Australia, the US and Japan have announced a joint partnership to invest in projects in the Indo-Pacific that would build infrastructure, address development, increase connectivity, and promote economic growth. In response to this projected partnership, made public by the Australian Department of Foreign Affairs and Trade on July 31, the Chinese government has deftly responded to their plans by embracing them.
Chinese foreign ministry spokesman Geng Shuang said at a press conference on the same day that it was a “good thing” that the three Asia-Pacific rivals to China plan the investment. China, Geng said, is willing to promote regional cooperation based on mutually beneficial cooperation and inclusivity.
“All like-minded countries are welcome to take part in the Belt and Road Initiative,” China’s hyper-extensive infrastructure plan to connect with other regions including Asia, the Middle East and Europe, he said.
In an interview with Sky News television, Australia’s Trade Minister Steve Ciobo denied the tripartite alliance is a challenge to China, saying, “It’s wrong to view these things as either/or. The fact is we can participate in and be part of all of the initiatives in the region.”
Recently, the US government has renamed the Asia Pacific as the Indo-Pacific, which includes South Asia and Southeast Asia.
Pompeo on July 30 said the US would pump in US$113 million in digital economy, energy and infrastructure, calling the funds “just a down payment on a new era in US economic commitment to peace and prosperity in the Indo-Pacific region. We thus have never and will never seek domination in the Indo-Pacific, and we will oppose any country that does.”
Was Pompeo referring to China as a country that seeks domination in the Indo-Pacific? In his speech on July 30, Pompeo said, “Our Indo-Pacific vision excludes no nation.”
In an interview with CNBC the same day, when asked whether the US$113 million plan was to contain China’s Belt and Road Initiative -- leaving aside the fact that US$113 million is a laughable speck compared to China’s projected US$1.3 trillion expenditure across 70 countries – Pompeo replied: “We're convinced that American engagement in the Indo Pacific benefits all the nations in that region. We're not looking for dominance. We're looking for partnerships. Others choose to behave differently.”
This raises the question whether Pompeo meant China when referring to “others.” CNBC asked Pompeo how he could convince countries involved in Belt and Road that partnering the US is a better option.
Pompeo answered, “Look, I think some of the countries who've engaged in that find themselves in a place that they are not happy about. And I think the others are beginning to see that as well. The way you convince them is that you demonstrate that developing relationships with the United States, that have transparency, actually turns out to be better.”
Pompeo said the US had warned the International Monetary Fund (IMF) against any bailout of Chinese loans to Pakistan, which have ballooned to billions of dollars and threaten the Pakistani treasury.
“Make no mistake. We will be watching what the IMF does. There’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself,” Pompeo said.
In response to Pompeo’s warning, Chinese foreign ministry spokesman Geng gave a bland reply, “I think that the IMF has its own standards and rules when cooperating with relevant countries. We believe that they will handle it in an appropriate manner.”
Pompeo’s interview with CNBC contains clear hints that he views China as a competitor. US President Donald Trump, unveiling his National Security Strategy at the end of last year, said China is a rival of the US. Trump’s National Security Strategy contained the first effort by a US President to counter the Belt and Road Initiative on a global scale, including in Southeast Asia and South Asia.
The funding needs for the Indo-Pacific are so huge that many financing sources, including the US, IMF and Chinese state-owned banks, are needed. In his speech on July 30, Pompeo cited the Asian Development Bank’s estimate that developing countries in the Indo-Pacific region will need US$26 trillion for infrastructure from this year till 2030, which makes the US’s contribution look silly compared to the billions of dollars of Chinese financing committed to the region.
In 2017, the five biggest construction contractors in the world are all Chinese state-owned firms, according to Engineering News Record. The largest US construction firm, Bechtel, was 12th on this list, while the biggest Australian construction firm, CIMIC Group, ranked 14th and the largest Japanese construction company, Obayashi Corporation, occupied 16th place. In 2017, Chinese contractors accounted for 31 percent of the total global infrastructure project value which stood at US$17.1 trillion, according to a report of Metric’s Infrastructure Intelligence Center.
With Chinese banks and companies occupying such a commanding role in international infrastructure, it will be difficult for US, Australian and Japanese firms to invest in and build infrastructure in the Indo-Pacific without Chinese participation. Japanese, US and Australian banks would be reluctant to go it alone in financing multibillion dollar infrastructure projects with long payback time, since they are answerable to shareholders. If they wish to bankroll costly infrastructure projects, it will be difficult to avoid partnering Chinese lenders.
If private US, Japanese and Australian companies were allowed to compete with Chinese firms over projects in Indo-Pacific countries, that would be a good thing, since healthy competition would offer more choice and lower construction costs to these nations.
Pompeo and Ciobo should mean it when they said they welcome all countries, including China, to jointly develop the Indo-Pacific. Beijing has countered their offer with the ancient Chinese martial arts strategy of using your opponent’s aggression against him.
Toh Han Shih is a Hong Kong-based Singaporean writer