Aid Needed in the Indo-Pacific Economic Framework for Prosperity

The Indo-Pacific Economic Framework for Prosperity (IPEF) was announced on May 23, 2022 by the Biden administration in Tokyo, Japan as a means to ensure a connected, resilient, clean, and fair economy between the United States and countries throughout the Indo-Pacific. While the framework is open to accepting new members and serves as an alternative to China’s Belt and Road Initiative (BRI), the framework lacks incentives for countries to join and will only exacerbate an economic dichotomy in the region that places countries between the U.S. and China. Additionally, with China’s economic growth slowing down, more investment within the BRI and “Made in China 2025” should be expected. The framework appears to be a direct challenge to the BRI, with aid soon to follow according to Bryan Mercurio of Chinese University of Hong Kong. The framework is a counter to China’s economic dominance in the region, which has seen the creation of the Belt and Road Initiative as well as pressure on countries in the Indo-Pacifc region to forge closer economic links to China, away from the US. The framework follows the Biden administration’s Indo-Pacific Strategy, published in February of 2022, which outlines the United States’ plans for ensuring that the Indo-Pacific is “free and open, connected, prosperous, secure, and resilient.”

IPEF and BRI/ “Made in China 2025”

The Indo-Pacific Economic Framework for Prosperity (IPEF) by the U.S. is an easy-to-join alternative to the BRI and “Made in China 2025” from the PRC. According to Andrew Chatzky and James McBride of the Council of Foreign Relations, the Belt and Road Initiative outlined in 2013 aimed to “boost [China’s] global economic links to its western regions” as well as “port development along the Indian Ocean, from Southeast Asia all the way to East Africa and parts of Europe.” Overall, according to Dr. Yu Jie and Jon Wallace of Chatham House, the BRI is part of a plan to “grow China’s economic and political power, and create the right conditions to build a high technology economy.” “Made in China 2025,” according to James McBride and Andrew Chatzky, aims to encourage “Chinese companies, both private and state-backed,” to “invest in foreign companies.” The IPEF, according to Senior Economist David Dapice, “allows Asian countries – thirteen in all – to sign on to individual initiatives without fully participating in all of them.” While it allows countries to choose which pillars to follow, aid should be included to incentivize countries to join and protect countries from debt-trap diplomacy. 

Connected Economy Pillar

The Connected Economy Pillar of the IPEF is the first direct challenge to China’s closer economic ties with East Asian countries during the United States’ pivot away from Asia during the Trump administration. According to the Center for Strategic and International Studies, the pillar includes the creation of a “Connected Economy, which covers fair and resilient trade topics” such as “good regulatory practices, competition policy and trade facilitation.” The OECD Business and Finance Outlook in 2018 mentions that the BRI will “speed up efforts to implement the free trade area strategy” through the active engagement of “countries and regions along the routes of the” BRI. Interconnectedness can be achieved through the BRI with the creation of infrastructure such as “expressways, railways, waterways, and airways.” However, without direct aid to economies, such as projects or grants, or incentives through desirable trade policies, countries will still be driven to continue closer economic links with China. Additionally, the PRC can counter economic moves that drive Indo-pacific countries closer to the United States by continuing the construction of man-made islands or increasing maritime presence in the East China Sea. 

Fair Economy Pillar

The Fair Economy Pillar is a major stepping stone in the prevention of debt-diplomacy. Debt-trap diplomacy is nothing new, defined by Chris Alden as “the deliberate use of development finance to entrap economies with the aim of advancing foreign and economic policy objectives.” Alden’s article points out that the United States accuses China of “using massive loans to saddle developing economies with unsustainable debt.” According to Kai Wang of the BBC, Sri Lanka, unable to pay its debt to China for a port project, “agreed to give state-owned China merchants a controlling 70% stake in the port.” There is, however, a debate over whether debt-trap diplomacy exists. Brautigam and Rithmire of the Atlantic point out that “Chinese banks are willing to restructure the terms of existing loans” while Lee Jones and Shahar Hameiri found that in the case of Sri Lanka and Malaysia, debt problems “arose mainly from the misconduct of local elites and Western-dominated financial markets.” However, this is a major concern of the United States, which fears that countries could be pressured by China after agreeing to projects that place them in debt. The Fair economy pillar includes “provisions on the exchange of tax information, [and] criminalization of bribery in accordance with UN standards.” If the United States is truly concerned about debt-trap diplomacy, the framework should be more proactive in preventing it in the first place. Joint ventures, investments in foreign companies, similar to the “Made in China 2025” policy, or project grants are an alternative for recipient governments that can strengthen U.S. engagement. 

Dichotomy

Finally, while the IPEF will require funding for the U.S. to complete its pivot back to Asia, the framework will reinforce a dichotomy forming in the East Asian region. This dichotomy will be investments, projects and trade agreements with China through the BRI or economic engagement via the four pillars of the IPEF with the United States. However, the number of foreign investments will depend on how the economies of the U.S. and China respond to the ongoing Russian invasion of Ukraine and the COVID-19 pandemic. With China’s growth slowing down in the first quarter of 2022 due to COVID-19 lockdowns, it will remain to be seen how companies prioritize foreign investments within the “Made in China 2025” policy. U.S. investment in the IPEF will also depend on how the U.S. businesses perform at home.

[Photo by the White House]

Cameron M. Whiteside is an incoming MA Student in Political Science at San Francisco State University (2024).

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