The Group of 7 has announced a new infrastructure funding program that could rival China’s Belt and Road initiative. An expert says the G-7 plan offers hope for developing countries, but whether it can match the BRI remains to be seen.
On Sunday, the United States and other G-7 members, including Canada, Germany and Japan, officially launched the Global Infrastructure and Investment Partnership, which aims to raise about $600 billion. for global infrastructure projects in low- and middle-income countries over the next five years.
“It promises something that the BIS may not have had at first,” said Choi Shing Kwok, CEO of Singapore-based research institute ISEAS-Yusof Ishak Institute. “It promises hardware and software infrastructure, it promises a more holistic approach.”
The BRI is China’s ambitious program to build physical and digital infrastructure connecting dozens of countries from Asia to Europe and the Middle East. It is the centerpiece of Chinese President Xi Jinping’s foreign policy.
“One can wonder if, at this stage, the scale [of the G-7 initiative] may match that of the BRI, but that’s something to 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 developments in the global economy. The major economic powers of the Group of Seven gather in Germany for their annual three-day gathering.
Kenny Holston | The New York Times via AP, Pool
Choi acknowledged that it might not be entirely fair to compare the two projects, especially since the BRI has progressed over the past 10 years and there were few details in the partnership proposal of the G-7.
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 Africa, Latin America and the South Pacific, according to official data. Chinese.
Nearly $800 billion of investments have been undertaken within the BRI, exceeding investments currently promised by the G-7. Trillions of additional dollars were to be invested as part of China’s infrastructure project in the network comprising six development corridors.
The G-7 infrastructure project “is better than the initial BRI approach, which was done in a rather decentralized, I would say piecemeal approach,” Choi said.
The BRI “has not had the rigor to ensure that all projects are economically viable and environmentally friendly,” he said, adding that the G-7 plan appears to be more climate friendly. and designed to ensure that recipient countries benefit from investments.
“But that said, China has revamped its approach to the BRI in recent years and more of the money is now going to stronger projects.”
It took more than 10 years for Western economies to come up with a program that could compete with the BRI, Choi said, adding that it was initially dismissed as “a Chinese project”.
Still, the United States and other members seem to be taking it seriously now, as seen with the latest infrastructure partnership, he said.
“Its scale is significant. It’s not quite the scale of BIS but they try to match it so it’s not far off. [from the BRI]“, said Choi.
When asked if the partnership was nothing more than “geopolitical battle lines drawn” by the United States against China, Choi said the way the G-7 plan was being implemented signal his intentions.
“There are certain motivations for initiating the partnership. It offers alternatives to BRI in a very deliberate way,” Choi said.
“At the end of the day, if the implementation is done in such a way that it doesn’t require countries to consider geopolitics – to go with the partnership or the BRI – then that will be acceptable.”
Who could benefit from it?
With major economies now stepping up their support for infrastructure in developing countries, places like India, Brazil and Indonesia are expected to report stronger economic growth, Riedel Research Group founder David Riedel said Monday. to CNBC’s “Squawk Box.”
He said it didn’t matter who invested, as long as more effort was put in, but stressed that the results would not be apparent overnight.
“That doesn’t mean much in the short term, but in the longer term, investors need to appreciate the importance of infrastructure investments being made, regardless of who is making them,” Riedel said.
According to the OECD, Asia alone needs about $26 trillion to fund infrastructure construction, including green projects through 2030.
If more money were offered to developing countries, places like Brazil, India and Indonesia would stand to gain, Reidel added.
Brazil has a large population and a large economy and would need more infrastructure to spur growth while Indonesia, being an energy exporter, would grow if more money was invested in its energy project, said he said.