What the G-7 can learn from China’s BARI?

By: Keren Zhu and Oyintarelado Moses

During the Group of 20 Leaders’ summit in November, Indonesia, the United States, and the European Union co-hosted a sideline event on the Partnership for Global Infrastructure and Investment, the Group of Seven’s $600 billion global infrastructure initiative announced in June 2022.  

Amid widening infrastructure finance gaps in the global south, how is the PGII positioned vis-à-vis China’s Belt and Road Initiative, or BRI, and what can the G-7 learn from the BRI’s successes and missteps?

Proposed in 2013, the BRI has initiated hundreds of China-financed infrastructure projects around the world. While BRI investment appears to be slowing down as China addresses domestic economic challenges and host countries struggle with debt burdens, this period of reassessment and recalibration for the BRI might be a good learning opportunity for the newly proposed PGII. 

To identify their comparative advantage in global infrastructure cooperation, G-7 policymakers must clearly understand the similarities and differences between the two initiatives. 

Although the BRI and the PGII were established under different global economic circumstances, the two initiatives share similarities. These include a focus on low- and middle-income countries, a transition from statements of intent to concrete implementation plans, a rebranding of existing development assistance efforts, and a reliance on public finance institutions to support infrastructure development. 

The PGII and BRI also differ in significant ways. The BRI has largely supported “hard” infrastructure projects such as ports, roads, dams, railways, electric power plants, and telecommunication facilities due to China’s comparative advantage in cost and speed of construction. In contrast, the PGII appears to be targeting “soft” infrastructure projects across a variety of sectors including health, agriculture, telecommunications, and gender equality. 

Given these differences, the PGII should position itself through complementary competition to the BRI, where institutions should not compete solely on the most bankable or less risky deals but spread their capital across a diverse set of projects that leverage their comparative advantages while strengthening risk mitigation practices.

Competition for influence through infrastructure-led initiatives is an understandable goal for China and the G-7, but both sides should avoid an all-out confrontation and a race to the bottom to undermine each other’s efforts. 

What can the PGII learn from the BRI? In developing and implementing the PGII, policymakers should address host countries’ needs, coordinate institutional efforts and enhance project transparency.

To begin, the PGII should address the high demands for infrastructure finance. To reach the United Nations 2030 Sustainable Development Goals, an additional $3.2 trillion or 2% of global gross domestic product is needed annually for sustainable infrastructure investment, and roughly $700 billion per year of climate finance is required to reach net zero emissions by 2050. Amid such high demand, China’s policy banks have offered high amounts of finance with low interest rates, long repayment periods and other flexible terms.

The success of the PGII will depend on the extent to which PGII institutions can respond to the demand of global south countries for more concessional finance. PGII institutions should leverage blended finance structures, by increasingly combining concessional and commercial finance and encouraging multilateral development banks to increase their investment capacity. 

Second, coordination among PGII institutions is key. China’s BRI-affiliated institutions have found ways to work together in a coordinated manner. PGII institutions must increasingly finance together, requiring a strong level of coordination and co-financing mechanisms across the G-7.

Today, the U.S. Development Finance Corporation and the Export-Import Bank of the United States rarely co-finance deals together, although China’s policy banks co-finance with each other and other Chinese financing institutions. To effectively create blended financing instruments and take on larger projects, co-financing abilities across PGII institutions must improve.

Given that the PGII spans the G-7 countries, an overarching, transnational mechanism for facilitating coordination across PGII institutions is also needed to enhance collaboration and hold institutions accountable to PGII pledges. 

Third, PGII institutions need to be transparent about financial provision while enhancing impact and evaluation processes and mitigating risks. In doing so, they can encourage China to do better. China’s official reporting about BRI project definitions, scope, and on-the-ground impacts and contributions is largely opaque. China does not systematically release official transaction specific data about BRI projects, which has led to speculation about the true impact of the BRI. The lack of official evaluation has also created reputational, social, and ecological risks along the BRI.

The PGII should provide user-friendly public official information and data about PGII institutional contributions for civil society, governments, and the general public. PGII institutions should also agree on strong evaluation and impact processes for development projects and make this information public. High standards must be set for detecting potential risks and enhancing risk mitigation tools for projects to circumnavigate the risks BRI institutions have faced in recipient countries. 

Even as increased U.S.-China rivalry seems inevitable, it is crucial to remember the great potential for infrastructure to address today’s collective challenges. Faced with large infrastructure finance gaps, complementary infrastructure initiatives may provide a diverse set of options for countries in the global south.

In healthier competition with China, the PGII can use infrastructure to lay the foundation for a more robust, sustainable, prosperous, and inclusive world for the 21st century. Global infrastructure finance must not be a zero-sum game.

Authors:
Keren Zhu: The global china post-doctoral research fellow at the Boston University Global Development Policy Center. She holds a Ph.D. in Policy Analysis from the Pardee RAND Graduate School.

Oyintarelado Moses: The data analyst and database manager for the Global China Initiative at the Boston University Global Development Policy Center.