There is consensus among the Group of Seven or the G7 members- United States, Canada, United Kingdom, Germany, Italy, France and Japan - that time has come for forging a partnership for building a “values-driven, high-standard, and transparent” physical, digital, communication, health, technology, and finance infrastructure. Furthermore, such infrastructure should be transparent, resilient and sustainable. They have decided to launch a new and bold initiative “Build Back Better World (B3W)” to provide $40 plus trillion for building infrastructure needed by the developing world who have been adversely impacted by the COVID-19 pandemic. Under the B3W, the G7 and other like-minded partners planto “mobilizing private-sector capital in four areas of focus—climate, health and health security, digital technology, and gender equity and equality” through investments from respective development finance institutions.
The B3W covers the Indo-Pacific region, Africa, Latin America and the Caribbean, and is focused on offering fiscal and technological assistance to low and middle income countries in these geographies. The B3W is being promoted by US President Joe Biden’s administration, and the White House Fact Sheet notes “The United States is rallying the world’s democracies to deliver for our people, meet the world’s biggest challenges, and demonstrate our shared values” The Biden Administration has labelled the B3W as “An Affirmative Initiative for Meeting the Tremendous Infrastructure Needs of Low- and Middle-Income Countries” and put out six guiding principles for the initiative: (a) Values-Driven; (b) Good Governance and Strong Standards; (c) Climate-Friendly; (d) Strong Strategic Partnerships; (e) Mobilize Private Capital Through Development Finance; and (f) Enhancing the Impact of Multilateral Public Finance.
The Carbis Bay Summit Communiqué issued at the end of the two-day G7 Summit notes that the G7 partners will “continue to consult on collective approaches to challenging non-market policies and practices which undermine the fair and transparent operation of the global economy”. The B3W is now being increasingly viewed as a response to the Chinese Belt and Road Initiative (BRI) which according to the OECD report titled “China’s BRI in the Global Trade, Investment and Finance Landscape” covers over 100 economies and six economic corridors west from China.
The BRI has been an issue of international concern despite China’s assurances that it will complement the development strategies of countries involved through infrastructure development, job creation, catalysing other foreign direct investment. It will help them to participate in and partake from the ongoing globalization and accrue benefits for their national development and growth.
However, the BRI has led some countries particularly in South Asia into debt traps, and many others else where are being forced to reassess/cancel/delay projects due to numerous domestic, political, environment and financial reasons. Besides, the COVID-19 pandemic took its toll on the BRI and many projects had been put on hold due to the pandemic related protocols. Many BRI recipients are failing to repay debts which will surely “push up the non-performing loan burden of China’s development banks and commercial banks” keeping in mind that today China is one of the world’s largest creditors to have invested more than $500 billion in BRI-related projects.
Be that as it may, it is fair to argue that China would make attempts to salvage its investments and offer attractive options to the BRI debtors to repay. It will also address issues relating to the clause of force majeure in their contract. For instance, the Supreme People’s Court of China has pronounced the “Guiding Opinion on the Proper Handling of Civil Cases Involving the Novel Coronavirus Outbreak in Accordance with the Law” that gives directions to lower courts in civil cases arising out of the COVID-19 pandemic, including “force majeure claims as well as other contract disputes over performance”.
While that may be so, it remains to be seen if the Chinese development banks such as the Silk Road Fund, the New Development Bank and the Asian Infrastructure Investment Bank would have the appetite to continue funding BRI projects given that the “long term profitability of such investments” has now been compromised.
Although the B3W is an alternate option for the developing world to build infrastructure, it is still in an embryonic stage. It will require large finances which are unlikely to come by due to the impact of COVID-19 on economies, productions and supply chains. Besides it is still not known when the global commerce will return to normal, uninterrupted services across sectors will commence, and herd immunity for movement of people achieved given that ‘lockdown/movement control protocols’ keep changing in countries depending on different waves of the pandemic. Also, COVID-9 virus is mutating and its new variants are suspected to reduce the efficacy of the existing vaccines attracting stringent travel regulations.
Also, the developing countries have different political systems and levels of transparency and accountability, and “Good Governance and Strong Standards” , an important guiding principle envisaged under the B3W may be construed as intrusive and there not find favour among many such countries.
At another level, the Chinese are unlikely to surrender the BRI to the West or the G7. It is fair to assume that China will offer many attractive options including delayed repayment offers and several other free sops associated with these projects. It may even put to rest fears among the Chinese development banks with assurances of sustained-new financing. It is also pertinent to mention that for Beijing, the BRI is not just a development initiative, it is also a strategic investment to win geopolitical and geostrategic contestation against the US.
Dr Vijay Sakhuja is Consultant Kalinga International Foundation, New Delhi.