BRI vs. PGII spoils Asia in infrastructure choice
Since its inception at the Group of Seven (G7) Summit in June 2022, the Partnership for Global Infrastructure and Investment (PGII) has met with both interest and scepticism.
Infrastructure development is a perpetual bane for developing countries, whose ability to address challenges ranging from urbanization to climate change is constrained by limited resources.
China’s Belt and Road Initiative (BRI) is estimated to have invested US$4 trillion in infrastructure projects worldwide from 2013 to 2020. Its funding was a welcome development – albeit one tinged with concerns about China’s growing influence. Western governments share these concerns and have since offered alternatives to the BRI.
The PGII is arguably the most detailed of these initiatives, but there are many questions about its feasibility.
It is unclear whether plans to mobilize private capital to fund infrastructure will be successful. A history of unfulfilled efforts also means Western infrastructure initiatives have a credibility problem. Nevertheless, the West wants to compete with China in developing infrastructure. Developing countries should take advantage of this competition by using competing offers to demand higher standards from partners to meet their needs.
The PGII offers an interesting value proposition for developing countries. In comparison to the BRI’s general focus on hard infrastructure, the priority pillars of the PGII include climate security, digital connectivity, gender equality and health security.
These are areas where Western companies may have a comparative advantage over their Chinese counterparts, particularly in providing clean energy solutions. They are also more aligned with development needs as articulated in ASEAN’s call for better health systems, inclusive digital transformation and sustainable energy as part of the 2020 Covid-19 Comprehensive Recovery Framework.
Also of note is the G7 pledge to provide $600 billion in infrastructure funding by mobilizing private capital. Insurance and pension funds are a relatively untapped source of finance for infrastructure projects and could help developing countries fill the infrastructure gap.
For example, the benefits of a $40 million investment in Southeast Asia’s power grids would be magnified if the project could meet its goal of mobilizing $2 billion in private capital.
Concerns about the viability of the PGII are numerous. His emphasis on gender equality may struggle to gain a foothold in Asia’s developing world. And although the United States has a long history of mobilizing private capital through the Overseas Private Investment Corporation, the risks associated with infrastructure projects have traditionally made them very unpopular with private investors.
But the PGII’s credibility problem is arguably more serious. This is due less to geopolitics and more to the poor track record of non-Chinese infrastructure initiatives. With the exception of Japan’s Quality Infrastructure Partnership, initiatives such as the European Union Connectivity Strategy for Europe and Asia and the EU-India Connectivity Partnership appear to have stagnated or been summarily repackaged under new titles.
The difference in the visibility of the BRI and Western initiatives is also striking. China has dozens of notable projects across Southeast Asia, from high-speed trains to hydroelectric power plants, while most casual observers would be hard pressed to name more than one western project in the region.
There is no consensus on whether the PGII will succeed or fail. But despite the unsurprisingly low expectations of the initiative, Asian developing countries should keep an eye on the PGII. Having two viable financing models in place will allow recipient countries to negotiate better deals.
Developing countries are said to prefer the more relaxed requirements of BRI projects, but their governments have shown independent judgment in selecting non-Chinese infrastructure partners or renegotiating existing agreements. Vietnam and Indonesia have tasked Japan and China with separate rail projects, while leaders in the Philippines and Malaysia have pushed to renegotiate loan deals with Beijing.
Meanwhile, Western governments are likely to escalate criticism of the BRI regardless of what happens with the PGII, particularly over the governance scandals and mounting debt of countries like Laos. China denies these claims but remains sensitive about its international image and is taking steps to address some of its foreign investment practices as early as 2017.
During a BRI conference in 2019, Chinese President Xi Jinping pledged to curb corruption and increase transparency around the BRI. Then, in September 2021, he publicly announced that China would not “build any new coal-fired power plant projects abroad.”
Loud complaints from developing countries about governance problems could force Beijing to accelerate its reform efforts, some of which remain unfulfilled.
Developing countries have a unique opportunity to exploit the rivalry between Western and non-Western initiatives. Even if they intend to reject Western proposals, recipient governments can use them as leverage to bind China to its reform promises.
It will take skillful leadership to resist the temptation of the cheapest bid – but perseverance could bring burgeoning Asia one step closer to bridging its infrastructure gap on a sustainable basis.
Kevin Chen is a researcher at the Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy, National University of Singapore.
This article was first published by the East Asia Forum, based at the Crawford School of Public Policy at the College of Asia and the Pacific, Australian National University. It is re-released under a Creative Commons license.