Combating Chinese Dual-Use Infrastructure: Bringing In the Private Sector

The United States has historically enjoyed immense strategic advantages in the Western Hemisphere. The mostly democratic character of the region; the deeply embedded cultural, linguistic, geographic, and historical links; and economic integration through an architecture of free trade deals inked over the last 30 years, stretching from the U.S. border to the southern tip of Patagonia, have brought the United States immeasurable strategic advantages as it pursued global influence in more far-flung regions of the world.

In the last 15 years, the People’s Republic of China (PRC) has made significant advances in Latin America and the Caribbean (LAC) challenging U.S. strategic interests in the region. What began as the pursuit of economic interest and an insatiable appetite for commodities has scaled rapidly to include security engagement, technological exchange, and of course, the building of critical infrastructure. The serious challenge posed by China’s multifaceted engagement in LAC means that the United States can no longer take for granted everything from the sizable influence it historically enjoyed in LAC to the continued democratic character of the region. In short, the last five years have witnessed the return of strategic rivalry. In order to address its vulnerabilities, the United States should begin to take stock of China’s full toolkit of influence and economic coercion.

For their part, LAC countries recognize the downsides to increased dependency on China. Opaque contracts, disregard for environmental standards, and the accumulation of unmanageable levels of debt have created problems for countries throughout the region. Yet when these countries look to the United States to provide a credible counteroffer, they are mostly met with silence. This need not be the case, as the U.S. private sector offers a vast, dynamic strategic asset with which to spur economic development and forge mutually beneficial relationships in a more transparent and responsible manner. However, the United States will first need to jump-start a private sector which has been notoriously reluctant to compete with the PRC in the vital area of infrastructure.

Enter the Belt and Road Initiative

The PRC’s efforts show few signs of slowing down. The first country to sign on to the PRC’s Belt and Road Initiative (BRI), the global development program that aims to rewire much of the world’s most important economic activity through China, was Panama in November 2017. Thus, the BRI recently marked its fifth anniversary in the region with the Western Hemisphere now counting 21 signatories to the agreement—a remarkable expansion in just five years’ time, including some of the largest economies in the region, such as Argentina.

The BRI’s rapid expansion throughout LAC provides new inroads for Beijing to translate its economic influence in the region into political capital. Panama’s entry into the initiative came mere months after it officially dropped recognition of Taiwan in exchange for the PRC. Meanwhile, closer trade links help soothe China’s growing concerns over both access to natural resources and food security, two areas where Latin America is well-positioned to meet Chinese demand. Here the BRI, and China’s geoeconomic strategy more broadly, has helped secure favorable terms of access to LAC’s commodities. For instance, Ecuador recently found itself constrained by debt-servicing requirements to sell oil to China, even as domestic (and global) prices skyrocketed. And while raw materials and foodstuffs flow into China, Beijing assiduously promotes its own exports, especially electronics and telecommunications, as well as infrastructure development, throughout LAC.

Beyond Belt and Road: Critical Infrastructure

Focusing exclusively on the PRC’s economic engagement with Latin America and the Caribbean risks missing alarming trends and vulnerabilities in the region. Indeed, the PRC’s engagement in other parts of the world reveals vulnerabilities that may repeat themselves in the Western Hemisphere—namely, the PRC is deft at leveraging its multifaceted engagement, especially its commercial engagement, to create security advantages for itself. This is especially the case with infrastructure development—both digital and physical. China’s economic and development influence can serve as a coercive set of mechanisms to extract concessions from borrower countries, locking countries into dependence and contributing to an erosion of strategic autonomy.

At a 2021 hearing of the U.S.-China Economic and Security Review Commission, the PRC’s engagement with Latin America, and the construction of “dual-use” infrastructure, were major topics of concern. Within the category of potential dual-use infrastructure, nothing garners more attention than developments in port facilities, where the People’s Liberation Army Navy may seek to gain naval access in the future. Indeed, the commander of the United States Southern Command (SOUTHCOM), Laura Richardson, has raised alarm bells about Chinese influence on both sides of the Panama Canal. Speaking later at the Aspen Security Conference, General Richardson said that China’s presence near the Panama Canal “could be turned quickly toward military capabilities.”

