At last week’s G20 summit, President Joe Biden announced the India-Middle East-Europe Economic Corridor (IMEC), a project undertaken by China through its Belt and Road Initiative (BRI) by connecting India, the Arabian Gulf and Wants to counter the encroachment. Europe. It reflects a recognition in Washington that even though the BRI has suffered serious setbacks, Chinese leader Xi Jinping’s signature foreign policy is going nowhere. Moreover, as we argued in our CFR-sponsored independent task force report, even a faltering BRI poses significant challenges for the United States. If successful, IMEC will help link important regions together and offer an alternative to the BRI, but major questions remain regarding financing, timeline and feasibility.
Belt and Road Initiative turns ten years old
In September 2013, during a visit to Kazakhstan, Xi Jinping proposed the construction of a “Silk Road Economic Belt”, later adding a “21st Century Maritime Silk Road”. Taken together, these two threads, which sought to link China with Central, South and Southeast Asia, the Middle East, Africa, and Europe, led to the creation of the “One Belt, One Road” (now commonly known as the Belt and Road Initiative. is known) will be formed. , The BRI has since grown beyond its original corridors and become global in scope. Under the BRI, China has financed and built roads, power plants, ports, railways and digital infrastructure. It is the world’s largest global infrastructure undertaking to date, with China financing up to $1 trillion in infrastructure worldwide. About 150 countries have signed the BRI in some form or the other.
China pursued the BRI in the hope that it would absorb excess manufacturing capacity, enable Beijing to access its excess savings, reduce the gap between China’s rich coastal cities and its poorer interior, and improve China’s economic growth. Will help secure a consistent source of inputs for the manufacturing sector. The new trade routes would divert commerce away from the United States and Western Europe toward China, further boosting Chinese economic growth. In addition to the domestic drivers of the BRI, China can translate its economic clout into political dominance, thereby pressuring countries not to take positions contrary to China’s interests on sensitive issues. China’s investment in foreign ports will give its military greater power projection capability.
The implementation of the BRI has raised serious concerns about debt and environmental sustainability. Many BRI projects were not economically viable and have increased the debt burden on already heavily indebted countries. As the COVID-19 pandemic ravaged the global economy, debt crises emerged in major recipient countries of BRI loans such as Pakistan, Sri Lanka, Zambia and Kenya. As a result, since 2019 China has spent more than $100 billion to bail out developing countries from debt crisis. The BRI has also financed carbon-intensive power generation, most worryingly coal-fired power plants, perpetuating fossil fuel dependence for decades to come.
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Such concerns have prompted China to realign the initiative. Xi has said that the BRI will focus more on poverty alleviation, health care and green development. He highlighted the need for economic and financial sustainability of the projects and pledged that the BRI will follow international standards for project development. Yet, a gap remains between such announcements and how the BRI is being implemented on the ground. Now, as China grapples with its own economic issues, the BRI is likely to proceed as a less ambitious undertaking, with less major infrastructure projects and a greater focus on digital infrastructure, financial integration and people-to-people ties. will be given.
Is an alternative emerging?
Although the BRI has not gone according to plan, it still creates challenges for the United States. The BRI has increased debt burdens, locked countries into a carbon-intensive future, tilted the playing field in key markets toward Chinese companies, and drawn countries into tighter economic and political ties with Beijing. . This has the potential to displace American companies, set technological standards incompatible with American products, and push countries to politically engage with China. The BRI makes it harder for the World Bank and other traditional lenders to insist on higher standards by offering quick infrastructure packages that omit rigorous environmental and social-impact assessments.
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Despite the BRI’s many flaws, it is important to note that it is addressing a real issue, namely the urgent and unmet need for infrastructure investment. The World Bank has identified a global infrastructure gap of $18 trillion. As traditional lenders shifted their focus away from infrastructure, China was ready to step into this void, and as a result is now the world’s largest official lender.
Although the United States has recognized that it needs to present a positive approach to global infrastructure rather than simply opposing the BRI, its response to this point has been inadequate. On the positive side, the United States under the Trump administration granted greater powers to the Export-Import Bank and established the Development Finance Corporation. The Biden administration, on its part, announced an initiative called Build Back a Better World (B3W), which has been renamed the Partnership for Global Infrastructure Investment (PGII). PGII aims to mobilize private capital to invest in four areas: climate change and energy security, health and health security, digital technology, and gender equality and equity.
Now, in echo of the BRI, the United States and its partners have launched IMEC, which seeks to connect India, the Arabian Gulf and Europe through railways and shipping lines. In addition to trade relations, IMEC also envisions electricity and digital infrastructure as well as pipes for clean hydrogen exports. In Africa, a Trans-African Corridor (Lobito Corridor) will connect Angola with the Democratic Republic of Congo (DRC) and Zambia, eventually reaching the Indian Ocean. However, details regarding financing and timelines have not yet been announced.
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If successful, these corridors have the potential to enhance supply chain security and resiliency, generate economic growth, and promote trade between U.S. partners. For example, European Commission President Ursula von der Leyen said IMEC would accelerate trade between India and Europe by 40 percent. At the same time, it is difficult to ignore the geopolitical motivations of the new corridors. If the Lobito Corridor is able to increase production and trade of critical minerals such as copper and cobalt, it will reduce dependence on China for the electric vehicle supply chain. IMEC can be seen as an effort to respond to Saudi Arabia and the UAE’s inclination toward China, facilitate economic integration between Israel and the Arab world, and promote an alternative to Russian energy supplies.
IMEC and the Lobito Corridor are huge undertakings that will take many years to bear fruit even under the best of circumstances. But there is a better and simpler way to compete with the BRI right now: for the World Bank to focus more on digital connectivity, infrastructure and energy access while expanding its lending capacity. Given its long history of leadership at the World Bank and its unique position in World Bank governance, the United States is well positioned to lead such efforts. The Biden administration should be commended for starting this process, which could prove to be even more productive than the headline-grabbing economic corridors.
Next month, attention will again turn to Beijing as Xi will host the third Belt and Road Forum for International Cooperation, where he will likely introduce further changes to the BRI. The United States, for its part, has put a positive agenda on the table, but there is still a long way to go to turn this idea into reality. As Washington begins to do so, it should also reinvigorate the World Bank and introduce a trade strategy that demonstrates its commitment to the Indo-Pacific.