On June 12, the G-7 nations unveiled Build Back Better World (B3W), a values-driven and transparent partnership to provide infrastructure to low- and middle-income countries. In a time of heightened China-U.S. competition and confrontation, many interpret the B3W as a U.S.-led counterproposal to the Belt and Road Initiative (BRI), a global engagement plan also focused on infrastructure that China proposed in 2013, now involving partnerships with 140 countries and international organizations.
However, there is no reason to think that the two initiatives are necessarily at odds with one another. Granted, political and security tensions between U.S. and China suggest that the two initiatives may not work closely together anytime soon. But as the B3W evolves from a statement of intent to more concrete plans, there is still plenty of time for Sino-American dynamics to shift and for the two powers to identify realistic common ground. Indeed, the B3W and BRI are in many ways inherently complementary. Chinese leaders will likely welcome the B3W, and the BRI provides a number of instructive lessons for B3W planners. In fact, it is not hard to argue that in order to build back a better world following the COVID-19 pandemic, the B3W and BRI must work together.
To begin with, the BRI and B3W could be complementary in their sectoral focus and financing mechanisms.
China’s BRI is primarily focused on traditional hard infrastructure: ports, roads, dams, railways, electric power plants, and telecommunication facilities. Over the past two decades, China has accumulated rich experience in building infrastructure overseas, either by constructing contracted projects or through foreign aid, and has a comparative advantage in cost and project turnover time.
In comparison, the B3W focuses on “softer” outcomes, namely improvements in climate, health and health security, modernized digital technology, and gender equity and equality. These goals echo U.S. President Joe Biden’s domestic push to bolster social infrastructure such as strengthening care for children and seniors and creating jobs that pay decent wages. The G-7 leaders should also be able to leverage their domestic and international experience to enhance equity and address the needs of vulnerable populations. In addition, the B3W and BRI share the goal of developing green and sustainable infrastructure to minimize ecological impact, reduce pollution, and increase energy efficiency, all in order to confront the global challenge of climate change.
In terms of financing mechanisms, the BRI mainly relies on bilateral loans (concessionary and commercial) and investment backed by state-owned banks and funds to support project construction in developing countries, and has had limited success in leveraging private capital. While striving to use the newly established Asian Infrastructure Investment Bank to power multilateral infrastructure financing, China’s limited experience makes it largely reliant on the World Bank and Asian Development Bank for operational models.
The B3W plans to mobilize bilateral and multilateral tools and private-sector capital to catalyze hundreds of billions of dollars of investment. However, the long investment cycle and low return of public infrastructure projects have caused private sector financers, more oriented to short-term returns, to shy away from this type of investment. To the extent that the B3W is able to more effectively mobilize private capital, that would offer tremendous resources for the financing of global infrastructure. The G-7 and their partners also have deep experience with bilateral and multilateral development finance, which could help address the $40+ trillion global infrastructure gap that has been identified by the G-7.
Despite the B3W’s implied challenge to the BRI, the Chinese government will likely welcome the initiative given the BRI’s emphasis on cooperation and its current standing. Beijing has repeatedly emphasized the open and inclusive nature of the BRI. Expressing its willingness to collaborate with the B3W would align with the BRI’s avowed principles of extensive consultation, joint contribution, and shared benefits. An invite to work with the B3W in order to jointly develop global infrastructure would also be consistent with China’s pursuit of global leadership within a multilateral framework, as manifested in its vaccine diplomacy, carbon emission reduction commitment, and poverty reduction campaign.
From the perspective of the BRI’s current status, the reflection, reassessment, and recalibration of the scheme may give rise to a more restrictive infrastructure financing strategy on the part of China, leaving more space for alternative infrastructure financing options. Eight years into BRI implementation, the initiative has encountered many challenges, including growing China-U.S. tensions, a sweeping global pandemic, and the shifting economic prospects of participating nations. As a result, the BRI needs to be more cautious in the projects and investments that it chooses to support. Data from Boston University’s Global Development Center shows that Chinese overseas development finance peaked in 2016 and has plummeted since. The Chinese government now stresses high-quality BRI development, which seems to imply a more restrictive and focused approach to overseas infrastructure investment. In this context, the B3W, with its aim of filling global infrastructure gaps, offers a timely alternative to the BRI for many low- and middle-income countries.
The BRI also offers a number of instructive lessons for the B3W planners in terms of involving wider stakeholders and confronting local challenges in global infrastructure development.
Chinese President Xi Jinping proposed the BRI at a time when the country’s export-oriented economic development model clashed with dwindling demand from developed countries. Following the 2008 global financial crisis, Chinese corporations with comparative cost and technical advantages and abundant industrial capacity were actively looking for new markets overseas. Bilateral and multilateral development finance henceforth flowed into support of overseas project development and promoted industrial capacity cooperation between China and recipient countries. The B3W may learn from the BRI’s development trajectory to identify ways of mobilizing the private sector and multilateral agencies in infrastructure development.
Before launching the BRI, China had limited experience investing in and operating projects in developing countries; as a result it encountered tremendous challenges in many of its target countries. Decision makers are still learning to deal with problems like credit risk, macroeconomic risk, legal and regulatory challenges, labor disputes and corruption in partner states, low returns on investment, and security risks. The B3W stands a good chance of learning from the BRI’s experience and hence of improving the prospects for success by ensuring project compliance and transparency, and requiring monitoring and evaluation.
In my opinion, a truly better world means leveraging all parties’ comparative advantages, ensuring sustainability and high environmental standards, promoting development and prosperity at a global scale, and bringing mutual benefits for infrastructure providers and recipients. The B3W and BRI together could build a better world after COVID-19. Whether and how to fulfill this vision is the critical decision which the U.S., China, and their partners now face.