Title: China's Foreign Investments Significantly Outpace the United States'

Description: China is the world's largest investor in international infrastructure financing and development. Through its initiative, the Belt and Road Initiative, China has expanded its influence with other countries. And this may pose significant challenges to the U.S. economic, political, and security interests. What can the U.S. do to strengthen its approach to international investments? We learn more from GAO's Nagla'a El-Hodiri.

Related work: GAO-24-106866, International Infrastructure Projects: China's Investments Significantly Outpace the U.S., and Experts Suggest Potential Improvements to the U.S. Approach 

Released: September 2024

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[Nagla'a El-Hodiri:] The U.S. does not need to match China dollar for dollar. But we do need to think about our longer-term strategy to counter China's expanding global influence.

[Holly Hobbs:] Hi, and welcome to GAO's Watchdog Report, your source for fact-based, nonpartisan news and information from the U.S. Government Accountability Office. I'm your host, Holly Hobbs. 

China is investing hundreds of billions of dollars in infrastructure projects around the globe through its Belt and Road Initiative. Through these investments, China has expanded its influence with other countries. And it may pose significant challenges to the U.S. economic, political, and security interests. So, what can the U.S. do to strengthen its own approach to international investment? Here to tell us more about a new report that looks at just that is GAO's Nagla'a El-Hodiri, an expert on foreign investment strategies. Thanks for joining us.

[Nagla'a El-Hodiri:] Thank you for having me. Holly.

[Holly Hobbs:] So Nagla'a where is China investing and why?

[Nagla'a El-Hodiri:] Well, the Belt and Road Initiative is truly global in its span. So, it covers about 149 countries as of the end of 2023. As for why is China investing in the Belt and Road Initiative—it depends on really who you ask. So, if you're talking to the government of China, they present it in quite lofty terms. It's inspired by the original Silk Road. And its purpose is to create a platform for increased international economic cooperation by addressing the world's infrastructure gap. But then China also stands to gain a lot. The projects that are financed offer China an opportunity to offload excess industrial capacity, both in terms of the materials, and labor from China. 

[Holly Hobbs:] So how does the U.S.'s investment in kind of global projects compare to what China's doing?

[Nagla'a El-Hodiri:] So it's really hard to compare them because they're so different in scale. First of all, from 2013 to 2021, in the five industries we looked at—which include things like transportation, energy, and communication—China invested $679 billion. And the U.S. provided about $76 billion in that same time period for those same sectors. And China generally goes in with large government-to-government loans for major infrastructure projects. The U.S. approach has been more to attract or increase private investment abroad. And we found that most of the U.S. financing is provided to private companies rather than directly to the governments, or to encourage private investment. Finally, with those big government-to-government loans that China has, it was an opportunity for China to expand its state-owned enterprises that would manage a whole project from start to finish, including the construction of things like bridges, highways, ports, railways. For example, when we were in Indonesia, we saw a project called the WOOSH, which is a high-speed railway. And it's a high-visibility project. In contrast, the U.S. assistance generally doesn't fund the construction of large infrastructure projects. Instead, it supports project development through capacity building, technical assistance, and feasibility studies. 

[Holly Hobbs:] So, for the countries themselves—beyond them getting a new road or a new telecommunications center—is it all good news? Is it all benefit for them?

[Nagla'a El-Hodiri:] So there are a lot of benefits. And we found that there are some short-term, at least economic benefits. For example, the BRI assistance is linked with increased trade, not just with China, but with other countries, and increased opportunities for financing from other countries. And it has also increased countries' access to energy. In terms of the costs to the countries, first and foremost is the unsustainable debt burdens. The loans that fund the BRI are often opaque. And it's really hard to understand. Like even sometimes they have higher interest. And this has put China in a position now where it's become the world's largest debt collector. So, with those opaque loans, there's also clauses that prevent disclosure of the terms of the loans. So, this makes any kind of government oversight difficult. And civil society leaders and officials that we saw when we visited Angola, Kenya, and Indonesia told us that they couldn't really assess the impact that the debt has had on their countries because they didn't even know how much debt their countries held. They also mentioned that it makes it harder to finance future projects, like increasing health services or education services, or dealing with water scarcity issues. 

