I spent a week in China in May, and two themes were prominent in meetings with senior policymakers: One Belt, One Road (OBOR) and the Asian Infrastructure and Investment Bank (AIIB). OBOR focuses on connectivity in Asia by land and sea by building roads, bridges, and ports. The AIIB is one instrument to finance such infrastructure development on a massive scale.
The development of the two institutions is strategic. Given weak global growth, exporting alone is no longer a source for growth and expanding employment for China. Infrastructure development is the future. But as China’s growth slows, the returns on continued expansion of China’s infrastructure are limited; in the major cities, roads, airports, and train stations are already pristine, and so many apartment buildings have been built that some stand empty. In contrast, there is a huge need for infrastructure in the rest of Asia, and China intends to meet it. This is not purely altruistic. Building regional infrastructure will employ tens of thousands of Chinese workers and create demand for Chinese goods, especially steel and construction equipment. The Chinese Export-Import Bank already finances a sizable amount of infrastructure development around the world; OBOR and the AIIB will magnify such spending enormously.
In contrast, the United States is moving in the opposite direction. US expenditure on local infrastructure as a share of GDP is less than one third of China’s. It is no secret that our bridges, roads, and airports are crumbling, yet despite historically low interest rates, there is a failure to rebuild. Infrastructure spending is different from government consumption because in addition to stimulating current growth and jobs, it is an investment in our future, providing the foundation for doing business—something China’s leaders have internalized.
And as China’s Ex-Im Bank and AIIB look outward to finance Asia’s roads and ports (with the help of Chinese labor and exports), the United States has failed to reauthorize our one related tool, the US Export-Import Bank. As of July 1st, unless action is taken by Congress, the Ex-Im Bank will no longer be able to finance new loans. That is a shame because the US Ex-Im Bank puts our businesses on a level playing field with other exporters around the world that receive concessional financing from local export credit agencies. For example, the Ex-Im Bank allows US energy and equipment producers to compete with foreign suppliers in large infrastructure projects in the developing world. China’s export credit agencies (ECAs) have financed more in the last two years than Ex-Im has in its whole history. Major exporters like Germany and Korea also rely more heavily on their ECAs than the United States does.
There is no good reason to watch the Ex-Im Bank wither, while its foreign competitors expand. As I wrote in an earlier blog post, the US Ex-Im Bank does not cost taxpayers a dime. It returns money to the US Treasury, on the order of $500 million to $1 billion a year. The Ex-Im Bank offers insurance against downturns. When trade plummeted following the financial crisis, Ex-Im support surged. This is because Ex-Im was able to fill the financing void that arose, allowing numerous exporters to stay in business and retain their workers. Now, uncertainty over the future of the US Ex-Im Bank is becoming a huge and recurring problem for US businesses. Recent surveys show that US exporters are having a hard time competing because of uncertainty in the Ex-Im’s charter and generous financing terms by other ECAs abroad.
Congress should reauthorize the Ex-Im Bank for at least five years to prevent uncertainty from hindering US exporters in this highly competitive global economy. Letting the Export-Import Bank’s charter expire only helps the many foreign companies competing with US firms.
Caroline Freund, senior fellow at the Peterson Institute, is a member of the Export-Import Bank Advisory Committee.