A U.S.-China Partnership on the Sustainable Development Goals

Part of Chapter 8 | Sustainable Development

By Scott Morris
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The Sustainable Development Goals (SDGs), formally adopted by the UN General Assembly in September 2015, represent wide scope and great ambition on the part of UN member states over the next 15 years to achieve development-oriented goals like access to clean water, quality education, and modern energy. While each member is committed to action under the SDGs, as a practical matter, there needs to be considerable leadership exercised by a smaller group of countries. And unlike the Millennium Development Goals, the donor-driven predecessor to the SDGs, this new generation of development targets also point to a different composition of leadership on the global stage.

Specifically, the SDG agenda will depend critically on the ability of the United States and China to work in concert to address many of the goals, and particularly to find a path forward on questions of financing this agenda.

The financing agenda that underpins the SDGs faces two challenges: mobilizing billions of dollars in official financing, and in turn, using those funds to further leverage trillions in private finance. The “billions to trillions” agenda will require leadership from the United States and China, both as bilateral donors and investors, and as shareholders in the multilateral development banks (MDBs).

China’s emergence as a bilateral and multilateral donor

For the United States, these bilateral and multilateral roles have been well defined over many decades. For China, both roles are newer.

China has become a key actor in the development landscape in recent years, both due to its successful domestic efforts to reduce poverty and through its growing bilateral investments abroad. But China’s seemingly sudden emergence as a leader on global development policy is in part a result of the Chinese government’s leadership in creating the Asian Infrastructure Investment Bank (AIIB) in the spring of 2015, which garnered support from a wide array of governments globally despite expressions of concern from U.S. officials.

The thinking in China that led to creation of the AIIB, as well as the New Development Bank (NDB) or “BRICS Bank,” appeared to take hold more firmly following China’s G20 presidency in 2016. After a decade plus of pursuing massive bilateral investment flows to developing countries globally, which has been accompanied by considerable political backlash (both in the West and in the developing countries themselves), the Chinese now seek to take a leadership role in policy circles, particularly in the multilateral institutions. Due partly to constraints on their shareholding in existing institutions, their strategy includes a focus on creating new multilateral institutions like the AIIB with significant governance roles for China. It remains to be seen whether this separate-track multilateral approach will better align their investment activities with the norms and approaches of the broader development policy community.

Nonetheless, this is a critical shift. For many years, China has sought to be both a commercial investor abroad and a “poor country” in official international development policy settings. Recognizing that these two approaches can no longer hold, China is now stepping forward aggressively, attempting to frame itself as a development policy leader, including as an aid donor. So far, China’s role as a bilateral aid donor remains modest. While China does not follow OECD definitions for development aid, estimates place its annual foreign aid between $1–2 billion, or as little as under 5 percent of U.S. foreign assistance levels.1

But particularly by “multilateralizing” its approaches through the AIIB and NDB, the Chinese hope to expand their influence in their own region and globally, to improve their engagements abroad (better projects with less corruption and higher standards) and to garner greater political legitimacy for those engagements in the eyes of the global community.

To the degree Beijing is seeking to multilateralize its engagements, Washington should be generally supportive, recognizing that such an approach acts as a useful check on the excesses that can occur in bilateral engagements. The SDGs serve as a useful anchor for both countries to pursue a new partnership globally.

Opportunities in a U.S.-China development partnership

Multilateral Partnership

The heightened global attention around the AIIB is an opportunity for both China and the United States to lead in growing, elevating, and modernizing all of the MDBs.2 For the Unites States in particular, the most important strategic response to China’s creation of the AIIB should be a reassertion of U.S. leadership and ambition in the other MDBs. First and foremost, those efforts should be focused on more financing ambition in institutions like the World Bank, Asian Development Bank, African Development Bank, and Inter-American Development Bank.

The United States already has a leadership position in each of these MDBs, and collectively they operate on a much larger scale than the AIIB will. Importantly, new U.S. financing ambition at these MDBs would be welcomed by the Chinese and the rest of the developing world since they have been calling for an expansion of the institutions for some time, with the SDGs being the latest source of motivation. The “billions to trillions” agenda associated with the SDGs defines a leading role for the MDBs, leveraging their capital and grant resources to directly finance activities in a wide range of sectors and countries and to further leverage private flows by hedging risk at the project level and strengthening the policy environment.

