


This marks the latest American effort to offer an infrastructure alternative to China's Belt and Road Initiative. But given the disappointing results seen with previous such programs, it is imperative that Washington look for lessons in the successes of other more creative efforts in recent years.


Experience shows that the U.S. and its allies can win important infrastructure victories by being strategic, proactive and persistent, and by building close partnerships between government and private business.


Consider the deal under which U.S. private equity group Cerberus Capital acquired a bankrupt shipyard in the Philippines last April, keeping it out of Chinese hands.


The U.S. embassy in Manila had alerted Washington to the business' failure in 2019, noting that its Subic Bay location provided the closest deep-water port access and ship supply and repair facilities to the disputed South China Sea and that Philippine officials were concerned about the prospect of Chinese companies moving in. Some in Washington showed interest, but the bureaucracy initially struggled to translate this into action. Fortunately, key players in the government persisted.


Working closely with Cerberus executives to overcome delays and a decision by the U.S. International Development Finance Corp. (DFC) not to participate in the project, these officials developed a creative solution: obtaining commitments from the U.S. Army and the Philippine Navy to lease parts of the project area, thereby guaranteeing Cerberus the steady revenue stream it required to proceed. The deal was a big win but happened only through the ad hoc efforts of a few people.


The Australian government took a more proactive approach toward the sale of the Pacific arm of Digicel Group, which controlled much of the communications and internet infrastructure in six island nations, including Papua New Guinea. Two Chinese state-owned companies had immediately expressed interest in the assets when Irish billionaire Denis O'Brien put them up for sale in 2020.


While Digicel Pacific was profitable, private companies were reluctant to bid because of concerns about political stability in some host countries, and bankers were unwilling to bankroll the $1.52 billion in new debt required to complete a deal. Canberra overcame these challenges by working with Australian telecom operator Telstra to buy the assets. The Australian government is now reportedly seeking to lay off some of the debt it incurred to the DFC and the Japan Bank for International Cooperation.

The key to getting the deal done was the Australian government's willingness to essentially de-risk the transaction for Telstra speedily and creatively. It moved quickly with international partners to fund cheap debt and guarantee regulatory, foreign exchange and sovereign risk while giving Telstra full equity ownership.

The U.S. took a different but equally strategic approach toward a third infrastructure development of strategic importance: China's building of a deep-water port at Kyaukphyu on the Bay of Bengal in Myanmar.


CITIC Group, the Chinese state-owned lead investor, had initially proposed a $7.3 billion port complex which would have made Kyaukphyu as big as Southern California's massive Long Beach freight hub.


Some U.S. and Myanmar officials were concerned that Naypyidaw could be saddled with sizable debt for a project of questionable commercial viability as the Chinese proposal included loans worth hundreds of millions of dollars for Myanmar to finance its 15% stake. CITIC was to take 85%.


In response to a request from the National League for Democracy-led government, Washington's embassy in Yangon used funds from an existing U.S. Agency for International Development program to hire independent experts to conduct due diligence on the project.


They succeeded in downsizing the project to $1.3 billion and doubling Myanmar's equity participation to 30%, thus avoiding the need for borrowing from China. Going ahead on a smaller scale then greatly reduced concerns about potential repercussions.

These three efforts demonstrate that the U.S. and its allies can, when they focus imaginatively, offer countries in the region viable infrastructure options that reduce their dependence on Chinese investments.


They also highlight, however, that this process remains ad hoc and needs substantial improvement. For the Partnership for Global Infrastructure and Investment to be successful, the U.S. and its partners must adopt a more systematic strategic approach.

This approach should include three components. First, the U.S. should build on its recent appointment of a global infrastructure coordinator at the State Department by moving that position to the White House. It should give the coordinator authority to bring together personnel from different agencies and ample staff of his or her own and provide a clear mandate to identify and pursue priority infrastructure projects aggressively.


Second, the U.S. must make better use of existing tools by bolstering the DFC's flexibility, requiring each embassy to assign an officer to identify potential projects and ensuring senior officials match Beijing's aggressive lobbying efforts.


Third, the U.S. infrastructure team should forge partnerships with private companies on specific infrastructure projects and redouble efforts to overcome the obstacles that have hindered cooperation with allies, including Japan, which on its own has achieved success on the infrastructure front, to co-finance and coordinate so as to avoid needless competition.


These recommendations will take commitment, political will and resourcing. But if Washington wants PGII to succeed, it will require the White House's strong commitment and a willingness to be nimble and creative in responding to opportunities.

The U.S. has made many promises in a variety of programs on global infrastructure development and consistently under-delivered. PGII must prove it can get things done.


https://aparc.fsi.stanford.edu/news/creativity-key-us-best-china-infrastructure-race

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