• S&P 500

    4,397.57
    -21.58 (-0.49%)
     
  • Dow 30

    34,927.97
    -156.56 (-0.45%)
     
  • Nasdaq

    14,677.79
    -100.47 (-0.68%)
     
  • Russell 2000

    2,224.87
    -15.16 (-0.68%)
     
  • Crude Oil

    74.21
    +0.59 (+0.80%)
     
  • Gold

    1,816.90
    -18.90 (-1.03%)
     
  • Silver

    25.53
    -0.25 (-0.96%)
     
  • EUR/USD

    1.1862
    -0.0034 (-0.2847%)
     
  • 10-Yr Bond

    1.2320
    -0.0370 (-2.92%)
     
  • Vix

    18.02
    +0.32 (+1.81%)
     
  • GBP/USD

    1.3893
    -0.0065 (-0.4668%)
     
  • USD/JPY

    109.8020
    +0.3410 (+0.3115%)
     
  • BTC-USD

    39,045.58
    -597.52 (-1.51%)
     
  • CMC Crypto 200

    927.84
    -22.06 (-2.32%)
     
  • FTSE 100

    7,032.30
    -46.12 (-0.65%)
     
  • Nikkei 225

    27,283.59
    -498.83 (-1.80%)
     

US and Britain finally stand up to China’s quest for global domination

·6 min read
G7 leaders pose in Cornwall - Leon Neal/PA
G7 leaders pose in Cornwall - Leon Neal/PA

The Hambantota port on Sri Lanka’s southern shore has long provided a cautionary tale of just what can go wrong when countries become involved in China’s Belt and Road Initiative.

Built at a cost of $1.3bn (£920m) and funded by Chinese loans, ministers in Colombo struck a deal to sell an 80pc stake in the port to a state-controlled Chinese group just six years after it opened.

A little over a year later, Sri Lanka handed over the port to China on a 99-year lease.

China’s playbook is familiar at this stage: find a developing country to partner with, finance their infrastructure ambitions with loans, and then send a slew of Chinese workers abroad to make the plans a reality.

Then, if the owners of the project find themselves in financial difficulties – and if what was built is of strategic interest to Beijing – buy it.

Through such an approach, Beijing has been able to leverage its strong manufacturing sector and huge wealth to buy influence and make strategic inroads across swathes of Asia, Africa, South America and parts of eastern Europe.

Now, almost eight years after the Belt and Road was formally adopted, the West is preparing its response.

Prime Minister Boris Johnson, centre, with from left, Australia's Prime Minister Scott Morrison, German Chancellor Angela Merkel, South Africa's President Cyril Ramaphosa, South Korea's President Moon Jae-in, US President Joe Biden, French President Emmanuel Macron and Canadian Prime Minister Justin Trudeau during the G7 summit in Cornwall - Leon Neal/Getty Pool
Prime Minister Boris Johnson, centre, with from left, Australia's Prime Minister Scott Morrison, German Chancellor Angela Merkel, South Africa's President Cyril Ramaphosa, South Korea's President Moon Jae-in, US President Joe Biden, French President Emmanuel Macron and Canadian Prime Minister Justin Trudeau during the G7 summit in Cornwall - Leon Neal/Getty Pool

At the G7 summit in Cornwall over the weekend, leaders agreed plans to shape an alternative. Labelled the “Build Back Better World” partnership – and flagged as a “green belt and road” – the White House said the project would aim to “help meet the tremendous infrastructure need in low- and middle-income countries”.

It will aim to “narrow” the $40 trillion demand for infrastructure spending in the developing world by mobilising private-sector money, prompted by “catalytic investments” from government development institutions.

The G7 push ticks off all the buzzword checkboxes: “values-driven”, climate friendly and with good governance, the US has also been keen to stress that it will use taxpayers’ money “appropriately and effectively”.

“This should not come as a surprise to Beijing,” says Yu Jie, a senior research fellow on China at think-tank Chatham House.

