The costs of China’s One Belt, One Road (Obor) project are sustainable and won’t reach into the trillions of dollars, says David Dollar, a former World Bank official and US Treasury emissary to Beijing.

The senior fellow at the Washington, D.C.-based Brookings Institution estimates that Obor shouldn’t cost more than US$100 billion annually, an investment that can be handled if China’s current account stays within its present range.

But Dollar warns that India, which has so far been reluctant to join Obor, must participate if China’s plan is to succeed. He also downplays the possibility of Chinese participation in President Donald Trump’s plan to rebuild US infrastructure.

Dollar spoke with Asia Times recently on Obor’s chances for success.

Would the US help fund what some say are Obor’s US$1 trillion to US$2 trillion in estimated costs in return for Chinese help in rebuilding and financing US infrastructure?

The basic answer to that question is “no.” First of all, I don’t think there’s going to be trillions of dollars invested in Obor. The numbers, so far, are much, much smaller than that.

The leading financial agency for the project is the China Development Bank and it has so far reported US$160 billion dollars that it’s lent over a number of years. It’s a modest amount. It’s hard to believe that this would accelerate into the trillions unless you’re talking about 20-plus years.

Would the US help in such financing?

The US, unfortunately, is not a major funder of infrastructure. The only way the US could contribute is through the World Bank and the Asian Development Bank (ADB). But the US has been reluctant to allow the two institutions to increase their role through capital increases. So it’s hard to see that the US would play much of a role in funding Obor.

Would the US be averse to Chinese help in funding and participating in Trump’s infrastructure rebuilding plan?

There’s been a little talk of that. But I’m kind of skeptical that Chinese companies have any real comparative advantage here.

Some commentators have pointed out that capital is very inexpensive right now. The US can borrow at practically zero. So there’s not a financing problem — in the US it’s actually quite complicated from a regulatory point of view to build new infrastructure.

I think a big issue is that Americans are reluctant to pay a reasonable price to use infrastructure. If you accept you need to pay tolls to use roads, then it would be easy to finance roads in the US. But we seem reluctant to want to pay for this. So I don’t see how China can solve that problem.

The Trump administration has hinted that the US will be more cooperative on Sino-US economic issues if China makes a major commitment to build US factories that employ American workers. Do you think such a tradeoff is possible?

We certainly see a lot of Chinese investment in the US. It’s mostly taken the form of mergers and acquisitions — so that’s not creating new jobs. That’s not the kind of greenfield investment like Toyota and others did in the past.

We may start to see some Chinese greenfield investment. But there are things that work against it. A lot of China’s manufacturing prowess [is based on its connection] to global value chains that are managed by western companies, or by Japanese and Korean companies. That, I think, limits the potential for Chinese greenfield investment.

But we’ll certainly see some and that will create new interest groups that see it benefiting US-China economic integration.

China’s Asian Infrastructure Investment Bank (AIIB) and the Japan, US-led ADB are competing against each other in Asia. Could the two cooperate in funding Asian infrastructure projects and do you see any signs of this?

I think there’s actually quite good cooperation between the AIIB and the ADB. They are co-funding projects. That’s a rational way of spreading the risks and there are a lot of needs, looking at different funding sources. So I think AIIB is off to a good start and it’s going to give a little healthy competition to the ADB. But we also see them collaborating quite a bit and that’s positive for Asia.

Brookings’s David Dollar_ Photo credit–World Bank
David Dollar. Photo: World Bank

Is China’s current economic performance sufficient to sustain a project of Obor’s size?

As I said, some of the numbers being discussed for Obor are unrealistic. The actual level of activity is certainly no more than US$100 billion a year. China can sustain that.

The sustainable funding source for this is China’s current account surplus — and that’s in the range of US$200 to US$300 billion a year. That funds other things as well — including Chinese investment coming to the US and Europe. So I think the current level of outward investment from China is sustainable so long as they have this current account surplus — which seems to be the most likely scenario.

What signals has India sent about participating in Obor and how important is New Delhi’s cooperation in China’s plan?

India’s been quite negative. They’re very aware that the core door that goes from China through Pakistan includes some territory that’s in dispute — in Kashmir, I believe. And so India is quite unhappy about that particular aspect in the larger Chinese project.

How do you bridge such differences?

For Obor to really be a kind of Asia-wide project, you’d have to get a rapprochement between India and China. Probably China would have to recognize some of those Indian sensitivities. So as long as that’s not happening, that also limits the scale of Belt and Road.

Why do you say that?

There are all these estimates of what kind of infrastructure needs there are in Asia. Well, a huge part of that is India. So if India is not buying into this, then frankly, a lot of those numbers people are talking about are not relevant.

The Obama administration tried to ignore Obor. Is this changing under Trump and what might happen?

It’s definitely changing. In that first early harvest (trade agreement between the US and China) announced a few weeks ago, it was put into the agreement that the US recognizes Obor. The US also agreed to send a relatively high-level delegation to the Belt and Road Forum in May.

It was headed by Matt Pottinger, who is the Asia Director on the National Security Council. This is the first time that the US is kind of recognizing Belt and Road, which in some ways is just recognizing reality. Doing this seems like a smart policy.

But I worry at the same time that the Trump administration has pulled out of the Trans-Pacific Partnership (TPP). I saw the TPP as complementary to Obor.

How was TPP complementary to Obor?

Belt and Road is financing a lot of physical infrastructure. But real integration of economies also requires harmonization of regulations and customs administrations. In the modern world, we’re also trying to break down barriers for services, trade and investment.

TPP had a lot of the “software” that’s needed for integration. There are also countries like Vietnam and Malaysia who are looking to China to finance infrastructure. But they were also looking to the US to set the rules of global trade and investment and now the US is pulling out of that. I find that worrisome.

Doug Tsuruoka is Asia Times’ Editor-at-Large