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Can G7 Countries Compete With China’s Belt And Road Initiative?

Following the expansion of Chinese-led projects in many emerging markets over the past decade, the G7 has unveiled its own initiative to support global infrastructure development, dubbed Build Back Better World (B3W). Announced at a G7 meeting in June, the B3W will focus on four main areas: climate, health, digital technology and gender. Its overarching goal is to catalyse hundreds of billions of dollars of infrastructure development in low- and middle-income countries.

Beyond this outline, little information has been released about how the B3W initiative will operate in practice. However, it is clear that it responds to two broad, interconnected aims.

On the one hand, the B3W will constitute “a values-driven, high-standard, and transparent infrastructure partnership”, according to a fact sheet put out by the US government. It seeks to help narrow the more than $40trn infrastructure gap in the developing world, which has been exacerbated by the Covid-19 pandemic.

On the other hand, the B3W will serve as a counterweight to China’s flagship Belt and Road Initiative (BRI), with the fact sheet highlighting that it will be a means of “strategic competition with China”.

BRI pivots away from infrastructure

Launched in 2013 and initially intended to revive ancient Silk Road trade routes between Eurasia and China, the BRI grew to become a far-reaching plan for transnational infrastructure development, linking countries and continents through land and sea corridors and industrial clusters.

The BRI caused consternation among G7 countries from the moment of its inception. This was due in part to the fact that it was widely seen as a way to expand Chinese geopolitical influence.

Related: Can The Airline Industry Live Without Fossil Fuels?

For example, in December 2017 Sri Lanka formally ceded 70% control of Hambantota Port to a Chinese state-owned firm on a 99-year lease after the government was unable to service Chinese loans used to build the $1.3bn strategic gateway on the Indian Ocean.

Concerns have also been raised over the lack of transparency in terms of lending, environmental and social impacts, and corruption.

However, some of these apprehensions have been eased by recent developments. As OBG has covered previously, since the Covid-19 pandemic the BRI has increasingly moved away from big-ticket infrastructure projects, with China placing a greater focus on sustainable, digital and health-related aspects – the so-called green, digital and health silk roads.

This pivot has meant that the countries participating in the BRI are receiving fewer financial resources: from a peak of more than $125bn in total spending in 2015, China spent around $47bn on BRI projects last year.

Mind the gap

China’s shift away from infrastructure projects has left a gap which the B3W is aiming to fill.

A key aspect of the B3W is the mobilisation of private sector capital through the expansion of existing development finance tools.

This reflects an awareness that what the US administration calls “status quo funding and financing approaches” are insufficient to close the vast infrastructure gap which continues to stymie development in emerging economies around the world.

According to the Global Infrastructure Hub, a G20 initiative, the world is facing a $400bn gap in infrastructure investment this year, a figure that could cumulatively grow to $15trn by 2040 if current rates of spending continue.

Another key pillar of B3W is sustainability, a term that has become a watchword globally in light of Covid-19 and escalating ecological disasters.

In this respect, the B3W’s aims dovetail with growing appetite among private sector investors for green projects – evidenced by the record $269.5bn in green bond issuance last year, according to the Climate Bonds Initiative, a figure which some expect to double in 2021.

Among other factors, this would suggest that the B3W is well placed to capitalise on investment trends.

Many emerging economies are in urgent need of funds to drive their Covid-19 recoveries, and are waiting expectantly for further details of how the initiative will operate. However, while the principles enshrined in recent announcements are certainly encouraging, more details will need to emerge promptly in order to demonstrate that the B3W is more than a memorable acronym.

By Oxford Business Group

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  • Mamdouh Salameh on July 30 2021 said:
    The simple fact is that G7 countries can’t compete with China’s Belt & Road Initiative (BRI) now or ever. Three reasons for that.

    The first is that the BRI is apolitical whilst the G7’s Build Back Better World (B3W) is steeped in politics. Whilst the BRI has been providing aid and soft loans to poor and developing countries since 2013 to help them build and or upgrade their infrastructure and start wealth-creation projects with no political interference in their affairs whatsoever, countries who would receive any aid from the B3W would have to toe the western political line or no aid or loans would be forthcoming.

    The second reason is that the BRI aims at expanding global trade by helping other countries’ economies to grow richer and bigger from which the Chinese economy could also benefit. In other words, the underpinning principle of the BRI is live and let live. On the other hand, the B3W wouldn’t have seen the light of day if not for the great success of the BRI. Its ultimate goal has far less to do with helping poorer and developing countries improve their lot and far more to serve as a counterweight to the BRI in a strategic competition with China.

    A third reason is that the B3W focuses on green projects with the ultimate beneficiary being the G7 countries themselves while the BRI puts food on the table for the people of poorer and developing countries. The poor countries of the world don’t give a toss about climate change and emissions when they don’t know where the next meal will come from.

    Western countries are hypocrites. For years they avoided investing in Africa or offering aid and loans either because of the sanctions they themselves imposed on African countries or because of the politics of these countries. On the other hand China invested heavily and helped many poorer countries develop their natural resources and grow richer irrespective of their politics by offering aid and soft loans thus enabling Africa to grow for many years at 4.4% per annum according to the World Bank.

    I hasten to add that China’s investments in Africa were partly motivated by its need for Africa’s natural resources. Still both sides benefited enormously from this cooperation.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Hugh Williams on July 30 2021 said:
    You can bet that with private companies doing the heavy lifting the profit motive will rule.

    With the objectives of " climate, health, digital technology and gender" I would say the pitch will not be well received. Health is good but then electricity and transportation would be the needed item to raise the standard of living. Climate, digital technology, and gender will not be big winners.

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