China and the US should collaborate on global infrastructure, not compete.
China’s Belt and Road Initiative (BRI), launched in 2013, is the centerpiece of Chinese President Xi Jinping’s ambitious effort to expand his country’s diplomatic and economic footprint. A massive infrastructure and development investment strategy, the BRI has funded bridges, ports, power plants, railways, tunnels, and 5G networks in the Global South, to the tune of $50 billion to $100 billion per year, according to an analysis by the Brookings Institution.
The BRI now covers over 139 countries, which together make up 63 percent of the world’s population and 40 percent of global GDP. Completed major projects supported by the BRI range from a railway in Kenya to a port in Pakistan to dams in Laos. A Harvard Business Review analysis found that by 2020, China had “lent about $1.5 trillion in direct loans and trade credits to more than 150 countries,” making Beijing into the world’s largest creditor, surpassing even institutions like the World Bank and International Monetary Fund (IMF). As a result of all this, the BRI has helped China vastly increase its influence in global politics, especially among the often-ignored nations of the Global South.
Global power is often seen as a zero-sum game, and policymakers in Washington fear that China’s growing influence is coming at the expense of the US. Yet they haven’t offered an alternative to the BRI, instead largely chastising China for its intentions behind it and discouraging countries from joining it.
But that changed at the Group of Seven (G7) Summit last month, when President Joe Biden announced the Partnership for Global Infrastructure and Investment (PGII). With the PGII, G7 governments and private funders aim to invest $600 billion in low- and middle-income countries over the next five years, with $200 billion specifically earmarked from the US.
The motivation isn’t hard to discern: Counter China’s BRI. “Imitation is the sincerest form of flattery,” said Jorge Heine, a professor at Boston University and Chile’s former ambassador to China. “It has finally dawned on Western countries that there is actually a need for infrastructure in countries in Africa, Asia, and Latin America.”
The problem? The PGII is little more than a rebrand of Build Back Better World (B3W), a global infrastructure initiative announced at the G7 Summit last year that essentially proved to be political vaporware. And for the same political and economic reasons B3W ultimately went nowhere, experts say PGII is also unlikely to amount to much: The sum total of concrete commitments by the US government made in its White House brief — meaning actual money allocated, not just promised — at best adds up to less than 0.1 percent of the promised $200 billion.
Charles Kenny, a senior fellow at the Center for Global Development, said that when it comes to funding infrastructure in the Global South, the Biden White House has a rhetoric versus reality problem. “It is a bit embarrassing that they announced this thing last year, they then had a year to figure out something, and what we get is a bunch of bullet points,” he told me. “It does smack of an administration that had its mind on other things.”
The PGII’s underfunded ambition reflects how much of the attention on China and the US’s contrasting international development programs has focused on the role these plans play in a broader battle for global influence and leadership, rather than the impact these strategies will have on the ground. But this obscures the real needs of the Global South today. Between the Covid-19 pandemic, food shortages, and unsustainable debt, the Global South has suffered greatly in recent years. Add in the estimated $40-trillion-plus gap between what developing countries are believed to need on infrastructure and the money made available to pay for it and it’s clear that more investment is needed from G7 nations — nations that arguably share a moral responsibility to help given their colonialist history and culpability for climate change.
Beyond improving the lives of the billions of people who live there, a better-supported Global South would help industrialized nations by addressing some of the social problems that bleed over borders, including mass migration. But unless the West truly pays attention — and brings dollars to bear along with that focus — it risks ceding the field to China.
“China has seen that there is this need in the Global South, and China has projected its foreign policy in the Global South, realizing that the United States and Western European countries are so much involved in their own domestic issues that they are paying relatively little attention to the needs of the Global South,” Heine told me.
Promises versus dollars
In his remarks announcing the PGII, Biden stated: “I’m proud to announce the United States will mobilize $200 billion in public and private capital over the next five years.” Despite that promise, however, the real money the US government has committed is far from $200 billion — adding up to about $170 million.
That discrepancy comes in part from how the US plans to finance this agenda. Kenny told me the US and the European Union have been keen to mostly rely on the concept of financial leverage. For example, a government may offer to finance $1 of an infrastructure project with the idea that this will then spur and be matched by $10 of investment from the private sector. “There’s this idea that you get from the millions and billions to these hundreds of billions by leveraging the private sector,” Kenny said. But, he added, “the fact is the record of that has been grim.” Rather than a one-to-10 public-private financing ratio, “we’re seeing a low one-to-one.”
The US is relying on leveraging to fund the PGII for two reasons. One, Congress is unlikely to authorize any more money for this kind of initiative, especially given its failure to pass increased funding for domestic programs (the rebranding of the initiative from “Build Back Better World” was no coincidence). So leveraging private companies “makes small amounts of US government money look bigger,” Kenny said, while enabling the administration to take credit for the whole promised sum.
Heine added that the US government simply does not see funding for programs in the Global South as a priority. In 2020, the Biden campaign team proposed to invest $4 billion in Central America. This initiative was compared to the Marshall Plan, which saw the US invest $150 billion in today’s dollars into rebuilding Western Europe after World War II. However, up to this point, there has been no movement by the Biden White House on a Marshall Plan for Central America. Meanwhile, the US has given $54 billion in aid to Ukraine this year, reflecting what Heine termed “a strong obsession with Europe and everything across the Atlantic.”
