The G-7 allies must respond to China with a focused development strategy

The G-7 allies must respond to China with a focused development strategy
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The Biden administration, working with Group of Seven (G-7) allies, is taking an aggressive approach with its response to China’s global development effort, the Belt and Road Initiative (BRI). The G-7 has agreed on a global Build Back Better World (B3W) strategy. BRI is a challenge on a number of different fronts — economic, development, political and security — because it potentially positions China as the global development leader. It is further complicated by the pandemic, which has hit lower-income countries and middle-income countries particularly hard. As the White House has pointed out, there is a “$40+ trillion infrastructure need in the developing world,” which has been exacerbated by the COVID-19 pandemic. These nations do not have the resources to respond to the economic and health care devastation caused by the pandemic, making them more susceptible to China’s offer of assistance through BRI.

Fortunately, the mythology surrounding BRI may be more than the sum of its parts. It started out as a grand scheme, consisting of infrastructure projects throughout Asia, including South Asia.  The highways, energy pipelines and maritime projects were seen by Chinese leader Xi Jinping as a way to acquire the resources China needs and to connect it with trading partners. BRI-related economic zones provide a backbone for the effort, connecting China to over 70 countries. The investment effort has a price tag of over $1 trillion by 2027. It is estimated that “more than 2,600 projects at a cost of $3.7 trillion were linked to the BRI.”

A closer look at BRI suggests three different assessments of what it is and isn’t. One theory describes it as a useful development tool. The focus on infrastructure responds to the growing need among lower- and middle-income countries. The World Bank estimates there is a need for as much as $97 trillion in infrastructure projects by 2040 in the developing world. The demand is greater than the resources the U.S. and its partners are providing.  

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This, however, is contradicted by an analysis that BRI is not a good development tool. Instead, it is a clumsy connection of projects that Chinese state-owned enterprises and regional governments use as a façade for their pet projects. There is a willingness to lend without the due diligence of ensuring the money is used by credible governments for credible projects. Corruption is a manifest problem in this analysis of BRI.

A third assessment views BRI as camouflage for Chinese foreign policy. For example, when countries can’t manage the debt they incur with BRI projects, China takes over territory as it did in Sri Lanka and Malaysia. Over the long term, this strategy works to their advantage. The concern is that through BRI, China will increase its global military presence, and that BRI is a national security challenge for the U.S.

What is clear is that BRI, by putting China at the forefront of international development efforts, is an existential problem for the U.S. and other G-7 members and, in order to respond to this potential threat, there must be a focused and sustained strategy that includes multilateral, as well as bilateral, elements. The good news is countries may not be lining up to become more like China. They are lining up to get Chinese capital.

The U.S. established the International Development Finance Company (DFC) as a response to BRI and other Chinese development efforts. This is a bank that helps the U.S. expand its development reach globally by partnering with the private sector. DFC resources are not as vast as those of China, via BRI and its other entities, but it is a useful bilateral tool for countering BRI. As the Biden administration has pointed out, USAID, the Export-Import Bank, the Trade and Development Agency and the Millennium Challenge Corporation also will play important roles in making B3W effective.

B3W will have a global focus. It will include international organizations such as the World Bank Group (WBG) and multilateral development banks. For example, the U.S. Senate recently proactively passed legislation in support of a capital increase for the Inter-American Development Bank, which can play an important role with this effort. The International Monetary Fund (IMF), Organization for Economic Co-operation and Development (OECD), and the United Nations also must be part of the strategy to counter the BRI.

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The WBG and IMF have focused on getting wealthy nations to exercise forbearance on debt payback by less-developed nations. The G20 agreed to ease developing nations’ debt burden, but China has exempted BRI debt from being part of the agreement. Pushing China to join the Paris Club — the group of major creditor countries that work to find common solutions to developing world debt problems — would be a useful step in making the Chinese live up to international lending norms to the developing world. The other related issue pushed by the WBG and IMF is debt transparency. This is largely because data on BRI-related debt are not readily available. 

The specifics of the B3W agenda are comprehensive. The agenda includes governance and anti-corruption efforts, which connects with ongoing work being done by such organizations as the OECD and World Bank and the Biden administration. It also stresses making climate change an integral part of development, and prioritizes working with the private sector to mobilize investment capital in developing countries.  

The need to help lower- and middle-income countries is profound, especially after the enormous economic shock from COVID-19. There are positive signs that a global economic recovery may be under way among the world’s wealthier nations, but there can be no sustained global economic recovery, particularly as long as the pandemic remains a crisis in the developing world, until all aspects of development, as outlined in the framework of B3W, are addressed.  

Responding to the challenge of China and its BRI is important, but the U.S. and its G-7 allies can do well in challenging China’s efforts to be the preeminent global development force and do good by having a focused, sustained and effective development strategy with B3W. 

William Danvers is an adjunct professor at George Washington University’s Elliott School and worked on national security issues for the Clinton and Obama administrations.