Photo Courtesy of Forbes
In the nine years since Xi Jinping’s government launched the Belt and Road Initiative (BRI), a trillion-dollar foreign policy tactic which bankrolls global infrastructure development and that China calls a new Silk Road linking east and west, Western attempts to counteract the scheme have universally failed. Barack Obama failed to prise Asian nations away from Chinese trade deals: a trade agreement of Obama’s with allies in the Indo-Pacific was nixed in the first weeks of the Trump presidency. Later, Donald Trump’s administration saw success in inspiring global criticism of BRI, but never settled on a concrete alternative.
Over the past decade, the need for urgent action against the BRI has become clearer, as many of China’s flagship projects have ended calamitously for host nations. For instance, Ecuador was forced to request a bailout from the IMF in 2019 after taking on $19bn in loans from China. In Sri Lanka, Hambantota, a $1bn BRI port, was ceded in 2017 to a Chinese corporation on a 99-year lease after the nation failed to repay its debts. Now, Chinese military vessels have use of the port: last year, the Yuan Wang 5, a surveillance ship that monitors satellites and missiles, alighted at Hambantota. China has even asked its neighbor, Tajikistan, to hand over approximately 400 sq mi of territory: $1.2bn of debt in that country remains unresolved. The term ‘debt-trap diplomacy’ has been coined to describe China’s leveraging of debt to exert its often-malign influence over other nations.
In June 2022, however, the G7 group of wealthy democracies pledged to release $600bn over the next five years as a riposte to the BRI. The cash – under the banner of the Partnership for Global Infrastructure and Investment (PGII) – will fund infrastructure in developing nations until 2027. President Biden (who had proposed an early version of this plan as Build Back Better Global, or B3G) said that the US would inject $200bn into the initiative.
Although the G7 is investing to a lesser extent than China (which has put $1tn into emerging markets since 2013), the PGII is likely to mobilize cash more efficiently than its rival. Where the Chinese have focused on risky investments in expensive physical infrastructure, the G7 will put money into digital connectivity, healthcare, energy, and climate-friendly projects. Unlike with Chinese initiatives, there is no risk of debt-leveraged neo-colonialism: it’s hard to seize an investment in, say, hospital beds, under a 99-year lease. The People’s Daily, a Communist mouthpiece, lambasted the PGII as “nothing but horse-meat marketed as beef-steak.” Meanwhile, it described the BRI as “outstanding,” one of many “glorious achievements under the [current] leadership.” Despite these assertions, trends indicate that Chinese investment is shrinking as the BRI falls short of growth expectations. In recent months, both Chinese imports and exports have dipped, GDP growth is flat or (as some economists suspect) negative, and the country faces a vast property crisis. The government is, accordingly, scaling back its foreign investment. The PGII, which offers Western expertise and stability in a number of important fields, will as a result of these cuts look more attractive to developing nations.
Perhaps most worryingly for China, the formation of the PGII is part of a broader trend in Sino-Western competition, as the latter bloc begins to more efficiently mobilize resources, allies, and capital in opposition to the PRC. For instance, China’s foreign minister, Wang Yi, toured Pacific island nations to win support for a ‘China Pacific-Island Countries Common Development Vision,’ earlier this year. Not only was Wang rebuffed, but 14 Pacific island nations committed to working with the US in “genuine partnership” to address an “increasingly complex geopolitical environment,” alongside other issues. At the same time, the Quadrilateral Security Dialog (colloquially, the Quad) – an emergent association between Japan, India, Australia, and the U.S. (Vietnam, South Korea, and New Zealand are observers) is growing in strength, with members increasingly committing to defense pacts, materiel, and drills. Other Western initiatives, like the UK’s $4bn climate-friendly development package, and the EU’s $340bn infrastructure investment, will complement the PGII.
