The Blue Dot Network and US-China geoeconomic rivalry

The Blue Dot Network and US-China geoeconomic rivalry

The potential for a cooperative win-win solution may be overshadowed by the competitive environment.

WHAT’S HAPPENING?

The US, Japan and Australia recently launched a new initiative, the ‘Blue Dot Network’ (BDN), to combat China’s Belt and Road Initiative (BRI).

KEY INSIGHTS

– The US-led BDN, if implemented in an inclusive manner, could revitalise shared regional governance on infrastructure development projects with China
– The prospect for shared regional governance is, however, constrained by the broader US-China strategic competition and ambiguities surrounding the scope of BDN
– The effectiveness of BDN is contingent on the interests of recipient states

On November 4, the US Overseas Private Investment Corporation (OPIC), Japan Bank for International Cooperation, and Australia’s Department of Foreign Affairs and Trade launched a new initiative codenamed the ‘Blue Dot Network’ (BDN) for global infrastructural development. According to OPIC’s media, BDN is “a multi-stakeholder initiative that brings together governments, the private sector, and civil society to promote high-quality, trusted standards for global infrastructure development in an open and inclusive framework.” It is envisaged that BDN will achieve this by certifying nominated infrastructure projects to ensure they are transparent, financially sustainable and socially and environmentally responsible.

WOULD US-CHINA GEO-ECONOMIC RIVALRY INTENSIFY?

BDN’s unveiling has quickly garnered attention, with the prospect of intensified geoeconomic competition between the US and China in the Indo-Pacific region. The emphasis on transparency, financial sustainability and socio-environmental responsibility brings to mind Vice President Mike Pence’s labelling of China’s Belt and Road Initiative (BRI) projects as ‘debt-trap diplomacy’, as well as the conservationist protests about China’s unethical hydropower dam projects in the Mekong region.

These scepticisms have driven the Trump administration to develop alternative frameworks for regional and global infrastructure development. Following Pence’s criticisms of China at the APEC summit last year, the US, Japan and Australia signed a memorandum of understanding (MOU) to operationalise the ‘Trilateral Partnership for infrastructure investment in the Indo-Pacific’, announced earlier on July 30, 2018. The Trilateral Partnership seeks to promote quality infrastructure development by identifying projects for possible joint development and financing that adheres to the principles of openness, transparency and fiscal sustainability. Seen in this light, BDN is part of the ongoing charm offensive by the US and its allies to counterbalance China in the region.

However, unlike the Trilateral Partnership, BDN is not intended to supplant China’s BRI. Instead, it seeks to challenge the way China engages its infrastructure projects in the region, by complementing BRI in areas where it lacks attention. In particular, BDN does not preclude evaluating and certifying Chinese projects that are deemed to be transparent and sustainable. It thus does not necessarily damage BRI’s image, and could even help it.

Where BDN finds Chinese projects to lack transparency and sustainability, the negative publicity could incentivise Beijing to reform BRI in ways that suit the needs of recipient countries. Indeed, even before BDN’s launch, the revelation of high risk and corruption surrounding China’s BRI projects in Malaysia encouraged Beijing to renegotiate with Kuala Lumpur. In particular, Beijing agreed to reappraise the East Coast Rail Link (ECRL) project in a more transparent and sustainable manner, following repeated denunciations by recently elected Prime Minister Mahathir Bin Mohammed about China’s seemingly unfair and unethical BRI practices. The new China-Malaysia MOU signed on April 25, 2019, ensured that the ECRL would be reduced to two-thirds of its original cost, while the ownership structure was amended from sole Chinese ownership to a 50:50 joint venture between China Communications Construction Company and Malaysia Rail Link. Continued exposure through BDN could serve to reinforce transparency and sustainability in future Chinese BRI projects in the region.

In other words, BDN, if implemented in an inclusive manner, could shape BRI in ways that reinforce shared regional governance on infrastructure development. Therefore, it is unsurprising that the Chinese government has not spoken out against BDN, even if the Global Times newspaper did caution that the ‘Blue Dot Network won’t succeed if it targets China’ [emphasis added]. Given that there is still not much detail about the nature and scope of BDN, Beijing is likely to observe quietly for the time being.

LIMITED PROSPECT FOR SHARED REGIONAL GOVERNANCE

Image: OPIC.gov

Although BDN is not aimed at supplanting China’s BRI, it could be employed strategically to shape the preference of recipient states, encouraging them to endorse the Trilateral Partnership and by depicting BRI in a bad light. This is likely, given the current state of the US-China bilateral relationship and the relative bipartisanship in Washington to compete with Beijing. However, the US charm offensive is unlikely to succeed. Recent freezes to the foreign aid budget could undermine Washington’s efforts to keep up with Beijing in the geoeconomic competition.

Ambiguities surrounding the scope of BDN could also hinder progress towards shared regional governance. According to Keith Krach, US Department of State Under Secretary for Economic Growth, Energy and the Environment, BDN “not only creates a solid foundation for infrastructure global trust standards but reinforces the need for the establishment of umbrella global trust standards in other sectors.” The phrasing raises questions concerning the definition of ‘global trust standards’, and who defines and monitors them. Krach notes that the standards ‘are based on respect for transparency and accountability, sovereignty of nation’s property and resources, and local labour and human rights and rule of law, the environment, and sound practices in procurement and financing’. However, such standards could hardly be considered ‘global’ if it is led by only three countries.

To meet its own criteria, BDN needs to involve other countries regionally and globally. But different developmental needs among would-be members — especially for developing countries like China, India and the broader Group of 20 — are likely to complicate collective efforts to define and enforce those ‘global standards’.

LIMITED TRACTION AND EFFECTIVENESS

Photo: @SecretaryRoss

Currently, BDN has limited traction among smaller countries in the region. Washington’s attempts to advertise BDN at the 35th ASEAN Summit (October 31 to November 4, 2019) was impeded by the broader diplomatic row between the Trump administration and ASEAN member-states. A majority of ASEAN heads of states decided to skip the US-ASEAN Summit in response to the Trump administration sending a relatively low-level delegation. The BDN’s effectiveness in promoting transparency and sustainability may also be constrained by the interests of recipient states. The network is opt-in; it is up to recipient states to decide whether to consult the US, Japan and Australia about infrastructure development in their country and in the region.

Recipient BRI states such as Sri Lanka and Malaysia have not simply been tricked into ‘debt traps’ by China, but have been active participants in the exchange. According to a Sri Lankan economic researcher, Umesh Moramudali, Colombo leased out Hambantota port to Beijing ‘largely due to a persistent balance of payment (BOP) crisis resulting from the reduction of trade over the years even while external debt servicing costs have been soaring’. Debt repayments to the Exim-Import Bank of China were not costly — they only amounted to roughly 5% of Sri Lanka’s total annual foreign debt payments. Similarly, Beijing was not simply practicing ‘new colonialism’ in Malaysia as Mahathir accused at the BRI summit in August last year. Instead, as the recent 1MDB-Tanore Trial reveals, former Prime Minister Najib Razak and his circle of corrupt elites sought to inflate the cost of ECRL construction during the initial negotiations in 2016 in order to repay for the debts IMDB owed to Abu Dhabi’s sovereign wealth fund IPIC.

These two episodes suggest that whether recipient states accept the risk of China’s BRI, and whether they seek to consult BDN, are wholly their decision. BDN does empower recipient states with the knowledge necessary to improve their bargaining power vis-à-vis China. But corrupt regimes, as well as those concerned about broader domestic woes, are unlikely to heed BDN’s advice. However, this does not mean recipient states will simply reject BDN; they are likely to keep their options open as a means to hedge between the US and China.