G7 struggles to match China's global infrastructure offer

Whatever the name, western plans for investment partnerships lack clarity for intended beneficiaries

(L-R) Britain's Prime Minister Boris Johnson, US President Joe Biden, German Chancellor Olaf Scholz and France's President Emmanuel Macron take their seats prior  to a meeting of five G7 leaders on June 28, 2022 at Elmau Castle, southern Germany, on the last day of the G7 Summit.  (Photo by Brendan SMIALOWSKI  /  AFP)
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Cast your mind back to last year, and the G7 leaders assembling beside the beach in Cornwall.

Then, amid fanfare, US President Joe Biden unveiled the Build Back Better World plan or B3W, for short. It was, said Biden, to be a higher-quality alternative to China’s Belt and Road Initiative, or BRI. The G7 leaders said theirs would offer a “values-driven, high standard and transparent” partnership.

Now, cut to this week and the 2022 meeting of the G7 at Schloss Elmau in the Bavarian Alps. There, they’ve launched the Partnership for Global Infrastructure and Investment scheme, or PGII. It will, said Biden, allow countries to “see the concrete benefits of partnering with democracies”.

The sense of déjà vu is strong, as indeed it should be, since PGII is intended as a replacement for B3W. That’s because the latter never got off the ground. Even from day one, there were problems, with the then-German chancellor Angela Merkel saying it was not clear how the B3W would be financed.

That’s how it remained, with not enough clarity as to where the money, for what was seen very much as a US-driven programme (Build Back Better was a direct copy of Biden’s domestic spending and climate agenda), was going to originate. During the ensuing months, not enough G7 members made significant contributions and the big Cornwall idea fell flat.

Hence, the relaunch and the new name. But is it any better?

The driver for all this diplomatic activity and fund-raising, and eventual spending, is of course China’s BRI. Since it was started by President Xi Jinping in 2013, Belt and Road has provoked apoplexy among western governments. China is pouring trillions of dollars into emerging countries, offering them loans to develop ports, railways, roads and bridges. It’s led the communist giant to draw close to nations that are economically poor but rich in resources, sparking consternation in the West’s democracies.

They argue that while China has established and expanded trading links, the investment is also designed to be “predatory”, that the cash advances from Beijing come at a price, and the small print forces a debt-saddled country to cede valuable assets should it fail on debt repayments. The Chinese maintain this is nonsense and that BRI is there to help others raise their game and enjoy the fruits of greater prosperity from increased trade.

Whatever the truth, aiding less fortunate nations has become an ideological battleground — or at least that is how it is seen by the US in particular. The notion that China can steal their traditional thunder, using “debt diplomacy”, deploying finance as a weapon to advance its cause, is especially infuriating.

Workers at a construction site in Bentong, Malaysia. Reuters

The problem is that BRI is straightforward and simple in administration and execution. The Chinese agree to do a deal. That’s it. There is no messing around, little obfuscation — it’s a direct transaction. The Americans will argue “phooey, don’t be fooled, it’s a cloak for all manner of persuasion and influence". But that is not how BRI operates in practice — China’s new partner is grateful for the attention and for the cash.

Where the US and its friends went wrong with B3W, and if they’re not careful, will do so again with its successor, is they’ve overcomplicated. So, it’s aimed at climate change and achieving gender equality and improving global health and boosting digital capability. Projects cited in Bavaria include a $2bn solar-powered development in Angola, a vaccine manufacturing plant in Senegal, $14m towards a design study for a small modular reactor in Romania, and a 1,609km submerged telecoms cable linking Singapore to France via Egypt and the Horn of Africa and costing $600m.

The China-Laos railway is one of hundreds of projects under Beijing's Belt and Road Initiative. Xinhua via AP

All highly creditable, but no obvious connection and each is complex and fraught with risk. They have the smell of ticking policy boxes about them rather than borrowing money to build a bricks-and mortar-bridge, for example.

It’s not clear either, just as with B3W, how the new incarnation will be funded. The G7 leaders have pledged to raise $600bn over five years, with a third of that being paid by the US, from federal sources, grants and private investment. The EU will find E300bn. Quite how the proportions break down, between public and private, and who these private backers are, how they will be wooed, what level of return they can expect to receive, is not specified.

Prime Minister Boris Johnson is interviewed by the media during the G7 summit in Schloss Elmau, in the Bavarian Alps, Germany. PA

In the year since Cornwall, let us not forget, the world has struggled with the fallout from widespread inflation and Russia’s invasion of Ukraine, so the private sector may have other priorities and could give less generously than before.

Again, it’s different from the China model. The G7 rival smacks of too many cooks, too many ingredients and too many objectives. The US is keen, for instance, to end the use of forced labour in global supply chains, citing China’s exploitation of the Uighur minority in Xinjiang as particularly morally outrageous, to present a more acceptable way of working.

European Commission President Ursula von der Leyen said the aim of GPII was to present a “positive powerful investment impulse to the world, to show our partners in the developing world that they have a choice”.

Similarly, Biden did not mention China explicitly in his announcement of GPII but said: “We’re offering better options for people around the world.” On the side-lines of the summit, Biden elaborated further: “When democracies demonstrate what we can do — all that we have to offer — I have no doubt that we’ll win that competition every time.”

For their part, the Chinese, far from quaking, appear oddly unperturbed. If anything they seem even more determined. Reacting to the news of GPII at his regular briefing in Beijing, China’s Ministry of Foreign Affairs spokesman Zhao Lijian said his country welcomed any project that promoted global infrastructure. “We believe there’s no such thing as relevant initiatives countering or replacing each other.” He added, however: “What we oppose are moves to advance geopolitical calculations and smear the BRI in the name of promoting infrastructure development.”

It can’t be fanciful to suggest that in12 months’ time, the G7 will assemble and proclaim the advent of an exciting, investment fund bearing a new title and another set of initials.

Published: June 29, 2022, 1:23 PM