The infrastructure agenda alone points to the need for considerable ambition at the MDBs. Leading economists have targeted an increase in annual MDB lending of $200 billion a year to achieve sustainable infrastructure objectives (identified as part of the SDGs) over the next 15 years.3 U.S. support for an expansion of this magnitude would represent a modest increase in appropriated funds for the United States, no more than 1–2 percent of the current foreign assistance budget, and could be managed with better coordination of bilateral and multilateral allocations.4

Reflected in this is the fact that contributions to the MDBs represent extraordinary value both in the quality of MDB programming and in the financial leverage they provide: $1 of “capital” in an MDB results in at least $35 in MDB investments globally, a figure that rises if we count the additional private capital that can be leveraged by the MDBs.5

The United States should also seek to improve its relationship with China within the World Bank and the regional development banks. The United States has been needlessly irritating to the Chinese by emphasizing that the country should “graduate” from its MDB borrowing status. U.S. policymakers should be more accommodative of China’s role as a client of these institutions. MDB lending to China contributes to the broader SDG goals, both by directly achieving progress within China and by stimulating wider progress on key global public goods like climate resilience. China’s graduation could harm the World Bank and ADB financial models in the near term, which are currently anchored by significant lending to creditworthy China, and thereby constrain the bank's capacity to lend to poorer countries and promote the SDG agenda globally.

Bilateral Partnership

The United States and China should also pursue bilateral development partnerships in third countries in support of the SDG agenda, recognizing that prospects in the near term are likely modest. Broadly speaking, U.S. bilateral assistance, which focuses largely on global health and humanitarian assistance, has little in common with China’s bilateral programs, which have been meager when it comes to grant-based assistance but massive when it comes to lending for physical infrastructure investment. For example, President Xi’s visit last year to South Africa came with an announcement of $60 billion in new financing for the region. Most of that will constitute infrastructure-related loans and equity investment, with a relatively small share ($5 billion) devoted to the grant-based assistance that defines the typical U.S. foreign assistance package.6

Nonetheless, as China moves to increase its role as a traditional donor, the United States can play a key role in encouraging more support for social and humanitarian programs through partnerships and technical dialogue, especially in countries and areas in which the United States and other traditional donors are not already engaged.

Further, the United States could usefully leverage its modest aid resources devoted to infrastructure by partnering with the Chinese on major projects in shared priority countries. In doing so, U.S.-valued norms and standards around these projects (for example, environmental and social safeguards) can be brought to bear where they might otherwise be missing, and in turn will tend to reinforce SDG-related objectives.

Specifically, Washington could deploy the Millennium Challenge Corporation (MCC), as its principal infrastructure aid agency, to engage systematically with China to expand the funding envelope for the best infrastructure projects in key low-income countries. MCC invests heavily in analysis to identify projects best placed to unlock growth with the highest economic returns, and in project design and due diligence. Collaborating with China on this “pre-diligenced” project pipeline would be a clear win-win. It would help China identify the best projects at low cost and it would help scale the scope and impact of MCC’s work. The collaboration could encompass compacts in both Asia and Africa.

Finally, the United States and China should seek a more constructive partnership on aid-related aspects of engagement in fragile states. Cases like Sudan/South Sudan and Zimbabwe call for more effective collective action by the international community, and it will undermine that objective if China and the United States are not fully committed to multilateral cooperation. Important discussions in the years ahead about foreign assistance, debt relief, and MDB engagement in fragile environments will require an orientation from China that is better aligned with global norms and less driven by bilateral commercial interests, and an orientation from the United States that seeks to work with China as a partner.

Broadly speaking, the United States and China have the most important bilateral policy dialogue in the world. Following the creation of the AIIB, development issues factored more prominently into the regular dialogue. Today, even as politics in the United States shift, both countries would be well served, and would be doing a service to the developing world, by sustaining this dialogue, making explicit a new partnership in pursuit of the SDG agenda.

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[1] He Wenping, “New Actors in International Development: The Case of China in Africa,” Brookings Institution, A Trilateral Dialogue on the United States, Africa and China: Conference Paper 1 and Responses, 2013, 3, http://www.brookings.edu/~/media/Research/Files/Reports/2013/08/us-africa-china-trilateral-dialogue/All-China-Aid-Papers.pdf?la=en.

[2] Scott Morris, Responding to AIIB: US Leadership at the Multilateral Development Banks in a New Era , Council on Foreign Relations, September 1, 2016, https://www.cfr.org/report/responding-aiib.

[3] Amar Bhattacharya, Jeremy Oppenheim, and Nicholas Stern, Driving Sustainable Development Through Better Infrastructure: Key Elements of a Transformation Program , Brookings Institution, July 10, 2015, https://www.brookings.edu/research/driving-sustainable-development-through-better-infrastructure-key-elements-of-a-transformation-program/.

[4] Scott Morris and Madeleine Gleave, Realizing the Power of Multilateralism in US Development Policy , Center for Global Development, July 20, 2015, https://www.cgdev.org/publication/ft/realizing-power-multilateralism-us-development-policy.

[5] MDBs can borrow against U.S. and other shareholder capital, typically at a rate of five to one. In addition, U.S. contributions are leveraged by those of other shareholders—for example, at the World Bank at a rate of seven to one.

[6] Winslow Robertson and Lina Benabdallah, “China pledged to invest $60 billion in Africa. Here’s what that means.,” Washington Post, January 7, 2016, https://www.washingtonpost.com/news/monkey-cage/wp/2016/01/07/china-pledged-to-invest-60-billion-in-africa-heres-what-that-means/.