Exclusive: In rebuke to China, Trump seeks G20 endorsement of 'sustainable' finance

WASHINGTON — As the United States prepares to launch a scaled-up development finance institution, it is pursuing a parallel political effort to push back against what it considers unsustainable and irresponsible lending by China to developing countries.

As a starting point, the administration of President Donald Trump will encourage leaders at the November G-20 summit in Buenos Aires, Argentina, to articulate a common set of global standards for infrastructure lending and investments. Their aim is to push for a high-level political recognition that development financing should be transparent and sustainable, according to a senior White House official who was not authorized to speak on the record.

“It’s important that countries that are there ascribe to these principles and all agree that financing that’s provided needs to be done in a transparent, accountable, sustainable way. That really hasn’t happened yet at the leader level,” the official said.

In terms of other concrete deliverables, the U.S. government might look for opportunities at the G-20 summit to announce projects that would meet the standards it is hoping other major economies will endorse, the official said.

Combined with a larger U.S. development finance institution, a global consensus around principles for good development financing would help the U.S. join other like-minded countries as a more responsive and capable development investor, the official suggested. The effort to establish common standards at the national leadership level could also help reassert an alternative financing model in the face of what the Trump administration considers irresponsible and politically motivated lending by China to low- and middle-income countries.

“It is very important for us to promote U.S. ideals around the world. It’s very important for us to promote free markets, business-led investment where we can. It’s very important for us to partner with allies, and it’s important for us to make sure that China doesn’t occupy all of this space and lead countries into investments that aren’t good for them,” the official said.

Administration officials point to a handful of specific examples where they say China’s lending practices have led countries down the wrong development finance pathway.

In Sri Lanka, China financed the Hambantota Port Development Project despite feasibility studies showing it would not be commercially viable. When the country was not able to make its payments, it reached an agreement that handed the port over to China for 99 years. China holds 72 percent of Kenya’s bilateral debt, while Pakistan plans to seek an International Monetary Fund bailout, which Secretary of State Mike Pompeo previously suggested the U.S. would oppose if it was used to pay back Chinese debt. Pompeo has since walked back on that position.

Malaysia’s new Prime Minister Mahathir Mohamad has pushed back against Chinese lending deals agreed to by his predecessor, calling for two of them — including a major rail project — to be suspended or canceled.

As the Trump administration has ramped up its rhetoric of economic competition with China, the U.S. government’s development agencies have sought to position themselves as critical components of that battle for influence.

The U.S. Agency for International Development’s political leaders have stated that they plan to be more vocal in advising developing country partners against Chinese financing, and in calling out lending practices that put American investments at a disadvantage.

“We are going to absolutely call this stuff out and to be more clear about the choice that our partner countries have, and be clear that if you decide to work with China, it is bad,” Jim Richardson, coordinator of USAID’s Transformation Task Team, said at a stakeholder meeting in September.

As the proposal for a new U.S. development finance institution made its way through the U.S. Congress, the institution’s supporters have frequently cited China’s growing influence as a reason for the U.S. to expand and strengthen its development finance capabilities.

“Our job here is to step in and say how can we help. How can we help all these countries enter into sustainable transactions that really benefit their local economies, and that’s what we’re trying to provide here,” the senior White House official said.

Supporters hope the new development finance institution will help the U.S. partner with allies, particularly in the Indo-Pacific region.

“Japan is very interested in working with us and promoting a free and open Indo-Pacific,” the official said. “This will give us the tools to really expand that partnership.”

Argentina has prioritized infrastructure finance during its G-20 presidency. As the summit approaches, the country representatives — or sherpas — have been laying the groundwork for an agreed agenda that emphasizes sustainable financing, the official said. That would include an acknowledgement of the importance of transparency, quality infrastructure, procurement practices that account for lifecycle costs in the value of the asset, and debt issues. So far all of the sherpas that weighed in on the proposed language have been supportive of it, the official added.

“I think it is in China’s interest to ensure that its investments are consistent with these principles as well,” the official said.

“If China’s goal is to help encourage the region to grow, it should want to make sure that it’s not creating unsustainable debt conditions for any of its neighbors. I think that China should support this, and I was pleased that they seemed open to it.”