President Donald Trump has pledged to create new, good-paying jobs for millions of blue-collar workers across the United States. Central to this pledge is President Trump’s still largely undefined plan to inject 1 trillion USD in both public and private funding into America’s infrastructure. The first U.S. president to refer to the word “infrastructure” in an inaugural address, Trump promised to “build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation.” He went further, stating that the United States would “rebuild… our country with American hands and American labor,” while “follow[ing] two simple rules: buy American and hire American.”
While this may be a laudable policy objective, there is a problem with it: there is not enough ready American capital to hire the all the American hands and American labor that would be required to realize Trump’s envisaged program of “national rebuilding.” Even with a major infusion of capital from the U.S. private sector—and even assuming the United States’ dysfunctional permitting system is greatly streamlined (and this is perhaps the more formidable impediment to revitalizing U.S. infrastructure)—it is unlikely that the nation would be able to marshal sufficient resources over the next several years to put a perceptible dent in the roughly 4.5 trillion USD investment need that presently exists within the U.S. infrastructure sector. Indeed, even if the president’s plan were enacted immediately and fully, and even if all the permitting issues were resolved magically and instantly, the plan would only address about one-fifth of the identified funding shortfall. What to do about the other four-fifths? The United States should look overseas to those countries where there is a massive surplus of investable capital—and specifically to China.
The notion of China helping the United States undertake its program of national rebuilding may seem to some counterintuitive and problematic at a number of levels. First, could such investment on the part of China in U.S. infrastructure clear the security vetting mandated by U.S. law? Second, is there a sufficiently compelling investment rationale for China to consider investing in U.S. infrastructure projects that generally spin off returns in just the low single digits? And third, what about the political optics involved: politically and psychically, could U.S. political leaders and the American public accept this kind of overture from China?
With respect to the security considerations, that bar is easily cleared. The Committee on Foreign Investment in the United States (CFIUS), the principal U.S. government interagency body charged with vetting foreign investments in the United States for potential deleterious impact on U.S. national security, governs only those investments in which an ownership stake (and, specifically, a majority ownership stake) is sought by the foreign investor. By structuring Chinese investment in U.S. infrastructure as loans rather than equity ownership, CFIUS concerns are fully mitigated and the need for voluntary CFIUS review is obviated. In short, the United States can “buy American and hire American” with Chinese capital (as well as other foreign capital) and not trigger federal security vetting.
Apart from the security issue, a more fundamental economic question remains: is there is a sufficiently compelling business case for Chinese to invest in, or lend to, U.S. infrastructure projects? The answer would appear to be: “yes.” While it is true that U.S. infrastructure projects tend to generate returns in the low single digits—often between 2 and 5 percent—there are reasons that such projects and returns might nonetheless seem very attractive to potential private investors from China.
First, the U.S. infrastructure market offers diversification relative to the existing portfolios of these potential investors. Second, the United States is seen as a stable, predictable, high-quality destination for capital. And third, apart from the economic rationale for such investment, Chinese investors view this kind of investment as having a double bottom line. Recent meetings I have had with senior Chinese economic and financial policymakers make it clear that the Chinese, in the wake of Donald Trump’s inauguration as U.S. president, are keen to create a more (politically) sustainable economic partnership between China and the United States and stabilize the most consequential bilateral relationship in the world by making China an even greater stakeholder in U.S. economic success. After all, infrastructure investment generates about 42 cents in GDP growth for every dollar spent; and a more prosperous and confident America is good for a China that seeks to continue economic growth around the 6.5 per year level and whose trade with America remains an important contributor to growth at that level.
In sum, though there is an economic case for Chinese investment in U.S. infrastructure (just as there is an economic case for U.S. investment in U.S. infrastructure), there are also other good reasons, from the Chinese perspective, for China to align itself with a central policy priority of the sitting U.S. president: chief among them, to change the overall dynamics of U.S-China relations. Transforming China from “job killer” to “job creator” is good for China, even as it is good for blue-collar workers in the United States.
Finally, how would American political elites and the American public view Chinese investment in U.S. infrastructure? The majority of presidential candidate (including candidate Donald Trump’s) framing of China in 2016 was negative—and focused on China’s presumed role as a killer or stealer of U.S. jobs. The obvious political criticism of the type of initiative described here would be that those who advocate it are “selling (out) America to China.” The only problem with that criticism is that, under the vision laid out here, nothing is being sold. All that would happen under this plan would be for Chinese money—along with U.S. money and money from other foreign countries—to come into the United States and put “American hands and American labor” back to work rebuilding America’s roads, bridges, railways, ports and so on. China would cease being a big (perceived) part of the problem and would instead become (and be perceived to be) part of the solution. Politically speaking, the president himself—and a bunch of governors, mayors, senators, and U.S. and state and local representatives—would have a positive story to tell in the course of campaign 2018: more workers employed at good wages, more roads and bridges built, more ports dredged, and so on. Everyone—including office-holders in the United States on both sides of the partisan aisle—can walk away from this type of arrangement a winner.
Earlier this month, the EastWest Institute (EWI) co-convened (with the China Institutes of Contemporary International Relations, a premier Chinese think tank) the first-ever conference on infrastructure cooperation in U.S.-China relations. The excitement about the possibilities for this arena of cooperation was palpable; there was a strong sense among those who took part in the conference and the officials who met with the U.S. delegation that U.S.-China cooperation in this area could generate needed positive momentum in the U.S.-China relationship—and, perhaps more importantly, help solve both U.S. and Chinese problems (e.g., the U.S. problem of how to finance national rebuilding and the Chinese problem of what to do with massive quantities—e.g., at least hundreds of billions of U.S. dollars’ worth—of surplus capital currently bottled up in China).
A joint statement, or even memorandum of understanding (MOU), between President Trump and President Xi at their upcoming summit would be a good place to start. Such a statement or MOU could flag this issue as a presidential priority in both countries and flesh out specific areas for cooperation and joint action. The two presidents could also bring together business leaders and investors and preside over the signing of major infrastructure financing deals. Perhaps even more ambitiously, the two presidents could endorse the construct of a U.S.-China “bilateral infrastructure investment treaty” (BIIT) that would codify a framework for joint action in this important area—and fast-track the infrastructure element of the much slower-going bilateral investment treat (BIT) negotiations that have been underway for some years. Whatever the “deliverable(s),” it is clear that infrastructure investment should figure prominently on the summit agenda; both sides have much to gain from enhanced collaboration in this area. Indeed, infrastructure investment may be the best hope for a true “win-win” in U.S.-China relations for both the present moment and the foreseeable future; the two presidents and the two nations would be wise to seize the opportunity to leverage it fully as a means of building positive momentum in this vital bilateral relationship.
Welcoming Chinese investment in U.S. infrastructure would go a long way toward advancing a top U.S. presidential policy priority, putting millions of blue-collar workers back to work in good-paying jobs, “making American infrastructure great again,” and deepening and stabilizing U.S.-China relations in ways that are consistent with U.S. law and policy, in sync with the current Administration’s “America First” governing philosophy, and good for America (as well as China). The infrastructure jobs that this collaboration would create need to be American; the capital that funds those jobs doesn’t.
The commentary was originally written in Chinese and published in Dunjiaodu.com on April 5, 2017 prior to President Xi's visit.