The Western industrialized countries are countering the Chinese new Silk Road with their own investment offensive. With this comes a temptation they should resist.
US President Joe Biden announced the investment offensive on the first day of the summit together with other G-7 representatives.
Against the magnificent backdrop of the Bavarian Alps, the G-7 placed 600 billion dollars in the global showcase on Sunday. The seven leading democratic industrialized countries want to use this to promote projects in developing and emerging countries by 2027. The spectrum ranges from Covid-19 vaccine production in Africa to an undersea fiber optic cable between Europe and Latin America to solar projects in Angola.
Launched in Cornwall
The informal body is thus concretizing an initiative entitled “Partnership for global infrastructure and investments” that it launched a year ago at the G-7 summit in Cornwall, UK, at the suggestion of the USA. The aim was and is to create an alternative to the new Silk Road project launched by China in 2013 (“Belt and Road Initiative”). As part of this, Beijing finances, for example, the construction of ports, highways and railway lines worldwide in order to open up trade routes to Europe, Africa, Latin America and Asia. But it also uses this to gain political and economic influence.
The G-7 initiative thus has a clear geopolitical orientation: China does not want to leave this field without a fight. While the USA has been pursuing such a course for some time, the Europeans have recently also distanced themselves and see China not only as an important trading partner, but also as a strategic rival.
Unpicked Grapes
$600 billion sounds like a lot of money. However, this number hides a hodgepodge of funds, some of which have already been promised or are only hoped for. While US President Joe Biden announced an American contribution of 200 billion dollars, EU Commission President Ursula von der Leyen referred to 3o0 billion euros, which the EU Commission announced at the end of 2021 as the EU’s “Global Gateway” initiative and which apparently be counted. Japan and Canada have pledged further amounts.
Included in the amounts are public funds, loans from public development banks and private funds that the public sector hopes to mobilize with its initiatives. In addition to old wine in new bottles, the initiative also includes a good portion of wine from grapes that have not yet been harvested.
Learn from Beijing
It is nevertheless not wrong that the Western democracies are trying to join forces and jointly oppose the sounds of the Chinese shawm. However, they face a dilemma. China has a reputation among development experts for appearing to be generous in allocating funds that tie other countries to itself. While the Europeans are still brooding over the profitability of a project, offering help for self-help and negotiating environmental regulations, the Chinese money and not infrequently a Chinese construction crew have long been on site, it is said.
The West is therefore tempted to occasionally turn a blind eye in the race against China and grant a loan quickly rather than not at all. But the EU and the G-7 countries should resist this temptation. The history of development policy is full of projects for which there was plenty of money available, but which failed due to inefficiency, design errors or a lack of ownership by the recipient countries – or simply sank into a swamp of corruption and mismanagement.
Ironically, the new Silk Road in particular also provides object lessons for this. An example is a highway project financed with Chinese loans that has pushed Montenegro into a debt trap. Learning from China means staying cautious.
You can contact the Berlin business correspondent René Höltschi Twitter follow.