The Group of 7 has announced a new infrastructure financing program that could rival China’s Belt and Road Initiative. One expert says the G-7’s plan offers hope for developing countries, but it remains to be seen if it can match the BRI.
On Sunday, the U.S. and the other members of the G-7, including Canada, Germany and Japan, formally launched the Global Infrastructure and Investment Partnership, which aims to spend about $600 billion on global infrastructure projects in low-income countries and middle-income raise next five years.
“It promises something that the BRI might not have had in the beginning,” said Choi Shing Kwok, CEO of the Singapore-based research institute ISEAS-Yusof Ishak Institute. “It promises hard and soft infrastructure, it promises a more holistic approach.”
The BRI is China’s ambitious program to build physical and digital infrastructures connecting dozens of countries stretching from Asia to Europe to the Middle East. It is at the heart of Chinese President Xi Jinping’s foreign policy.
“It is questionable whether at this stage the magnitude [of the G-7 initiative] can keep up with the BRI, but we’ll see later,” Choi told CNBC’s Street Signs Asia on Monday.
US President Joe Biden, center, attends a working lunch with other G7 leaders to discuss shaping the global economy. The group of the seven leading economic powerhouses meets in Germany for their three-day annual meeting.
Kenny Holston | The New York Times via AP, pool
Choi acknowledged that it might not be entirely fair to compare the two projects, especially given that the BRI has been moving forward for 10 years and the G-7’s partnership proposal is sparse in detail.
Over the past decade, China has signed more than 170 BRI cooperation agreements with 125 countries and 29 international organizations in Asia and Europe, as well as in Africa, Latin America and the South Pacific, official Chinese data showed.
Almost $800 billion has been invested within the BRI, exceeding current investments pledged by the G-7. Another trillion dollars should be invested in the network of six development corridors through China’s infrastructure project.
The G-7’s infrastructure project “is better than the original approach to the BRI, which was taken in a more decentralized, I would say piecemeal, approach,” Choi said.
The BRI “didn’t have the rigor to ensure all projects were economically viable and green,” he said, adding that the G-7’s plan appears to be more climate-friendly and designed to ensure recipient countries benefit from the investments benefit.
“Nevertheless, China has revised its approach to the BRI in recent years, and now more money is flowing into projects that are more robust.”
It took Western economies more than 10 years to develop a program that could compete with the BRI, Choi said, adding it was initially dismissed as “a Chinese project”.
Still, the US and other members seem to be taking it seriously now, as evidenced by the recent infrastructure partnership, he said.
“Its magnitude is significant. It’s not quite the scale of the BRI, but they’re trying to scale it so it’s not far off [from the BRI]’ Choi said.
In the end, if the implementation is done in a way that doesn’t force countries to include geopolitics, choose partnership or BRI, then it will be acceptable.
Choi Shing Kwok
CEO ISEAS – Yusof Ishak Institute
Asked if the partnership is nothing more than “geopolitical battle lines being drawn by the US against China,” Choi says the way the G-7 plan is being implemented will signal his intentions.
“There are specific motivations for starting the partnership. It offers alternatives to the BRI in a very deliberate way,” said Choi.
“If the implementation ends up being done in a way that doesn’t force countries to include geopolitics — that is, partnership or BRI — then it will be acceptable.”
Who could benefit?
As major economies now step up their infrastructure support for developing countries, places like India, Brazil and Indonesia are likely to announce more economic growth, Riedel Research Group founder David Riedel told CNBC’s “Squawk Box” on Monday.
He said it doesn’t matter who invests as long as more effort is made, but cautioned the results would not be visible overnight.
“It doesn’t mean much in the short term, but in the longer term, investors need to appreciate the importance of investing in infrastructure, no matter who is making it,” Riedel said.
According to the OECD, Asia alone will need around 26 trillion US dollars for the construction of infrastructure, including green projects, by 2030.
If more money were offered to developing countries, countries like Brazil, India and Indonesia would benefit, Reidel added.
Brazil has a large population and economy and could use more infrastructure to fuel growth, while Indonesia would grow as an energy exporter if more money were invested in its energy project, he said.