Global Infrastructure Development: China, Biden and the New Pivot of 21st Century Geopolitics
Over the past decade, infrastructure development has emerged as a primary tool of global influence. This should come as no surprise since, to begin with, there is a massive global infrastructure spending gap. According to the Asian Development Bank (ADB), developing Asia needs up to $26 trillion in infrastructure investment through 2030, while annual financing gap has doubled to $907 billion in recent years. Globally, the McKinsey consultancy group estimates a $3.7 trillion annual spending gap over the next 15 years, while the Global Infrastructure Hub estimates a $15 trillion global gap through 2040.
It’s not only about upgrading decrepit public infrastructure. Governments across the world are desperate for ways to boost their post-pandemic recovery through massive and state-of-the-art infrastructure projects, which would create jobs, accelerate digitization in key economic sectors, as well as bolster the performative legitimacy of incumbent regimes. The combination of intensifying climate change, disruptive technological innovation, and years-long COVID-19 has forced a major reset in macroeconomic planning, with a growing number of governments carefully examining the necessity for entirely new, green public infrastructure and urban masterplans.
No wonder then, practically all major international players are joining in with gusto. The most ambitious of all infrastructure development projects, however, is the Belt and Road Initiative (BRI), a trillion-dollar, transcontinental vision that seeks to revamp the global economic order with Chinese characteristics. The sheer breadth and scale driving the BRI, however, has also exposed it to all kinds of perils, from allegations of massive corruption to lack of transparency and ‘debt trap’ diplomacy. In response to China’s perceived predatory economic diplomacy, the Biden administration and key allies have pressed ahead with a whole host of bilateral, multilateral and minilateral counter-initiatives.
Read also: The changing China-Europe geo-economic relationship: a wake-up call for the EU
The ultimate aim of these US-led projects, from the Blue Dot Network (BDN) to the Build Back Better World (B3W), is not to match China’s pledges on a dollar-to-dollar basis per se, but instead to provide sustainable, quality alternatives to meet the global infrastructure spending gap as well as uphold global standards on good governance and environmental sustainability. As the Biden administration bluntly put it, initiatives such as B3W aim to meet “competition with China” and “commit to concrete actions to help meet the tremendous infrastructure need in low- and middle-income countries.”
Xi Must Be Obeyed
The BRI, with an estimated tag price of US$ 3.45 trillion covering 2,881 projects across three continents, didn’t emerge out of thin air. Its antecedents can be traced back to both state-led initiatives such as Jiang Zemin administration’s “Go Out” and “Going Global” strategy and Hu Jintao administration’s “March West” strategy, which encouraged massive Chinese investments in strategic destinations, as well as private-sector projects in collaboration with provincial governments, most notably the 2009 deal between Hewlett-Packard (HP) and Chongqing authorities, which aimed at establishing alternative trade routes for Chinese manufacturing exports.
But it was not until President Xi Jinping’s ascent to power that China developed what could be called as a ‘grand strategy’, whereby a combination of economic, technological and geopolitical instruments are systematically harnessed to achieve a specific global objective. Early on, the Chinese leader made it clear that he is committed to pursue the ‘Chinese Dream’ of ‘Great Rejuvenation’, effectively turning Beijing into the new vanguard of the global economic order.
Following two important speeches in late-2013, one in Almaty, Kazakhstan and another before China’s foreign policy elite, Xi effectively launched a new economic grand strategy in 2014, when the the BRI plan was officially embedded into China’s national economic development strategy. In line with Chinese tradition of statecraft, Xi’s “project of the century”, however, was not solely driven by a monomaniac drive for global domination.
Instead, the BRI meant to address a number of interlocking domestic, economic and strategic priorities, namely (i) boosting growth in landlocked and under-developed central and western regions of China; (ii) diversifying trade routes and enhancing export market opportunities for Chinese manufacturers; (iii) boosting national champions and upgrading China’s industrial policy, and (iv) securing Chinese access to precious resources and strategic facilities across the Indo-Pacific and the Eurasian landmass.
It didn’t take long, however, before the BRI came under heavy criticism, both in the developing world as well as in the West, for supposedly advancing China’s nefarious influence as well as a corrosive ‘debt trap’ diplomacy. Meanwhile, China’s big-ticket projects, from Sri Lanka to Indonesia, Thailand, the Philippines and Malaysia, have been mired in either corruption scandals, regulatory uncertainty, disputes on excessive reliance on Chinese labor and technology input, and chronic delays — a cluster of problems which have been exacerbated during the pandemic.