In total, the PRC counts around 40 port-building or upgrading projects in Latin America and the Caribbean, almost all of them handled by Chinese state-owned enterprises. Some of these projects are geographically proximate to the United States, such as China’s port facility on the island of Abaco in the Bahamas. The PRC’s Abaco port sits close to southern Florida, the location of the U.S. Defense Department’s SOUTHCOM headquarters in Miami. Other PRC-led port projects rest on key supply routes and strategic chokepoints, such as China’s potential funding of Argentina’s polar logistics facility on the Beagle Channel, which is a gateway to Antarctica and sits near the all-important Strait of Magellan and Drake Passage.

When combined with nearly a dozen satellite installations in the Western Hemisphere and burgeoning space capabilities, the PRC already has a strong forward defense presence in the Western Hemisphere. Furthermore, the companies that handle these contracts belie their dual-use nature. China Harbour Engineering Company (CHEC), China Communications Construction (CCC), China Ocean Shipping Company (COSCO), and the China Satellite Launch and Tracking Control General (CLTC)—anodyne names for China’s state-owned enterprises structured either as sub-entities of the PLA or enterprises where the PLA has backdoor access by virtue of China’s national security law.

Recent events have cast serious doubt on the purported pacific nature of these port developments. First, there are fears that the PRC’s increased security engagement with the Western Hemisphere could witness Chinese warships docking in ports ostensibly of a commercial nature. Second, developments in regions outside of the Western Hemisphere demonstrate how PRC contracts for port upgrades can be subject to—for lack of a better word—mission creep. In the United Arab Emirates, for instance, the PRC stands accused of attempting to construct a clandestine military facility at an existing port. COSCO, one of China’s state-owned shipping companies, built and now operates a commercial container terminal in the port of Khalifa, outside of Abu Dhabi. In November 2021, leveraging satellite imagery, U.S. intelligence agencies detected excavation at the site of the port for military purposes. Even the Emirati government claimed ignorance, suggesting that the PRC had begun operations without its awareness.

A similar situation has presented itself on the Atlantic Ocean, in Equatorial Guinea, where two Chinese deep-water commercial ports on the Gulf of Guinea could serve as the PRC’s first military presence in that part of the world. Both events are part of a broader disturbing pattern, where the PRC expands the original purpose of a development contract—sometimes wittingly, and sometimes unwittingly for the foreign partner. Always, these expansions take on euphemisms belying their fundamental purpose—“strategic strong points” and “logistics facilities,” rather than “overseas military bases.”

There is no reason to believe the PRC’s actions in other parts of the world will somehow differ from its potential future actions in the Western Hemisphere. In fact, its actions elsewhere serve as an instructive roadmap for what is likely to come in LAC. Indeed, the PRC has the commercial foundation already constructed in the region to leverage in a similar way as it does other regions. Further, the PRC has over 150 planned transportation infrastructure projects in the Western Hemisphere that contain some type of port or logistics hub.

Developing a Credible U.S. Counteroffer: Enter Special Economic Zones

The PRC’s port projects are mostly situated around strategic chokepoints essential for global commerce and military operations, as well as key sea lines of communication. As a region likely to see more strategic competition in the future, China could leverage its growing list of port projects to disrupt U.S. commercial and naval operations in the Western Hemisphere. The potential scenarios present serious strategic challenges to the United States. If left unaddressed, the vulnerabilities presented could become untenable for the United States and eventually lead to strategic insolvency.

This has generated significant hand-wringing in the foreign policy community. While the United States should encourage LAC governments to sign agreements devoid of hidden clauses that can jeopardize sovereignty, it should take a more active role in shaping the region’s choices as well. Of course, LAC governments are sovereign and can engage with countries how they choose; however, in critical strategic matters such as potential dual-use infrastructure development, the United States should aim to put a resource-backed alternative on the table to counter PRC-led efforts.

