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Can the G-7’s B3W Initiative Compete With China in Latin America?

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Trans-Pacific View | Diplomacy

Can the G-7’s B3W Initiative Compete With China in Latin America?

The U.S. and China might be competing, but Latin American countries see advantages in cooperating with both.

Can the G-7’s B3W Initiative Compete With China in Latin America?
Credit: Depositphoto

In June 2021, at the G-7 Summit in Cornwall, United Kingdom, U.S. President Joe Biden and his peers from Canada, France, Germany, Italy, Japan, and the U.K. announced the launch of the Build Back Better World (B3W) initiative. The mega-project seeks to allocate $40 billion in infrastructure and resources for development in countries in Latin America, Africa, and Asia by 2035.

As described by the U.S. government, B3W is “a values-driven, high-standard, and transparent infrastructure partnership” whose overall goal is to invest in infrastructure development in low- and middle-income countries, focusing on four main areas: climate, health and health security, digital technology, and gender equity and equality, with the aim of helping to reduce the infrastructure deficit in the developing world, further exacerbated by the COVID-19 pandemic.

Chinese-led infrastructure projects have seen decades of expansion in many emerging markets. Since the COVID-19 pandemic, however, the Asian giant has focused more on sustainable, digital and health-related aspects: the so-called Green, Digital, and Health Silk Roads.

Thus, the B3W aims to support the development of global infrastructures, from Latin America and the Caribbean to Africa and the Indo-Pacific, taking advantage of this strategic window of opportunity to influence production chains and trade relations in areas where its presence is increasingly weak.

The White House’s Vision for B3W

While there is little information on how the B3W will work in practice, a key aspect for the long-term effectiveness and sustainability of the initiative is, on the one hand, the mobilization of private capital through the expansion of existing development finance instruments, bilateral partnerships, multilateral banks, and other international financial institutions. The other area of emphasis is transparency in public financing.

The B3W aims to meet the infrastructure needs in the recipient countries and communities by promoting quality standards in relation to environment and climate, anti-corruption, social inclusion and labor guarantees. Standards will follow, as a benchmark, the Blue Dot Network, an initiative launched by the United States, Australia, and Japan in 2019 to provide evaluation and certification criteria for infrastructure projects for development.

The White House has stated that infrastructure under B3W will be developed in a transparent and sustainable manner – financially, environmentally, and socially – consulting with communities and assessing local needs as true partners, which will provide long-term benefits and generate greater development impact.

They also highlighted the commitment to the principles of the 2015 Paris Climate Agreement and the U.N. Sustainable Development Goals that make up the 2030 Agenda, as well as promoting health security, digital technology, and gender equality, goals that coincide with other G-7 initiatives, ranging from global vaccine distribution to decarbonization and expanding girls’ education rights.

With the B3W in mind, a delegation led by Daleep Singh, deputy national security advisor for international economics in the Biden administration, undertook a working tour to Ghana and Senegal in West Africa, where they met with government officials, private sector representatives, as well as environmental, labor, and civil society leaders to jointly identify projects that address local infrastructure needs.

Ten projects were discussed, including the creation of a vaccine manufacturing center in Senegal, the reduction of the digital divide, the strengthening of the supply of renewable energies, and the promotion of loans to women-owned businesses. The parties involved also accepted the transparency guarantees demanded by the U.S. regarding the commitment to make the agreements fully public.

In October, another delegation visited Ecuador, Colombia, and Panama, and another is scheduled to visit Asia before the end of the year. The aim is to present the inaugural B3W projects during a G-7 meeting in December this year.

B3W and BRI: Strategic Competition?

Since China’s President Xi Jinping announced the launch of the Belt and Road Initiative (BRI) in 2013, G-7 countries have consistently expressed in different international and academic forums their concern about China’s political, economic, technological and military influence in the West. Importantly, the G-7 fell into a pattern of highlighting the BRI’s shortcomings without presenting a concrete alternative to it.

