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Research Questions

  1. How should China's economic engagement in the developing world be conceptualized relative to U.S. development assistance?
  2. What are the asymmetries between the Chinese and U.S. approaches to economic engagement with developing countries?
  3. How might the United States capitalize on these asymmetries to better compete with China for relationships and influence in the developing world?

Over the past decade, China has upended the world of development assistance, rapidly becoming the world's largest bilateral lender by channeling large sums of money into the developing world. As China's economic engagement in the developing world has grown, so too have U.S. and allied concerns that China is leveraging development assistance to assert Chinese influence, weaken the United States' relative position, and achieve Beijing's broader national security interests.

In this report, the authors conduct a net assessment of U.S. and Chinese development assistance and cooperation. The authors describe each country's differing approaches to economic engagement with developing countries and conduct a data-driven comparison to identify strategic asymmetries that might present opportunities for the United States to better compete with China for relationships and influence in the developing world.

The assessment reveals that Chinese economic engagement in the developing world should not be conceptualized as aid or assistance; this mischaracterization has potentially led to an overreliance on U.S. development tools as a primary response. Moreover, despite evidence of the short-term benefits that China might gain from its development financing, it is not clear whether these benefits are sustainable or effective over the long term when compared with the U.S. approach. Nevertheless, China's efforts — its heavy emphasis on energy and infrastructure projects, its approach to working through elite actors in developing countries, and its willing embrace of greater risk and reduced transparency — create challenges and opportunities for the United States as it looks to compete with China in the developing world.

Key Findings

China's economic engagement in the developing world should not be conceptualized as aid because this leads to an overreliance on official U.S. aid agencies

  • China's efforts should be conceptualized as economic engagement abroad to support China's domestic economy, foreign economic goals, and foreign political goals.
  • China's emphasis on large-scale infrastructure projects and transactional lending provides an outlet for domestic overcapacity in key Chinese manufacturing and labor sectors.
  • Comprehensively accounting for the variety of economic statecraft tools available to U.S. policymakers requires greater consideration of the role of the U.S. private sector.

China's approach has fundamental limitations that might not be sustainable over the long term

  • Many debtor countries have struggled to repay Chinese loans, and many governments have begun to reassess the terms of their arrangements with China.
  • The short-term appeal of China's approach does not necessarily generate longer-term positive perceptions of China.

China's approach still creates challenges for the United States in the developing world

  • China overwhelmingly outspends the United States in certain key sectors like energy and infrastructure, which often represent the most-desired forms of assistance for developing countries.
  • China's approach might be better designed toward capturing and influencing elites and key decisionmakers in developing countries than the U.S. approach
  • China's approach comes with systemic risks that might undermine the effectiveness of U.S. development assistance and cooperation.

Recommendations

  • The United States should consider publishing a single, unclassified, and publicly releasable development strategy for competition with China that diagnoses the challenge, articulates U.S. priorities, and provides a common direction for the multiple actors, goals, and funding streams involved in enacting U.S. development policy.
  • The U.S. government should consider creating a Bureau of Development Statistics, tasked with serving as the principal fact-finding entity to track U.S. and Chinese development and foreign assistance data and to facilitate more-accurate comparisons between Chinese activities in the developing world and comparable U.S. approaches.
  • Efforts to reorient U.S. development assistance and cooperation toward economic statecraft priorities should be guided by a set of affirmative interests and values beyond countering China alone and should avoid a mirror-imaging of China's approach.
  • The U.S. Congress could consider raising existing caps on the overall percentage of U.S. development finance efforts likely to lead to default, particularly in high-priority economic sectors and priority regions of the world for U.S.-China competition. This could also require greater capacity within existing U.S. development finance organizations to assess the risk and rewards of more-expansive lending efforts in a responsible manner.
  • U.S. government agencies could take actions to incentivize private-sector activities that help the United States achieve its development, foreign policy, and national security goals.
  • The United States could conduct more-strategic assessments of the usefulness of development assistance and cooperation at advancing U.S. interests in critical regions and sectors, or against specific foreign policy or national security objectives.

Funding for this research was made possible by the independent research and development provisions of RAND's contracts for the operation of its U.S. Department of Defense federally funded research and development centers. The research was conducted within the International Security and Defense Policy Program of the RAND National Security Research Division (NSRD).

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