While the G7’s “Build Back Better World” (B3W) offers an alternative to China’s Belt and Road Initiative, it remains a nascent proposition that may not suit every government, especially not the more authoritarian ones.
At their recently-concluded summit in Cornwall, the members of the G7 – the United States, Canada, the United Kingdom, Germany, Italy, France and Japan – resolved to forge a partnership to build a ‘values-driven, high-standard, and transparent’ physical, digital, communication, health, technological and financial initiative that would also be resilient and sustainable. The initiative aims to provide around US$40 trillion ($52.7 trillion) to build infrastructure needed by the developing world, which has been adversely affected by the COVID-19 pandemic. Under the “Build Back Better World” (B3W), the G7 and like-minded partners plan to ‘mobilise private-sector capital in four areas of focus – climate, health and health security, digital technology and gender equity and equality’ through investments from respective development finance institutions.
The B3W, which is promoted by US President Joe Biden’s administration, offers fiscal and technological assistance to low- and middle-income countries in the Indo-Pacific region, Africa, Latin America and the Caribbean. As a White House Fact Sheet notes, ‘The United States is rallying the world’s democracies to deliver for our people, meet the world’s biggest challenges, and demonstrate our shared values.’ The Biden Administration has called the B3W ‘an Affirmative Initiative for Meeting the Tremendous Infrastructure Needs of Low- and Middle-Income Countries’ and issued six guiding characteristics on which the initiative is predicated: (a) Values-Driven; (b) Good Governance and Strong Standards; (c) Climate-Friendly; (d) Strong Strategic Partnerships; (e) Mobilise Private Capital Through Development Finance; and (f) Enhancing the Impact of Multilateral Public Finance.
The Carbis Bay Summit Communiqué that was issued at the end of the two-day summit notes that the G7 partners will ‘continue to consult on collective approaches to challenging non-market policies and practices which undermine the fair and transparent operation of the global economy.’ The B3W initiative is now being increasingly viewed as a response to China’s Belt and Road Initiative (BRI) that, according to the OECD report titled “China’s BRI in the Global Trade, Investment and Finance Landscape”, includes over 100 economies and six economic corridors that radiate west from China.
The BRI has been an issue of international concern despite China’s assurances that it will complement the development strategies of partner countries through infrastructure development, job creation and catalysing other foreign direct investment. It will help those countries to participate in the ongoing globalisation and enhance their national development.
The BRI has led some countries, particularly in South Asia, into debt traps, however, and others elsewhere are being forced to reassess, cancel or delay projects for domestic political, environmental and financial reasons. Besides, the COVID-19 pandemic has taken its toll on the BRI and many projects have been put on hold due to the pandemic. Many BRI recipients are failing to repay debts, which will surely ‘push up the non-performing loan burden of China’s development banks and commercial banks’, bearing in mind that today China is one of the world’s largest creditors, having invested more than US$500 billion ($659.1 billion) in BRI-related projects.
It is fair to say that China will attempt to salvage its investments and offer attractive options to the BRI debtors to service and repay their loans. It will also address force majeure clauses in their contracts. For instance, the Supreme People’s Court of China has announced the “Guiding Opinion on the Proper Handling of Civil Cases Involving the Novel Coronavirus Outbreak in Accordance with the Law”, which guidelines provide direction to lower courts in civil cases arising out of the COVID-19 pandemic, including ‘force majeure claims as well as other contract disputes over performance’.
It remains to be seen, nevertheless, if Chinese development banks such as the Silk Road Fund, the New Development Bank and the Asian Infrastructure Investment Bank will have the appetite to continue funding BRI projects given that the “long term profitability of such investments” has now been compromised.
Although the B3W gives the developing world an alternative to China’s BRI , it is still at an embryonic stage. It will require large amounts of finance, which are unlikely to eventuate soon due to the impact of COVID-19 on economies, production and supply chains. Besides, it is still not known when global commerce will return to normal, when uninterrupted services across sectors will commence and for the global movement of people to resume. Also, the COVID-19 virus is mutating and its new variants are suspected to reduce the efficacy of existing vaccines, resulting in stringent travel regulations.
Added to that, developing countries have different political systems and levels of transparency and accountability. “Good Governance and Strong Standards”, an important guiding principle of the B3W, could be construed as intrusive and therefore not favourable in many countries.
At another level, the Chinese are unlikely to acquiesce to the West or the G7 and give up their BRI. It is fair to assume that China will offer its own attractive options, including delayed repayment offers and several other free sops associated with these projects. It may even put to rest fears among the Chinese development banks with assurances of sustained new financing. For Beijing, the BRI is not just a development initiative; it is also a strategic investment to win geopolitical and geostrategic advantage against the US.