Thus far, however, the government’s main institution for combating Chinese soft power in the developing world, the U.S. Development Finance Corporation (DFC), has faced difficulties shifting its project selection to prioritize competition with China. In regions like LAC, the DFC has encountered a dearth of bankable projects. Thus, the DFC has not realized its full potential as an infrastructure investor in regions such as LAC.

In some ways, the private sector has stepped into the void—specifically, the private sector operating under the favorable economic conditions furnished by special economic zones (SEZs). The Zones for Employment and Economic Development (known by their Spanish acronym, ZEDEs) in Honduras have provided one such example. In La Ceiba, Honduras, a city on the Caribbean coast of the country, one of the ZEDEs intends to build out a $600 million commercial port. Strategically located between the currently operating Ports of Cortés and Castilla and approximately 100 miles by highway from the country’s industrial center of San Pedro Sula, the Port of Satuyé would add considerable export capacity to Honduras’s Caribbean coast. Surrounding the port would be an industrial complex with reliable energy supply, wastewater treatment facilities, and residential plots. Once finished, the entire area could support thousands of jobs and allow Honduras to export goods to major ports on the Gulf Coast of the United States in three days or less. Given the U.S. goal of nearshoring supply chains to the Northern Triangle countries of Guatemala, El Salvador, and Honduras, the United States should look to SEZs as an important tool to catalyze this movement.

Fortunately, there are over 500 SEZs in the LAC region alone. While not all of them are created equally, the U.S. government should consider the utility value of creating a network of SEZs capable of furnishing the conditions for investments of a strategic nature, such as critical port infrastructure. The zones included in such a network should be assessed on the basis of proven track records and institutional commitments to transparency, strategic locations along major ports, manufacturing, and transit centers, and scalability to maximize the potential impact of investments there. Most importantly, building out policy along these lines would ensure the construction of critical infrastructure in LAC that is utilized for strictly commercial, and not military, purposes.

A network of vetted and approved SEZs would have an additional benefit: by providing better conditions for large-scale infrastructure investments like ports, such a network could help to alleviate the DFC’s paucity of bankable infrastructure projects in the LAC region. Not all zones have the governance platforms and incentive structures to furnish such conditions. Leveraging the ones that offer deep policymaking authority, best practices in dispute resolution, and tax and regulatory dimensions to reassure investors, could be a critical first step to eventually growing the number of public-private partnerships investing in critical infrastructure. Doing so is the only way to return the DFC to its original mission of countering the PRC, and specifically, in the field of infrastructure development.

Finally, an SEZ-oriented approach to private-sector critical infrastructure offers a critical advantage in terms of timelines. Not only do the zones already exist and possess at least the foundations for new infrastructure, the most successful SEZs in the hemisphere possess the kind of regulatory flexibility and independence to rapidly adjust to meet demands of working with the DFC. Thus, rather than waiting for change to filter down from the national level, the United States can engage multiple zones simultaneously and at a faster pace, allowing it to make up for lost time.

Returning to the level of U.S. grand strategy, contributing to conditions for large-scale infrastructure investment in LAC will be critical to maintaining the region as a U.S. strategic asset in a world of intensifying geopolitical rivalry. Thus far, the DFC has fallen short of its potential in this regard. Insofar as SEZs contribute to furnishing conditions for infrastructure, they have a clear strategic and geopolitical purpose in addition to their mission of catalyzing economic development.

The PRC has already proven itself adept at extracting significant concessions with its development aid and investment in critical infrastructure such as ports. In many cases, the United States has been slow to react in other regions of the world and the PRC has taken advantage. Formulating a well-resourced counteroffer to PRC infrastructure projects cannot come soon enough. In its shared neighborhood, the United States should use all the tools available to it, including SEZs, to create the conditions for significant investment in critical infrastructure and avoid strategic insolvency.

Ryan C. Berg is the director of the Americas Program at the Center for Strategic and International Studies in Washington, D.C.