The G7 alternative to China’s Belt and Road Initiative is a ‘paper tiger’

On Sunday, the leaders of the world’s wealthiest seven democracies announced the launch of the Build Back Better World (B3W) initiative, billed by U.S. President Joe Biden as a counterweight to China’s massive international infrastructure investment scheme, known as the Belt and Road Initiative (BRI).

The commitment, named after Biden’s domestic political campaign, was short on details.

According to a White House fact sheet, the B3W is “a values-driven, high-standard, and transparent infrastructure partnership” designed to “narrow the $40+ trillion infrastructure need in the developing world.” But the seven heads of state failed to commit any new funds to the B3W, leaving the $40 trillion infrastructure gap untouched.

“If Western leaders were going to commit to a dollar-value of investment to counter the BRI, the G7 would have been the place to do it,” said Eyck Freymann, Indo-Pacific director at investment strategy firm Greenmantle and author of One Belt One Road: Chinese Power Meets the World.

Since launching the BRI in 2013, China has poured some $200 billion into international infrastructure projects, including transport links and energy provisions. Morgan Stanley estimates total Chinese BRI financing might reach $1.3 trillion by 2027 while China’s State Council has said complete financing for the BRI could reach $8 trillion, although no timeline is given.

“Without funding, the [B3W] initiative risks becoming another paper tiger,” Nick Mabey, executive director of climate change think tank E3G, said ahead of the G7 meeting.

Admittedly, when Chinese President Xi Jinping launched the BRI in 2013, the policy had no clear outline either. But the B3W is starting eight years behind and needs consensus among seven countries to progress, which will make its rollout slower than China’s unilateral BRI.

Meanwhile, the developing world desperately needs competition in infrastructure investment. Last week the IEA said that investment in clean energy in developing economies would have to reach $1 trillion a year by 2030 (up from $150 billion in 2020) if the world’s climate goals are to be met. Currently, too much investment is still being channelled toward fossil fuels.

In 2017, China rebranded the BRI as a “green” investment track, yet over 90% of the BRI’s energy investments are spent on fossil fuel installations. In 2018, over 40% of total BRI funding was shoveled into coal alone.

“These infrastructure deals are negotiated bi-laterally, and recipient countries have a say in what sort of energy project they want,” says Laurence Delina, professor at the Hong Kong University of Science and Technology. “And most of the time, they are not actually asking for climate-friendly investment.”

Most economies are already rigged to run on fossils. Installing new green tech requires overhauling existing systems and training new technicians—which is exactly the sort of long-term investment the world needs to reach net zero. But poorer nations often view the cost and time investment of green installation to be prohibitive. A conscientious and concerted B3W scheme could be of service here.

G7 nations have more experience installing and operating renewable energy systems, Delina says, which makes the rich nations better partners for green projects. G7 states could also provide more financing as grants rather than loans, which might encourage developing economies to take on more costly overhauls of domestic energy infrastructure.

But the share of loans in climate financing provided by rich countries to developing economies increased to 74% of the total in 2018, according to the Organization for Economic and Cooperation Development. Rich nations also fell short short of their pre-Paris Agreement commitment to provide $100 billion in climate financing to developing economies annually by 2020.

“Recipient countries will be the overall winners of competition against China’s BRI, as it provides alternatives,” Delina says, “But at the end of the day, cost is the most important factor.”

With no clear financing goals in place to support the B3W, it’s hard to view the scheme as much more than a rhetorical win for Biden.

More below,

Eamon Barrett
eamon.barrett@fortune.com

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CLOSING NUMBER

$973.7 billion

Rising sea levels threaten to wipe out close to $974 billion worth of economic activity in Shanghai if tides continue to rise at current projected rates through to the end of the century, according to the FT. An additional $84 billion of China’s economy could be wiped out by future floods in Guangzhou, China’s southern manufacturing hub. Although sea level rises aren’t likely to submerge infrastructure for decades to come, the FT says, the rising tide will increase flood risk and reduce fresh water supplies much earlier—jeopardizing coastal economies.