China And The US: Two Visions, One Collaboration? – Analysis

By Marc Grossman*
NOVEMBER 17, 2016

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China-US collaboration on infrastructure projects in Asia could reduce extremism, improve relations and help companies.

With Donald Trump’s election, China and the United States could be on a collision course. The US president-elect promised during the campaign to label China a currency manipulator, instruct the US trade representative to bring trade cases against China in the World Trade Organization, and threaten 45 percent tariffs if China does not renegotiate trade agreements with the US. Meanwhile, China pursues a military buildup in the South China Sea designed to diminish US influence in Asia.

As Trump addresses trade and the other issues on the US-China agenda as president and not candidate, he may find it useful to look for areas where the two countries could work together. One opportunity ready to be explored is the vision promoted by both Beijing and Washington of the need for more economic and infrastructure connections between East Asia, South and Central Asia, the Middle East and Europe.

Two concepts are in play: China’s One Belt One Road, or OBOR initiative, a multibillion dollar program to build ports, railways, roads, power plants in and around 60 countries and the more modest, but still important, the American New Silk Road initiative, or NSR.

In July 2011, then Secretary of State Hillary Clinton spoke in India about the benefits of linking Central Asian economies with those in South Asia, with Afghanistan and Pakistan in the center. Increased regional economic connectivity, she argued, would promote sustainable economic growth, a crucial part of the effort to defeat extremism. In September, the United States convened a New Silk Road ministerial meeting in New York and China expressed enthusiasm for the project. Turkey hosted the “Heart of Asia Conference” in November 2011, and supported by the United States and China, the concept became a touchstone for regional cooperation.

Obstacles then emerged. The Chinese said the name New Silk Road “belonged to China” and “Historic Trade Routes” would be a better name for the US initiative. In 2013, Chinese leaders responded with a Silk Road initiative of their own: One Belt One Road consists of two main components – a land-based Silk Road Economic Belt and a sea-based Maritime Silk Road– which Chinese leaders believe will together change the geostrategic and geo-economic face of the region.

In August 2016, Chinese President Xi Jinping announced that more than 100 countries and international organizations had committed to participate in OBOR. According to Chinese press reports, OBOR is supported by $40 billion from China’s Silk Road infrastructure fund, $100 billion in Asian Infrastructure Investment Bank pledges, and an initial $50 billion commitment from the New Development Bank of the BRICS countries – Brazil, Russia, India, China and South Africa – with a promise to increase that to $100 billion.

The US and Chinese projects are currently on separate trajectories. American officials maintain that they support OBOR, though the United States is rightly wary of projects that enhance China’s military capacity. And the United States cannot match the dollars or yuan pledged or spent.

That said, there are several strategic, regional and commercial benefits to additional US-China cooperation around the OBOR and NSR initiatives.

For example, the September 2016 US-China Summit in Hangzhou highlighted Afghanistan as an “area of cooperation.” the two countries share an interest in an Afghan state in which Al Qaeda and the Islamic State find no havens, drug exports shrink, and private sector–based economic activity increases. A coordinated OBOR-NSR effort to create what Afghan officials once called an “Asian Roundabout” to encourage a sustainable Afghan economy would promote these shared goals. The recent opening of a rail line from the eastern coast of China to the northern Afghan city of Hairatan, offers Afghan exporters an alternative route to Asia with dramatically reduced transit times.

Another area of potential cooperation is in Pakistan, where China and the United States want Pakistan to support regional stability, grow their economy and undermine extremism. China’s $51 billion commitment to the China-Pakistan Economic Corridor is designed to build highways, railways and energy generation in Pakistan, including a proposed rail and highway between Pakistan’s port at Gwadar and China’s northwestern region of Xinjiang, which would also connect the OBOR to China’s Maritime Silk Road project. Pakistanis hope the corridor will create 700,000 jobs between by 2030, which should provide alternatives to extremism for some of Pakistan’s 190 million people, a majority of whom are under the age of 22.

Washington and Beijing are already working together in Pakistan on the clean-energy project Sapphire Wind. The US Overseas Private Investment Corporation has provided $128 million in financing for this 50-MW wind project, which uses General Electric turbines. Under the umbrella of the US-Pakistan Clean Energy Partnership, the United States will invest $70 million on transmission lines to connect a 680-MW wind project in Sindh to the national grid. China is also an investor.

Such a collaborative NSR-OBOR efforts between the United States and China can bring benefits to US companies. The Wall Street Journal reported in October that General Electric, Honeywell and Caterpillar are already focused on the possibilities. According to the Journal, GE’s orders in Pakistan are more than $1 billion today, compared with less than $100 million five years ago. Connecting US firms to OBOR and keeping them aware of NSR opportunities requires a concerted effort by many parts of the US government, including the Departments of State and Commerce, the US Overseas Private Investment Corporation and the Export Import Bank.

Despite the obvious benefits, there are many challenges to creating an NSR-OBOR nexus. China may be pursuing OBOR to control rising wage rates at home by exporting employment and soaking up overproduction in industries like steel. The Chinese might decide to go it alone, especially when comparing the enormous resources they have promised with a small US investment in NSR. The number of American firms interested in OBOR may be too small to reach critical mass, and those that seek engagement may stand no real chance to work with Chinese companies, especially state-owned enterprises. In September, representatives of 10 Chinese state-owned enterprises visited Washington and New York to promote US commercial interest in OBOR opportunities, but more needs to be done by Beijing to welcome US private-sector participation and protect US commercial interests.

Another challenge is managing Indian anxieties about OBOR. Many security specialists and analysts in Delhi perceive OBOR not as a development initiative, but as a strategic effort by Beijing to surround India with naval facilities in Gwadar in Pakistan, Colombo in Sri Lanka and Kyaukpyu in Burma.

The possibilities of joint efforts inspired by OBOR and NSR present the incoming administration with a strategic opportunity to improve US-China ties, advance common security interests, and create economic opportunities for American business. Success would bring tangible benefits to a region where further state failure would surely fuel extremism, a threat to both the United States and China. And, not least, there would be something positive on President Trump’s already contentious agenda with China when he takes office in January.

*Ambassador Marc Grossman is a Vice Chairman of The Cohen Group. A US Foreign Service Officer for 29 years, he retired in 2005 as Under Secretary of State for Political Affairs. The ambassador was the US Special Representative for Afghanistan and Pakistan, 2011-2012 and a Kissinger Senior Fellow at Yale in 2013.

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