China closely guards how much money it invests overseas—and so independent Western estimates vary. According to AidData, a project of the College of William and Mary, China spent $12.7 billion in Sri Lanka from 2000 to 2014. (The number given by the American Enterprise Institute’s China Global Investment Tracker is $14.86 billion from 2005 to 2017.) AidData’s figures, which were released earlier this month, also note China’s overseas commitments in 2014, the last year for which data were available, were $37.3 billion, slightly higher than the $29.4 billion spent by the U.S. in 2014.
China views its actions through its own national-security prism. It goes to countries in Africa, Asia, and Latin America that have a hard time securing international financing; offers them easy terms; builds desperately needed roads, railways, and ports; and uses the newly built facilities to transport raw material to feed its growing economy and population. There are advantages from the perspectives of both China and the countries receiving the loans. For one thing, Brad Parks, executive director of AidData, said in an email that factors that make China an attractive investor include its “policy of non-interference in the domestic affairs of its partner countries.”
“Its grants and loans are therefore provided without any domestic policy ‘strings attached,’” he said. Parks added: “Chinese-funded projects are also more attractive to some developing world leaders because of the speed with which Chinese firms can implement the projects.”
But the U.S. and its allies in the region, primarily India and Japan, worry that projects like Hambantota in Sri Lanka and the seemingly easy terms of China’s loans put regional economies at a distinct disadvantage—not to mention putting the U.S. and its allies at a strategic disadvantage. Speaking Wednesday at the Center for Strategic and International Studies in Washington, Rex Tillerson, the U.S. secretary of state, warned that the Indo-Pacific region could fall victim to China’s “predatory economics.” He said China’s actions “result in saddling them [the countries in the region] with enormous amounts of debt.”
The remarks are the most coherent criticism of the Chinese development model yet ventured in public by the Trump administration. President Trump, who is visiting China in November, has called China an unfair trade partner and railed against its policies on Twitter and elsewhere. Tillerson offered a more pointed critique at what he believed is wrong with the Chinese model of investment.
“This is not a structure that supports the future growth of these countries,” he said. “We think it’s important that we begin to develop some means of countering that with alternative financing measures, financing structures.”
Tillerson said the U.S. had begun “quiet conversation in a multilateral way” to create what he called “alternative financing mechanisms.” The secretary was quick to acknowledge the U.S. “will not be able to compete with the kind of terms that China offers. But countries have to decide what are they willing to pay to secure their sovereignty and their future control of their economies.” Indeed, there is a profound asymmetry between how the U.S. and China offer financing to third countries. U.S. companies that want to raise capital for a project must, in most cases, raise funds from the public market. Many of the Chinese firms that are competing for the same projects, on the other hand, are state-owned enterprises that can get no-interest loans or grants from the central bank.