The other reason, according to Kenny, is a deeply embedded ideological belief, stemming back to the Washington Consensus of the late 20th century, that the private sector beats government when it comes to delivering on goods like infrastructure. Reliance on the private sector also has the added benefit of preferring US companies and workers for various development projects, but Kenny added that US policymakers genuinely appear to believe this method makes these projects more affordable to low- and middle-income countries.
This line of reasoning is shaky, though, as public-private partnerships like the ones the PGII proposes are often very complex. As Kenny detailed, you have to entice private companies to take on projects, and they usually ask for “lots of subsidies, support, price guarantees, regulatory changes, and a raft of stuff that makes their deals very expensive.” Thus, they end up involving a lot of government money anyway. Even if upfront costs are lower, recipient governments can still be liable for costs down the line because of the nature of these agreements with private companies. This includes “10 to 15 percent returns [on the projects] that have to be paid for by poor consumers, poor governments, or both,” said Kenny.
China and the BRI have had a different model, which has proven more successful. Kenny told me that China has been more willing to finance infrastructure that will be owned and operated by Global South governments. Fundamentally, this allows projects to be built faster and more cost-effectively as governments are already responsible for most infrastructure (approximately 83 percent of infrastructure investment worldwide is government-financed, per a 2017 study), and they don’t need to bargain and haggle with private companies.
What the US could do instead for the Global South
The US and G7’s PGII agenda, couched in the rhetoric of competing with China, could ironically amount to very little in terms of actually competing with what China is offering the Global South. But geopolitical competition aside, there continues to be a desperate need in the Global South for more investment in hard infrastructure like high-speed rail in Southeast Asia and undersea cables to boost internet access in Africa.
“Developing countries are not as competitive and not able to grow at the rates they should be because the logistics and transport costs are way higher” than in developed countries, said Heine. “They don’t have the ports, the tunnels, and the railways that they need.” China, which has been criticized for overpromising and underdelivering on projects of the BRI, nevertheless recognized there was a gap in investment, and has made it a real priority. So what could the US and the G7 do instead to help fill the gap?
One key way for the US and G7 to support the Global South would be to better use existing multilateral institutions like the World Bank and regional development banks like the African Development Bank, especially because, as Kenny told me, the World Bank actually can do the concept of leverage pretty well. While the US is proposing the approach of a “bespoke retailer” that pursues public-private deals one project at a time (each maybe a $100 million investment), the World Bank is like a big “wholesaler” that leverages money from the whole market (in the range of hundreds of billions) to support a range of public sector projects.
“Governments put in a little bit of capital to the World Bank, which then goes out and borrows massive amounts on private markets, issuing bonds at a 10:1 ratio,” Kenny said, meaning that they can get a lot of money for construction and development projects for the Global South. The World Bank also used to be much more engaged in financing hard infrastructure like roads and railways, only for priorities in terms of what is funded to change in recent decades. A massive recapitalization of the World Bank, Kenny said, could be an important place to start.
Dean Baker, senior economist and co-founder of the Center for Economic and Policy Research, also suggested the issuance of “special drawing rights” (SDRs) from the IMF to shore up the central banks of countries in the Global South. SDRs effectively act as “coupons” from the IMF — the closest thing to the world’s central bank — and they function like cash transfers to countries in times of crisis.
SDRs were most recently issued to support countries around the world facing a financial crunch during the Covid-19 pandemic, and were used by low- and middle-income countries to pay for vaccines and other health care needs. However, as the authors of a Brookings Institution analysis of SDRs during the pandemic found, high-income and upper-middle-income countries currently receive the majority of SDRs, so distribution would need to become more equitable.
The US would also be wise to focus on its strong suits. As Kenny wrote in a recent article, the best way the US could help build the human capital of the world by way of providing scholarships and visas for access to its world-leading institutions of higher education, as well as increasing the number of work visas issued. And many of these migrants would end up sending capital back to their home countries in the form of remittances. A 2019 IMF study found that remittance flows total up to greater amounts of cash to low- and middle-income countries (China excluded) than overseas development aid.
Easing migration would benefit the US as well. The US is “facing an increasing absolute shortage of workers just because we’re not having many kids and people are getting older,” said Kenny. “There is going to be increasing demand for migrants from poor countries to move to rich countries, and that brings a huge amount of benefits for the migrants, obviously, but also real advantages to the recipient countries.”
A final option for the US is to ditch the global competition frame and collaborate with China to invest in the Global South. Baker argued that the “competition basically makes zero sense” due to the global scale of issues like the climate crisis, pandemics, and global development more generally.
There is precedent for this kind of collaboration between rival superpowers — during the Cold War, the US then collaborated with the Soviet Union on eradicating smallpox, as well as on nuclear nonproliferation and space exploration. And the US and China have collaborated previously on global health initiatives, like combating Ebola in Western Africa, as well as rallying behind the Paris climate agreement to tackle climate change.
Fundamentally, the Global South hasn’t necessarily bought into the geopolitical ideological competition of “democracy vs. autocracy” between the US and China. The Global South, as seen in its position toward the Russian war on Ukraine, is increasingly pursuing a strategy of what Heine termed “active nonalignment,” meaning rather than siding with either of the big powers in this supposed “new Cold War,” they’re more narrowly focused on their own economic growth and development.
Many countries in the Global South are in desperate need today, even more so than they were before the pandemic. And as Cobus van Staden, a senior China-Africa researcher at the South African Institute of International Affairs, said to me, most Global South countries don’t want to choose between the US and China, and would probably prefer to have the BRI and PGII running at the same time. Ultimately, global development plans must be made with Global South input and interests in mind, rather than merely using the latter as pawns in a geopolitical chess game about maximizing influence.