Congress should block Treasury from financing China’s interests in America’s backyard

The Biden administration is poised to inject billions of dollars into a multinational finance agency that serves as Beijing’s gateway to Latin America. If approved, it would strengthen communist China’s penetration of our own backyard.

Last July, the U.S. Treasury Department committed to further capitalizing the Inter-American Development Bank, the largest source of development financing for Latin America, ostensibly to provide an alternative to “non-concessional and opaque Chinese official financing.” The additional funds would go to the bank’s autonomous investment arm, IDB Invest.

The proposal enjoys bipartisan congressional support. Earlier this year Senate Foreign Relations Committee Chairman Bob Menendez (D-N.J.) called for “a capital increase for the Inter-American Development Bank [as] we are facing China’s challenge throughout the hemisphere.” The White House is presently negotiating with IDB Invest to make good on that promise.

Yet, what sounds like a great idea would, in practice, undercut American national interests. The U.S. is already the banks’ largest contributor and holds 30 percent of its shares. (China, in contrast, holds only 0.0004 percent of the banking group’s shares.)

Yet the lion’s share of IDB funding goes to Chinese entities. China has been IDB’s top recipient of co-financing, its top non-borrower recipient and its top procurement recipient.

Between 2010 and 2020, Chinese state-owned companies won $1.7 billion in IDB contracts. American companies procured a mere $249 million.

It’s not just American companies that are losing out. South Korean firms won a paltry $32.6 million in IDB contracts.

During that same decade, the bank poured another $6.1 billion into a co-financing fund with Chinese state companies. The IDB has also catalyzed thousands of meetings between China and regional counterparts. In sum, Beijing has been able to leverage its tiny shareholder position to strategically expand its presence in Latin America.

The IDB-China relationship began in the wake of the 2008 financial crisis, when China presented itself as a source of new lending. By 2016 the head of IDB Invest, James Scriven, described the bank as China’s “gateway to Latin America and the Caribbean.”

The relationship proved a boon for China’s ambitious Belt and Road Initiative to displace the United States as the global superpower. Twenty-five of the 29 Latin American countries are now participating in that initiative. Since 2005, China’s state-owned banks have loaned those countries $138 billion, and Chinese entities have invested another $140 billion. China now ranks as the largest or second largest trade partner of each of those countries.

In the past few years, however, Beijing has launched a genocide campaign against its Uyghur Muslims, crushed Hong Kong’s democracy, threatened Taiwan militarily and engaged in predatory lending. There is no rationale in 2022 to continue promoting China’s commercial interests with U.S. money.

Yet the relationship continues. For example, last week the head of IDB Invest pushed forward a $130 million loan to Brazil to launch a solar energy project with Huawei Technologies Company as its main equipment supplier. U.S. law prohibits U.S. funds from procuring Huawei equipment due to its ties to China’s military.

Thus far, the Biden administration appears to be blind to the problems. It boycotted this year’s IDB Forum on Trade and Investment for the Americas, an event organized to promote the region as a supply chain alternative to China. Its climate policies led the administration to veto Guyana’s $180 million loan request to develop its recent discovery of 10 billion barrels of offshore oil and gas.

And now it wants to direct billions specifically to IDB Invest, rather than to the larger Inter-American Development Bank, which is led by an American seeking to rein in funding to the Chinese.

Meanwhile, China continues to strengthen its toehold in the Southern Hemisphere. It has become a major arms supplier to Venezuela, Bolivia and Ecuador. Last month, units of China’s Red Army participated in the international war games hosted by Venezuela. There, they joined forces from Russia, Iran, Belarus and Burma, as well as the usual Marxist stalwarts: Cuba, Nicaragua and Bolivia.

Chinese state enterprises now operate on both sides of the Panama Canal, a major chokepoint for U.S. trade. The U.S. Strategic Command has expressed concern that “the Chinese have 29 port projects” ongoing in the canal area, and those ports can be used for both civilian and military purposes.

It boils down to this: China is aggressively pursuing its strategic goals while the Biden administration dithers.

Congress must take on the leadership role and reject IDB Invest’s multi-billion-dollar funding request. It should investigate how a development bank, established by the U.S. government and meant to raise Latin America out of poverty, has been transformed into an agent of influence on behalf of Chinese expansionism in our own backyard.

Max Primorac is director of the Douglas and Susan Allison Center for Foreign Policy at the Heritage Foundation. He previously served in various positions at the United States Agency for International Development.