Belt and Road Meets Build Back Better

Keith Johnson

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Last week marked senior Biden administration officials’ first visits to developing countries to scout potential investments in infrastructure projects. Under the rubric of “Build Back Better World,” it was the opening salvo in a battle to counteract China’s trillion-dollar Belt and Road Initiative.

The U.S. junket comes just a couple of weeks after the European Union formally unveiled, in embryonic form, its own answer to Beijing’s development challenge. European Commission President Ursula von der Leyen presented the new “Global Gateway” initiative in mid-September, which promises amped-up European investment in building the sort of developing world infrastructure China has been happily, if haphazardly, meeting for almost a decade.

Both the U.S. plan—which ropes in G-7 members as well as countries like Australia, India, and Japan—and the EU program aim to hit the ground running in early 2022. Taken together, these disparate efforts to revitalize development aid and assistance represent the clearest answer yet to what has become the signature foreign-policy item of Chinese President Xi Jinping: the so-called Belt and Road Initiative (BRI), which aims to invest hundreds of billions, perhaps trillions, of dollars in roads, rails, power plants, ports, and digital networks across Asia, Africa, and Europe.

“All of these represent a recognition that we can’t just criticize what someone else is doing. We need to offer alternatives,” said Jonathan Hillman, an expert on the Belt and Road Initiative at the Center for Strategic and International Studies.

The big question isn’t whether the West has the financial firepower to match Beijing when it comes to infrastructure investment; taken together, the United States, Europe, Japan, and others have far outpaced China in recent years. The bigger question is whether newfangled development programs among Western allies will be coordinated and coherent or competing and whether they will end up as a true alternative to China’s new Silk Road or just a complement.

Since Xi announced with great fanfare what has variously been known as the “One Belt, One Road” or BRI in 2013, hundreds of billions of dollars, tens of thousands of Chinese workers, and scores of Chinese companies have descended on countries like Pakistan, Thailand, Myanmar, and Djibouti to build what these countries need: power plants, pipelines, ports, and connectivity. Europe and the United States have been doing much the same for ages, with less fanfare but more fireworks. France dug the Suez Canal both to bolster trade and its own influence in Egypt; Germany was building the Berlin-Baghdad railway to cement Ottoman obeisance when World War I intervened; the U.S. Marshall Plan literally rebuilt Western Europe to fend off the specter of communism.

But China saw in the developing world’s need for about $40 trillion in infrastructure investment a double opportunity. It was a way to ship abroad excess Chinese productive capacity at a time of domestic economic slowdown. And it was a way to turn China’s newfound financial firepower into a geopolitical advantage; countries on the receiving end of Chinese investments either tilted toward Beijing (as Greece did after major Chinese investments in the Port of Piraeus) or defaulted to the East, as Sri Lanka did when it handed over control of the Hambantota port complex to Beijing for the rest of the century after being saddled with unsustainable debt.

Initially, the Western response was either a quest for cooperation or chiding and consternation. That began to change a few years ago. In 2016, the European Union floated a multibillion euro infrastructure program to counter China, which only took shape this summer. In July, the European Union announced a new plan to coordinate its development finance activities—with higher standards and greater transparency than anything seen in BRI projects. “The Council considers that ensuring a geostrategic approach to connectivity has long-term implications for advancing the EU’s economic, foreign and development policy and security interests and promoting EU values globally,” the Council of the EU wrote.

The United States moved the month before, trotting out a new initiative with G-7 countries to promote infrastructure development that could provide an alternative to the Belt and Road Initiative. Surprisingly, it was former U.S. President Donald Trump who got the ball rolling. For all the “America First” rhetoric, it was the Trump administration that overhauled the way U.S. development finance works—it turned the straitjacketed Overseas Private Investment Corporation, which channels private investment into overseas ventures, into a beefed-up U.S. International Development Finance Corporation, doubling its war chest to $60 billion. It launched the “Blue Dot Network,” which aimed to establish blue-chip standards for infrastructure projects that would lure private investors into the fray and then get a lot more countries to join. It did much the same with the “Clean Network” initiative, meant to parry Chinese hegemony in advanced 5G mobile technology, which not only threatened to drive a wedge between the United States and the rest of the world but also presented a clear security risk.

Much like the EU’s latest blueprint, the Trump administration deliberately underscored the difference between development finance that comes from the West and what comes from the rest.

“The trust principles behind the Blue Dot Network and the Clean Network—transparency, accountability, sustainability, respect for rule of law, property, national sovereignty, human rights, the environment—the free world honors, and the [Chinese Communist Party (CCP)] does not honor,” said Keith Krach, former undersecretary of state for economic growth, energy, and the environment during the Trump administration. “They had been using those principles against us to their economic advantage. We took those principles and, in one big jiujitsu move, used them against the CCP and, in essence, weaponized those very principles that protect our freedoms.”