China’s first-mover’s advantage, and the correspondingly aggressive public policy following the launch of the BRI, steadily invited a torrent of criticism and competition. Since early-2000s, Asia’s other giant, India, has launched the International North–South Transport Corridor and East-West Corridor to further integrate countries across South Asia, Central Asia and West Asia into a new network of trade and investment under New Delhi’s watch. Meanwhile, since 2017 South Korea, Asia’s economic dynamo, has responded in kind with own “New Northern” and “New Southern” Policies, which aim to enhance the country’s trade linkages across the resource-rich Eurasian landmass and booming Southeast Asian economies.
Follow the Other Leader
Initially, the Trump administration adopted a broadly confrontational approach by disparaging Chinese investments as predatory practices aimed at infiltrating critical infrastructure, co-opting local elites, and enhancing Beijing’s influence over increasingly dependent economies. Under the Biden administration, however, we are beginning to see a more coherent and constructive approach, as Washington seeks to corral allies and likeminded powers to address the BRI challenge head on.
As a centralized political system with a vibrant capitalist economy, China clearly enjoys structural advantages over its rivals. Unlike the communist regime in Beijing, Western democracies cannot direct major companies to invest specific amounts in specific territories for specific projects. Nor do they enjoy Beijing’s ability to make long-term, fiscal commitments with minimal domestic scrutiny. Nevertheless, the ongoing global infrastructure scramble is more competitive than it seems.
Read also: Over the Indo-Pacific, do not give Xi Jinping more credit than he deserves
As for Japan, a US treaty ally, its Connectivity Initiative and Partnership for Quality Infrastructure initiative, launched in 2016 cuts across the whole gamut of developing Asia and beyond, as Tokyo seeks to maintain its competitive edge in traditional markets and overseas production bases. Years earlier, Japan launched a $110 billion infrastructure investment program, which explains why the country continues to be dominant economic player in critical regions such as Southeast Asia.
Japan is also a major global player in terms of setting principles for quality infrastructure investment, an initiative that has been endorsed by the G20, including China. Meanwhile, Japan and the European Union (EU) have established in 2019 a “Partnership on Sustainable Connectivity and Quality Infrastructure”. On its part, Brussels is exploring an EU Connectivity Strategy as part of a more ambitious plan to jointly expand the existing EU-Asia Connectivity Strategy with likeminded powers such as Japan, and potentially Australia, South Korea, India and Singapore.
Between 2016 to 2019, G7 nations provided close to $113 billion in official development assistance for overseas infrastructure projects in accordance to Paris Club principles of debt and environmental sustainability. The Biden administration is, therefore, building on allies’ prior efforts through a plethora of bilateral, minilateral and multilateral initiatives. Earlier this year, the US and Japan signed a $4.5 billion joint high-tech infrastructure initiative, which aims to enhance cooperation in the development of cutting-edge industries, from 5G network to artificial intelligence and renewable energy.
This year also saw Paris hosting the inaugural stakeholders meeting of the Blue Dot Network (BDN), a trilateral US-Australia-Japan initiative. The event brought together top experts, global investors and sovereign wealth fund managers from across the world to discuss new platforms for raising high-quality infrastructure investment. Shortly after, during the Group of 7 (G7) countries summit in Britain, the Biden administration launched the Build Back Better World (B3W) initiative as a “values-driven, high-standard and transparent” alternative to China’s BRI.
The aim of both the BDN and B3W is to reinforce global standards on infrastructure investments, “collectively catalyze” and consolidate the strategic overseas commitments of G7 powers, and, crucially, corral trillions of dollars held by Western investors and financial institutions, from sovereign wealth, pension and mutual funds to insurance companies.
As Mathew Goodman and Jonathan Hillman of the Center for Strategic and International Studies (CSIS) argue, “the United States and its partners need to invest in a system for developing a sustainable pipeline of bankable projects” in order to lure private investors, who are primarily interested in “reliable, long-term returns” By some estimates, private investors in the West are in possession of close to $110 trillion, yet they only invested $22 billion across the developing world in the 2015-2019 period.
By funding sustained capacity-building efforts in developing countries, the US and its allies can help reduce regulatory uncertainties and transaction costs in order to facilitate large-scale investments from both the public and private sectors in the G7 countries. Moving forward, the Biden administration should focus on consolidating and augmenting existing investment facilities, both domestically and internationally, to fund key infrastructure projects from Southeast Asia to Central Asia the Middle East. And when faced with robust competition, China will come under growing pressure to tweak and upgrade its BRI projects in accordance to best practices. Ultimately, this could end up as a “win-win” for the developing world and post-pandemic global economic recovery.
