Developing Asia is spoiled for choice when it comes to infrastructure
Author: Kevin Chen, NUS
Since its launch at the Group of Seven (G7) summit in June 2022, the Partnership for Global Infrastructure and Investment (PGII) has generated both interest and skepticism. Infrastructure development is a constant scourge for developing countries, whose ability to cope with 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 between 2013 and 2020. Its funding has been a welcome development, although tinged with concerns about China’s growing influence. Western governments share these concerns and have since offered alternatives to the BRI. PGII is arguably the most detailed of these initiatives, but many questions arise about its viability.
It is unclear whether plans to raise private capital to finance infrastructure will succeed. A history of unfulfilled efforts also means Western infrastructure initiatives have a credibility problem. Yet the West still intends to compete with China on infrastructure development. Developing countries should exploit this competition by using competing bids to demand higher standards from partners in order to meet their needs.
PGII offers an attractive value proposition for developing economies. Against the overall BRI focus on hard infrastructure, PGII priority pillars include climate security, digital connectivity, gender equality and health security. These are areas where Western companies can hold a comparative advantage over their Chinese counterparts, especially in providing clean energy solutions. They also better align with development needs such as those articulated in ASEAN’s call for better health systems, inclusive digital transformation and sustainable energy as part of the comprehensive COVID-19 recovery framework in 2020.
The G7’s commitment to provide US$600 billion in infrastructure financing by leveraging private capital is also noteworthy. Insurance and pension funds are a relatively untapped source of financing for infrastructure projects and could help developing countries fill the infrastructure gap. The benefits of a US$40 million investment in power grids in Southeast Asia, for example, would be magnified if the project could achieve its goal of raising US$2 billion in private capital.
There are many concerns about the viability of PGII. Its focus on gender equality may struggle to find roots in developing countries in Asia. And although the United States has a long history of raising private capital through the Overseas Private Investment Corporation, the risks associated with infrastructure projects have traditionally made them very unpopular with private investors.
Yet PGII’s credibility problem is arguably more serious. This is not so much the result of geopolitics as the poor record of non-Chinese infrastructure initiatives. With the exception of the Japanese Quality Infrastructure Partnership, initiatives such as the European Union’s Connectivity Strategy for Europe and Asia and the EU-India Connectivity Partnership appear to have stagnated or been repackaged without care under new titles.
The difference in visibility between the BRI and Western initiatives is also striking. China has dozens of notable projects across Southeast Asia, from high-speed railways to hydropower plants, while most casual observers would be hard pressed to name more than one Western project in the region. .
There is no consensus on the success or failure of PGII. But despite surprisingly low expectations for the initiative, developing countries in Asia should keep an eye on PGII. Having two viable financing models will allow recipient countries to negotiate better deals.
Developing countries are said to prefer the softer requirements of BRI projects, but their governments have exercised independent judgment in choosing non-Chinese infrastructure partners or renegotiating existing agreements. Vietnam and Indonesia have committed Japan and China to separate rail projects, while leaders in the Philippines and Malaysia have pushed to renegotiate loan deals with Beijing.
Meanwhile, Western governments are likely to step up criticism of the BRI regardless of what happens with the PGII, especially over governance scandals and the growing indebtedness of countries like the Laos. China denies the claims but remains sensitive to its international image, taking steps to address some of its overseas investment practices as early as 2017.
At a BRI conference in 2019, Chinese President Xi Jinping pledged to curb corruption and enhance transparency around the BRI. He then publicly announced in September 2021 that China “would not build new coal-fired power projects overseas”. Loud complaints from developing economies about governance issues could force Beijing to speed up its reform efforts, some of which remain unfinished.
Developing countries have a golden opportunity to take advantage of the rivalry between Western and non-Western initiatives. Even if they intend to reject Western proposals, recipient governments can use them as leverage to hold China to its promises of reform. It will take skillful leadership to avoid the temptation of the cheapest offer – but persevering could bring developing Asia one step closer to closing its infrastructure gap in a sustainable way.
Kevin Chen is a Research Fellow at the Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy, National University of Singapore.