Therefore, many analysts saw in the announcement of B3W the search for a new relationship between the West and developing nations, framed in a possible “strategic competition” with BRI.

At least in principle, the plans differ markedly in scope and funding. The B3W in its initial objectives focuses on human (soft) infrastructure such as education, environment, healthcare, gender equality, and digital technology. By contrast, the BRI keeps the focus of its global development interests on traditional projects such as ports, roads, railroads, power plants, and telecommunications facilities (hard infrastructure), although recently, China has expressed its intentions to develop the Health, Green, and Digital Silk Roads.

Another differentiating aspect is financing. The B3W aims to finance its infrastructure investments primarily from the Development Finance Corporation, USAID, EXIM, the Millennium Challenge Corporation, and the U.S. Trade and Development Agency, as well as other complementary agencies such as the Transaction Advisory Fund. The G-7 countries have also announced that they will mobilize a considerable amount of private capital.

In contrast, the BRI has as the initiative’s “financial engine” the Asian Infrastructure Investment Bank (AIIB) operating since 2016, the China Development Bank (created in 2014), the Silk Road Fund, Chinese banks, and other entities with substantial investments to back the project.

The truth is that both initiatives seem, at first glance, to be more complementary than competitive.

How could the B3W impact Latin America?

Latin America’s Role in the United States’ and China’s strategies

China has a robust presence in the region. A recent study prepared by Boston University and the think-tank Inter-American Dialogue concluded that China lent Latin America about $1.7 billion a year between 2005 and 2015, but has reduced that figure by half since 2016, dropping to $275 million in 2019. The report notes that the Asian giant did not make any loans to the region in 2020.

However, Margaret Myers, head of the China and Latin America program at the Inter-American Dialogue and co-author of the study, does not consider that there is a real slowdown. Rather, she argues that Chinese investment is occurring through other channels. This represents a change in the strategy for the region, where direct state-to-state loans were reduced and the purchase of local companies, the territorial deployment of Chinese banks, and participation in public tenders increased.

The Latin American region has an important relative weight thanks to its strategic resources, demography, North-South geography, and Atlantic-Pacific connection. As a result, soft power tools such as trade, diplomacy, financing or assistance are increasingly used by both the United States and China.

In this framework, the escalation of the economic, technological and geopolitical war between the two powers may have an impact on markets, on the possibilities of debt financing, and on the pressure to maintain political and diplomatic alignment.

Indeed, the region presents differentiated geo-economic spaces: North America, Central America and the Caribbean, and South America.

North America, in its partnership through the U.S.-Mexico-Canada Agreement effectively excludes closer trade ties with China. Article 32 of the treaty states that each member shall refrain from engaging in relations with non-market economies

Central America and the Caribbean is a subregion critical to U.S. security. Here, the U.S. and China alike have been implementing soft power tools to secure diplomatic allies in the China-Taiwan dispute. The growing economic and diplomatic presence of the Asian giant is perceived as a threat by Washington.

In South America, China has achieved significant geoeconomic penetration in a key subregion due to its energy and water resources and the importance of its trade routes.

In this scenario, which oscillates between competition and contention from the great powers, the countries of the region should avoid a bipolar logic and instead build mechanisms for political and economic cooperation and integration under conditions that allow for greater benefits for their citizens.

The geopolitical reading indicates that the B3W initiative is intended to be the West’s return to a more active presence on the global chessboard, modifying its critical stance toward the Chinese BRI and offering a real alternative with concrete options to developing countries.

Boosting global multilateralism through economic recovery and global prosperity for low and middle income nations is a smart bet. The initial development of financially, environmentally, and socially sustainable soft infrastructures provides the basis for a strategic rearticulation between the West and developing nations, boosting global multilateralism.

Regardless of their strategic intentions, the B3W and BRI initiatives are a major win for global welfare, and a two-way opportunity for Latin America.

This piece was originally published in Spanish by ReporteAsia.