[Holly Hobbs:] You said that oversight of these loans was difficult. That could lead to other issues, right? 

[Nagla'a El-Hodiri:] So there was social and governance risks, including the charge that the BRI fosters corruption. And on top of that, some political leaders might use BRI projects for political expediency—for example, to get a project done before the next election—and China can come in and do that project. But with that haste, that does mean there's less oversight on how that money is being used. In addition, there's detrimental environmental effects like deforestation, air pollution, as well as infringement on indigenous land or wildlife preserves. For example, in Kenya, there was a train that was built, through the BRI. And local civil society leaders told us that it was built without sufficient environmental assessments. And China has changed its approach to the BRI because of many of these criticisms. China has more recently promoted a new phase of the BRI that's focusing more on smaller, cleaner projects that they've termed small and beautiful.

[Holly Hobbs:] Are these challenges the same with U.S. investment?

[Nagla'a El-Hodiri:] No, they're really not. In fact, the U.S. is considered to be one of the global leaders in efforts to promote projects that meet global standards. But upholding these standards does come at a cost. It translates into a slower approach that doesn't always appeal to the political needs for expediency, or to fill these very real infrastructure needs. In all three countries we visited, we were told that it's difficult to work with the U.S. in a timely manner because of the really high standards. 

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[Holly Hobbs:] So Nagla'a just told us that China is investing in other countries at a much greater scale than the U.S. And that these investments have allowed China to expand its global influence as well as its access to critical materials in other countries. So Nagla'a, what's the bigger picture here? Why should we care about China's investment in comparison to our own?

[Nagla'a El-Hodiri:] Well, the comparison is striking. China's investments are more than eight times that of those of the U.S. It's not likely realistic that we're going to match China dollar for dollar. And that's not necessarily the point. But it's important to pay attention to the BRI because China's investments are impacting U.S. economic, political, and security interests around the world. China's often subsidizing state-owned enterprises or other Chinese companies, and that provides them opportunities to enter markets. And it creates lower costs through the subsidies that the U.S. and other countries cannot compete with. So, it stifles competition in these markets. For example, in the telecommunications sector, China has subsidized companies such as Huawei. And their subsidies allow Huawei or other companies to enter these markets and provide services not only at lower costs, but also in in such a manner that allows them to set technical standards, that then companies that don't use Chinese technology cannot use that market. And that raises the concern that China can use the BRI to gain privileged access to millions of consumers, which could, for example, give China major surveillance opportunities within those countries. 

[Holly Hobbs:] We interviewed experts about how the U.S. could strengthen its approach to foreign investment. What did they tell us?

[Nagla'a El-Hodiri:] Well, we brought together experts from academia, government, and the private sector, both to identify challenges with the U.S.' approach, as well as to identify opportunities for the U.S. to increase investment in these international infrastructure projects. Some of the challenges that they brought up were that the U.S. seems to lack a cohesive national strategy, at least publicly, that defines the roles of the agencies to help them work together better. And the experts generally agreed that developing a national strategy that clearly defines strategic goals and outlines agency roles could help with interagency coordination and could highlight our priorities. And that would help inform the type of projects that we want to invest in. Some examples of more specific policy options included increasing U.S. agency's risk tolerance to attract more investment from the private sector while still safeguarding the U.S. taxpayer. And finally, another option that came up was perhaps to have more U.S. government officials on the ground in the host countries to make good connections and help facilitate transactions. 

[Holly Hobbs:] Last question. What's the bottom line of this report?

[Nagla'a El-Hodiri:] So the BRI is the world's largest infrastructure program with global reach that allows China to expand its economic and political influence. The U.S. does not need to match China dollar for dollar. But we do need to think about our longer-term strategy to counter China's expanding global influence. And we do need to think about how to more effectively attract private investment to help fill the existing infrastructure gap.

[Holly Hobbs:] That was Nagla'a El-Hodiri, talking about our new report about China's foreign investments. Thanks for your time, Nagla'a.

[Nagla'a El-Hodiri:] It's my pleasure, Holly. Thank you.

[Holly Hobbs:] And thank you for listening to the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts, Spotify, or wherever you listen. And make sure to leave a rating and review to let others know about the work we're doing. For more from the congressional watchdog, the U.S. Government Accountability Office, visit us at GAO.gov.