Editorials

A 'Michelin guide' to infrastructure in Asia

China’s Belt and Road initiative (BRI) casts a long shadow over Asia. Beijing’s effort to fill the yawning infrastructure gap — estimated to be in the trillions of dollars — is widely viewed as an attempt by China to extend its influence as well as meet local needs. Japan, the United States and like-minded governments are trying to respond to the BRI challenge, but they don’t have the financial resources to match China’s largesse.

Their effort to construct more creative responses has yielded the Blue Dot Network (BDN), a certification program that will set international standards for big infrastructure projects. The BDN is the right response to the BRI: It supports recipients, ensuring that the aid they get is an effective and sustainable response to their needs.

The BRI, launched in 2013 by President Xi Jinping, spans the globe; more than 150 governments have signed cooperation agreements with Beijing. A World Bank analysis concluded earlier this year that in 70 BRI “corridor economies” (which excludes China), projects in all sectors that have been executed, are being implemeted or are planned are estimated to amount to $575 billion.

There has been extensive criticism of the terms of those projects, with emphasis on debt sustainability: Governments that cannot repay debts forfeit assets, in some cases including strategically important locations. A Chinese company was given a 99-year lease on the Sri Lanka port of Hambantota when the government there could not pay back its debt.

While Japan and other governments provide funds for regional infrastructure projects, their pockets are not as deep as those of Beijing. Tokyo’s High Quality Infrastructure Initiative is one of the most substantial alternatives, but it has just $110 billion, to be paid out over five years.

Cognizant of that limit, like-minded countries have focused on adding value. An important area has been ensuring openness and sustainability by extending preparatory services, such as accounting and legal aid, to facilitate project evaluation, procurement and regulation. The Blue Dot Network builds on that foundation by bringing together governments, companies and citizen organizations to establish “a seal of approval” to confirm adherence with global best practices. U.S. national security adviser Robert O’Brien likened it to the Michelin Guide.

The BDN was formally announced last week at the 35th annual ASEAN meeting in Bangkok. It will be led by the U.S. Overseas Private Investment Corp., which will work with the Japan Bank for International Cooperation and Australia’s Department of Foreign Affairs and Trade. They will form a steering committee to develop the initiative; other members will include other governments, private companies and civil society groups. The BDN will certify that projects promote “market-driven, transparent and financially sustainable” infrastructure development in Asia and around the world. In theory, that certification will provide a stamp of approval of projects and encourage private sector organizations to join.

Keith Krach, U.S. State Department undersecretary for economic growth, energy and the environment, explained that the standards will be based on “respect for transparency and accountability, sovereignty of property and resources, local labor and human rights, rule of law, the environment, and sound government practices in procurement and financing.” That is an impressive list, but it reflects a distinctive set of priorities. As in all such assertions of “proper guidelines,” it can be criticized for reflecting developed countries’ values. Some governments are not going to prioritize labor rights or environmental protection, not because they are corrupt, but because their level of development creates different national priorities.

Moreover, the BDN seeks to catalyze private capital. That conforms with the U.S. preference for private sector-led development, but infrastructure is a unique form of investment with very different returns from other types of investments. It is not at all clear that private funds can fill the trillion-dollar gap. China, on the other hand, has a strategic interest in strong arming state-owned enterprises, banks and other private entities to engage, and its distinctive model of capitalism allows it to do that by blurring the lines between the public and private sectors.

There is another challenge: China’s response. Beijing sees such projects as seeking to check its power and influence — and with good reason. It is already reminding the region that decisions are being scrutinized to see if they “are taking sides” between Washington and Beijing. That crude reductionism is inevitable. The best response is a commitment to abstract principles that are in the best interest of recipient counties, along with real money to build much-needed infrastructure. On the sidelines of the ASEAN meeting, Japan and the U.S. agreed to coordinate on investing up to $17 billion in Asian energy projects. That is a good start, but it is only just a beginning.