The International Development Finance Corporation

international development finance corporation

A Powerful $60b Secret Weapon to Fight Chinese Imperialism

China is winning the struggle with the United States for global hegemony. China has relentlessly pursued soft power economic missions to expand its influence and control worldwide. The One Belt, One Road Initiative has invested billions of dollars into developing the global Chinese strategic and economic infrastructure. However, the United States is fighting back. Enter the International Development Finance Corporation (DFC).

What is One Belt, One Road?

What is One Belt, One Road?
A Map of the One Belt, One Road Initiative; Lommes, CC BY-SA 4.0, via Wikimedia Commons

In international politics, soft power is just as if not more important than hard power. Soft power, broadly, is the ability of a nation to persuade and attract. Its influence does not rest behind the barrel of a gun; rather, it is supported by economics, favors, personal relationships, and diplomatic pressures. While China is working hard to increase its military arsenal and rival the United States by sea and air, it is also racing to expand its soft power.

The principal vessel of Chinese influence is the One Belt, One Road Initiative. One Belt, One Road (OBOR) is a gargantuan, global infrastructure project. According to CNN, OBOR is active in 68 countries that are home to 4.4 billion people.

OBOR has invested over a trillion dollars into infrastructure projects around the world.

History

One Belt, One Road was adopted by the Chinese Communist Party in 2013. However, its roots are ancient. The name stems from the Silk Road, which was a Han dynasty-era trading network that connected China to Europe over nearly 4,000 miles. The Silk Road brought great wealth to China and facilitated a major cultural exchange between the continents.

Modern-day China is attempting to recreate the success of its ancestors. One Belt, One Road is a new trading network, comprised of both land-based and maritime infrastructure. OBOR builds railroads, ports, roads, bridges, and electrical grids to facilitate economic activity and human development.

OBOR was written into the Chinese Constitution in 2017 and is one of the most central priorities of the Chinese state. China is investing trillions into OBOR and dedicating immense resources and effort towards its goals. OBOR is targeted to end in 2049.

Purpose

The purpose of the One Belt, One Road Initiative is to expand the sphere of Chinese influence. Developing a robust sinocentric trading infrastructure accrues many benefits for the Chinese state: energy security, favorable trading agreements, expansion of naval power, and more. OBOR guarantees routes of navigation, ports, and Chinese installations across the globe.

Successful completion of One Belt, One Road would see greatly increased trading revenues for China and vastly expanded diplomatic power. China would be involved in the affairs of dozens of African, Eastern European, and Indo-Pacific countries.

Threat

One Belt, One Road poses a significant threat to American economic interests and national security. Although Beijing denies it, OBOR is a neocolonial project with the mission of establishing global hegemony for the Chinese Communist Party.

China funds the OBOR infrastructure projects by offering exploitative loans to developing countries. When the nations cannot pay back the debts, China seizes territory. This strategy is called “debt-trap diplomacy.” Countries victimized by Chinese debt traps lose valuable land, often ports and bridges (the very infrastructure built by OBOR) and have their national sovereignty severely diluted. China gains strategic assets and independent control of territory abroad which it can use to further pressure the countries or to develop its military network.

The unchecked spread of Chinese debt-traps and spheres of influence threatens to undermine American cultural and economic hegemony while simultaneously weakening our military position. The current Cold War is taking place in the Third World. Whoever controls the canals, ports, and islands will have a massive advantage in any outbreak of violence.

The International Development Finance Corporation

The International Development Finance Corporation
The International Development Finance Corporation

One Belt, One Road is a massive project. The United States is a long way from being able to compete with it. However, Washington has identified the threat and has launched a competing strategy. The Blue Dot Network is a counterinitiative, led by the U.S., Australia, and Japan. The United States’ arm is the International Development Finance Corporation (DFC).  

The DFC is a government agency that has lending authority to fund private development projects in foreign countries.

History

The DFC was created by the BUILD Act, which was introduced by Senator Bob Corker (R-TN) on February 27, 2018. The BUILD Act consolidated existing foreign development entities into the DFC and greatly expanded its lending capabilities.

The DFC has launched a number of initiatives, including “Connect Africa” which aims to invest $1 billion in infrastructure, telecommunications, and trade networks in Africa. Recently, the DFC and its international partners won a contract to develop 5G technology for Ethiopia, defeating the Chinese One Belt, One Road pitch.

The DFC has an investment cap of $60 billion and has access to a variety of financing tools. It coordinates with the U.S. Department of State for strategic and diplomatic purposes.

Purpose

The main push behind the creation of the International Development Finance Corporation was a drive to combat the growth of Chinese investment. The text of the BUILD Act lists 8 main priorities:

(1) to mobilize private capital in support of sustainable, broad-based economic growth, poverty reduction, and development through demand-driven partnerships with the private sector that further the foreign policy interests of the United States;

(2) to finance development that builds and strengthens civic institutions, promotes competition, and provides for public accountability and transparency;

(3) to help private sector actors overcome identifiable market gaps and inefficiencies without distorting markets;

(4) to achieve clearly defined economic and social development outcomes;

(5) to coordinate with institutions with purposes similar to the purposes of the Corporation to leverage resources of those institutions to produce the greatest impact;

(6) to provide countries a robust alternative to state-directed investments by authoritarian governments and United States strategic competitors using high standards of transparency and environmental and social safeguards, and which take into account the debt sustainability of partner countries;

(7) to leverage private sector capabilities and innovative development tools to help countries transition from recipients of bilateral development assistance toward increased self-reliance; and

(8) to complement and be guided by overall United States foreign policy, development, and national security objectives, taking into account the priorities and needs of countries receiving support.

Priority #6 is perhaps the most important: “to provide countries a robust alternative to state-directed investments by authoritarian governments and United States strategic competitors.” Without mentioning China by name, this sentence clearly sets the DFC as a direct counter to One Belt, One Road.

The BUILD Act entrusts the DFC with combating the spread of investment by the authoritarian government of China. The DFC is intended to offer an alternative to countries in need of development and who do not want to fall prey to Chinese debt-trap diplomacy and neocolonialism.

How does the DFC Combat Chinese Imperialism?

So, how does the DFC combat Chinese imperialism? Essentially, the DFC is a link between the Western private sector and developing nations. Often, U.S. technology, contractors, and equipment are more expensive than those of China. Of course, we offer better terms and quality, but in many cases, cost is the most important factor. The DFC uses its lending capabilities to bridge the gap and allow the developing world to use Western companies for their building projects.

The DFC is closely tied in with the decision-making bodies of U.S. foreign policy. The aid it provides is in pursuit of broader U.S. interests abroad. In the same way that China uses OBOR money to expand its influence, so too does the United States use DFC money. However, the key difference is that the DFC does not use predatory tactics to erode states’ sovereignty, and the U.S. is not run by an authoritarian government like the Chinese Communist Party.

The DFC is still far from measuring up to the scale of One Belt, One Road, but the fact that it is winning contracts is promising. The U.S. and the Blue Dot Network must commit more spending towards targeted foreign aid if they really want to compete with China, but the DFC is an excellent start.

The next great conflict will be fought by proxy. It will take place in Africa, South America, and the South China Sea. It will be economic and geopolitical. Money spent on developing and maintaining Western interests overseas will see manifold returns in the coming years as the world’s great powers come ever close to collision.

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