A tough sell for Western leaders

So can it work? Right out of the gate, the belated response to China’s scheme of influence through infrastructure faces challenges.

A divided G7 may be chief among these. Although the US has maintained a stridently anti-China position, other countries – including Britain and the EU – have a much softer stance, and indeed are already working with China on elements of the Belt and Road scheme.

“The key challenges for both China and the West are the distribution of financial resources, sustainability of the projects and manpower even if both have strong willingness to pursue their individual versions of infrastructure plans,” says Yu.

As she points out, China’s efforts have been driven mainly by state capital, with private sector money rarely factoring into the projects. Taxpayer funding of such projects would be a tough sell for Western leaders after the unprecedented fiscal steps taken over the past year, but private companies are also likely to be cautious about pumping money into overseas projects.

Egyptians laborers work at a construction site in the central business district of the new administrative capital, 45 kilometers east of Cairo - KHALED ELFIQI/EPA-EFE/Shutterstock
Egyptians laborers work at a construction site in the central business district of the new administrative capital, 45 kilometers east of Cairo - KHALED ELFIQI/EPA-EFE/Shutterstock

Trust is another potential pitfall. Linda Calabrese of the Overseas Development Institute think-tank notes that African countries won’t accept being treated as mere subjects of Western beneficence – or having projects foisted upon them.

“We can't go there and say, ‘You guys think you need the railway, but I think you need a road,’” she says.

“The trust issue that I think the G7 countries need to re-establish is different from the one China faces,” she adds. “If you're coming to compete with the Chinese you have to offer something better than what China is offering now.”

Chinese money was only ever a “drop in that bucket”

For China, Belt and Road presented an opportunity to export some of its manufacturing capacity as it faced oversupply at home. That dynamic has shifted substantially recently, with Beijing regaining a domestic focus as part of its ‘dual circulation’ policy. As a result, overseas lending has virtually collapsed from its 2016 peak.

“We have to ask which Belt and Road are we talking about – the one that was going on in 2016, or the one that was going on in 2019, because it really severely pulled back,” says Jonathan Hillman, a senior fellow at the Centre for Strategic and International Studies and author of ‘The Emperor’s New Road: China and the Project of the Century’.

Hillman says there is a massive unmet need for infrastructure investment across the developing world. Chinese money was only ever a “drop in that bucket”.

In the US, domestic infrastructure – relegated to something of a policy punchline under the haphazard Trump administration – has become a key priority as Joe Biden seeks to use the Covid-19 recovery as a springboard for long-overdue investment.

Against that backdrop, it’s difficult to see why America’s large private equity backers would choose to opt for foreign excursions over and above those closer to home, which are likely to be more secure and lucrative.

Money may speak louder than geopolitics

The West isn’t new to this kind of investment, of course. Development institutions, most notably the World Bank, have long provided developing countries with funding, although these have often been encumbered by the need for multilateral agreements.

“[The Chinese] model allows projects to start faster, and that's very appealing,” says Hillman. “If you're a leader, maybe you're facing reelection and you want to announce something. The lack of transparency can be appealing too for other reasons. But it's also risky.”

But tales of white elephants and Chinese takeovers have added to scepticism for many of Beijing’s would-be partners, with Pakistan and Myanmar among countries to have recently sidelined or scrapped China-backed projects.

The G7 efforts offer a narrower focus, dangles the prospect of a profit motive and has its sights set on infrastructure. All these could in theory aid efficiency – but adding stakeholders adds complexity.

Ultimately, much of the power lies in the hands of smaller countries, some of whom may well stand to benefit from a choice of international backers. For countries struggling with the most fundamental of infrastructure problems, money may speak louder than geopolitics.

“At the end of the day, it comes down to affordability, probably more than security in a lot of these cases,” says Hillman.

Calabrese says the Build Back Better World scheme offers an opportunity to learn from the mistakes of the Belt and Road, but warns there are likely to be further lessons ahead.

“Neither partner has found a good formula on how to do this,” she says.