After nearly a decade of China being the loudest game in town, the Trump administration’s efforts presented a potential alternative for countries that needed investment but weren’t ready to sell their souls to Beijing.

“The Blue Dot Network and the Clean Network were, as one participating finance minister told me, a ‘unifying and equitable alternative to the one belt, one-way toll road to Beijing,’” Krach said.

U.S. President Joe Biden’s administration has taken the baton and run with it. This summer, it announced the “Build Back Better World” initiative at the G-7 summit—a nod to Biden’s own domestic infrastructure push—that explicitly builds on the foundation it inherited. The idea is to turbocharge U.S. and Western development finance in an explicit counter to Beijing—but not frontally. The B3W, as it is known, focuses on a few core areas—climate change, health security, digital connectivity, and gender equity—that don’t exactly go toe-to-toe with China dredging harbors or hewing highways out of mountainsides. Europe, too, is focused more on things like digital connectivity than the kind of physical infrastructure projects China has prioritized.

With Washington and Brussels now fully mobilized to counter China’s overseas investments, the question becomes: Can the West—with dueling infrastructure programs having different rubrics and priorities—cooperate, or will there be an uncoordinated tag team facing China? U.S.-European tensions were high during the Trump years and haven’t abated much under Biden, especially after the Australian submarine deal, known as AUKUS.

“The problem is that relations with the United States are not very good,” said Philippe le Corre of the Carnegie Endowment for International Peace. “The Biden administration has really messed up the trans-Atlantic side of things—not just AUKUS, but basically, the Asia team has taken over the global strategy of the Biden administration, so countering BRI could be part of it, but they can’t do it alone.”

Even though there’s plenty of overlap in response to China’s challenge—the G-7, the European Union, the Quadrilateral Security Dialogue—that doesn’t mean the Biden administration can summon, as it hopes to later this year, a quorum of democracies to fight the main foe.

“The Biden people are not in a very good position to launch a unifying position on infrastructure—they will do their own thing and the EU their own thing,” le Corre said. “We should forget about a ‘democracy’ response to BRI.”

Another question is whether higher standards in terms of the environment and sustainability or financial transparency will be a help or hindrance. Numerous countries actually favor the Chinese model, which allows for plenty of palm greasing, not to mention a quicker time to market. Tougher environmental standards and greater demands on transparency are great for upholding Western values—but are not necessarily what every country needs when it wants a bridge built. For decades, development finance was led by organizations like the World Bank and other regional development banks, but their central role has gradually been eclipsed by the advent of new development finance arms, especially in Asia.

“The World Bank and other development banks started in a world essentially without China, and they were able to proceed with high standards,” Hillman said. “When you are the only show in town, you can do that, but when someone comes in with a bunch of money and moves faster, you do need to find ways to be more nimble.”

At a time of competition for winning hearts, minds, and infrastructure contracts, the West’s insistence on higher standards, while laudable, could be a hindrance, said Frans-Paul van der Putten, an expert on China at the Clingendael Institute in the Netherlands.

“The dilemma for Europe is, when dealing with China, are you going to become more like China in order to compete and abandon your own standards and values? I think it’s inevitable for Europe to shift a little bit, which means coming closer to China,” he said.

One of the biggest outstanding questions is whether the overhaul of U.S. and European development assistance can fully mobilize private capital to multiply the relatively paltry amount of public money available to underwrite big projects. One of the big hurdles for Western countries and Western firms is that developing countries offer a higher risk profile for new investments, making private firms leery of jumping in. Trump administration reforms to the U.S. International Development Finance Corporation tackled some of those issues by, for instance, lowering the threshold for U.S. participation in any given project. But to really juice private sector participation and unlock big financing, the United States and Europe will have to play underwriter and assume part of the risk—as China has done with some of its over-the-skis projects around the world.

“If you want to compete at that level, individual banks and companies cannot match this. It can only be done if there is a government guarantee,” van der Putten said.

Ultimately, as B3W, Golden Gateway, and other ill-named initiatives build up steam, the fundamental question is whether the United States, Europe, or the G-7 countries can really play the same geoeconomic game authoritarian China has done for years. Washington and Brussels can tell companies what not to do but not what to do—that’s a huge difference with China. Beijing has, even if the pandemic has slowed its pace, the ability to turn state development banks into piggy banks for its geopolitical projects. China can, and has, run roughshod over rules, reviews, and regulations to make projects happen on a timeline that suits local leaders, something often beyond Western financiers.

Still, former officials think there’s plenty of ballgame left.

“Can we compete?” Krach asked. “You bet. It takes an integrated strategy where there’s unity between allies, leveraging our private sector, and using those trust principles to our advantage instead of letting China use it to our disadvantage.”