Additionally, the G7 has indicated that their commitment to the PGII is strong. President Biden has placed several existing projects – ones with strong long-term mandates, like the US Import-Export Bank (EXIM) – under the PGII’s name. The EXIM runs until 2026: it would be difficult and embarrassing to divorce from the PGII if investment does not materialize. Through EXIM, President Biden has loosely anchored future governments to the PGII, at least for the next four years. The G7 has also retroactively included several existing projects – ranging from undersea cables in Singapore to vaccine plants in Africa and nuclear power in Romania – in the PGII’s portfolio of accomplishments.
Despite these encouraging signs of progress towards an effective rampart against the BRI, the G7 should proceed cautiously. The reach of China in developing countries, and especially autocratic ones, remains significant. Unlike Western leaders, Chinese officials don’t ask difficult questions about human rights and, one suspects, have few qualms about greasing palms to get done their deals. Moreover, Chinese investment is state-led, with government-run corporations accounting for approximately 40% of GDP. These companies will not hesitate to invest in risky or unstable environments, so long as they’re prodded into action by the central government. Private Western entities will not be so enthusiastic. These two factors, alongside voters’ reluctance to stump up the cash, will likely slow the PGII’s path to success.
The G7 should work harder to tackle these problems beyond multilateral conferences. Rather, they should aim to optimize coordination and collaboration. For a foreign investment from the US alone, USAID, the State Department, the International Development Finance Corporation, and other government branches must coordinate efforts. Multiplied by seven nations, working towards effective communication might prove a Sisyphean task. A single agency, then, should be awarded authority over the PGII, so that links between investment projects might be improved.
Plus, the West should boost its global promotion of the PGII. As China’s aggressive propaganda demonstrates, the PRC is excellent at trumpeting and inflating its own successes, however minor (a strategy largely for the benefit of a domestic audience, but which has global reach nevertheless). That isn’t to say that the G7 should adopt a similarly misleading approach. It should, however, redouble efforts to counter the Chinese information assault. Where the BRI has an officials’ jamboree and even a Belt & Road film festival, President Biden has quietly pointed to case studies and press releases. If the PGII is to compete with China effectively on a worldwide stage, it should make a point of touting to a greater extent its merits.
The final, and most crucial, core element of the PGII’s strategy should be a greater emphasis on private partnership. As aforementioned, the Group of Seven will see difficulty in moving corporations towards work in emerging markets, which are logistically, economically, and politically challenging (that is to say – few Western makers of solar panels, cell phone towers or medical equipment would push money into a developing country when they could invest in the more comfortable environments of Texas or North Rhine-Westphalia). The G7 will, then, have to create strong incentives for the corporations with which they work, for the corporate West’s finest minds will not participate in the PGII out of charitable instinct. One of the many competitive advantages of the West over China is its dynamic private sector, driven by limited state involvement. Unlike Chinese state corporations, Western firms by and large do not partake of inefficiencies and needless risks which serve the national interest. This is good for Western economies, but bad for the PGII, which will need to pay premiums to its corporate partners to make up for the perils of the emerging world. The Biden Administration, as well as European governments, should strongly consider using tax policy to incentivize participation in PGII, at least initially. If the PGII proves to be an effective, stable means of securing returns on investment (this is how Biden described the program at its launch), then the G7 could open the PGII to large investors, like pension funds, and even to capital from sovereign wealth funds that have the most to gain by limiting Chinese influence, like Singapore’s $630 billion Temasek Holdings.
The PGII alone will not ensure the West prevails in this era of Sino-American competition, but it is a model of a broader strategy that can, and must, succeed. US strategy should have three components; it must stand in sharp contrast to the cynicism of the Chinese state-led debt trap; secondly, it must encourage free markets and investment in innovation that addresses the genuine needs of the Global South, rather than the interests of the Chinese Communist Party; and, thirdly, it must continue to showcase the enduring virtues of a free and open society, in contrast to the increasingly repressive instincts of Xi’s COVID-obsessed surveillance state. This is how freedom triumphs.
