At last week’s G20 summit, President Joe Biden announced an India-Middle East-Europe Economic Corridor (IMEC), which seeks to counter the inroads China has made through its Belt and Road Initiative (BRI) by linking India, the Arabian Gulf, and Europe. This reflects a recognition in Washington that even though BRI has encountered serious setbacks, Chinese leader Xi Jinping’s signature foreign policy undertaking is not going anywhere. In addition, even a stumbling BRI poses significant challenges to the United States, as we argued in our CFR-sponsored Independent Task Force report. If successful, IMEC would help knit together important regions and offer an alternative to BRI, but major questions remain regarding financing, timeline, and viability.
The Belt and Road Initiative Turns Ten
In September 2013, during a visit to Kazakhstan, Xi Jinping proposed building a “Silk Road Economic Belt,” later adding a “21st Century Maritime Silk road.” Taken together, these two strands, which sought to connect China to Central, South, and Southeast Asia, the Middle East, Africa, and Europe would form “One Belt, One Road” (now more commonly known as the Belt and Road Initiative). BRI has since outgrown its original corridors, becoming global in scope. Under BRI, China has financed and built roads, power plants, ports, railways, and digital infrastructure. It is the world’s largest ever global infrastructure undertaking, with China financing up to $1 trillion in infrastructure around the world. Nearly 150 countries have signed on to BRI in some form.
China pursued BRI in hopes that it would absorb excess manufacturing capacity, enable Beijing to put its excess savings to use, narrow the gap between China’s affluent coastal cities and its impoverished interior, and help secure a consistent source of inputs for China’s manufacturing sector. New trade routes would reorient commerce away from the United States and Western Europe and toward China, further boosting Chinese economic growth. In addition to the domestic drivers of BRI, China could convert its economic clout into political sway, pressuring countries not to take stances that run counter to China’s interests on sensitive issues. China’s investments in overseas ports would give its military greater power projection capabilities.
BRI’s implementation has raised serious concerns about debt and environmental sustainability. Many BRI projects were not economically viable and have increased the debt load of already heavily indebted countries. As the COVID-19 pandemic eviscerated the global economy, debt crises emerged in countries that were major recipients of BRI loans, such as Pakistan, Sri Lanka, Zambia, and Kenya. As a result, since 2019 China has spent over $100 billion bailing out developing countries in debt distress. BRI has also financed carbon-intensive power generation, most worryingly coal-fired power plants, locking in a reliance on fossil fuels for decades to come.
Such concerns have led China to recalibrate the initiative. Xi has stated that BRI will focus more on poverty alleviation, health care, and green development. He has highlighted the need for economic and fiscal sustainability of projects and pledged that BRI will follow international standards for project development. Still, there remains a gap between such declarations and how BRI is being implemented on the ground. Now, as China is contending with its own economic issues, BRI is likely to move forward as a less ambitious undertaking, with fewer major infrastructure projects and increased focus on digital infrastructure, financial integration, and people-to-people ties.
An Alternative Emerges?
While BRI has not gone according to plan, it nonetheless poses challenges to the United States. BRI has increased debt burdens, locked countries into carbon-intensive futures, tilted the playing field in major markets toward Chinese companies, and drawn countries into tighter economic and political relationships with Beijing. It has the potential to displace American companies, set technical standards that are incompatible with U.S. products, and push countries to politically align with China. BRI also makes it harder for the World Bank and other traditional lenders to insist on high standards by offering quick infrastructure packages that forego rigorous environmental- and social-impact assessments.
Despite BRI’s many flaws, it is important to note that it is addressing a real issue, namely the urgent and unmet need for infrastructure investment. The World Bank has identified an $18 trillion global infrastructure gap. As traditional lenders shifted their focus away from infrastructure, China was willing to step into this void, and as a result is now the world’s largest official creditor.
Although the United States has recognized that it has to offer an affirmative vision for global infrastructure rather than merely opposing BRI, its response has to this point been insufficient. On the positive side, under the Trump administration the United States provided greater authorities to the Export-Import Bank and established the Development Finance Corporation. The Biden administration, for its part, announced an initiative titled Build Back Better World (B3W), which seems to have been rebranded the Partnership for Global Infrastructure Investment (PGII). PGII aims to mobilize private capital to invest in four areas: climate change and energy security, health and health security, digital technology, and gender equity and equality.
Now, in an echo of BRI, the United States and its partners have introduced IMEC, which seeks to link India, the Arabian Gulf, and Europe via railways and shipping lines. In addition to the trade links, IMEC envisions electricity and digital infrastructure as well as pipe for clean hydrogen export. In Africa, a Trans-African Corridor (the Lobito Corridor) will connect Angola to the Democratic Republic of the Congo (DRC) and Zambia, eventually reaching the Indian Ocean. Details regarding financing and timeline, however, have yet to be announced.
If successful, these corridors have the potential to increase supply chain security and resilience, generate economic growth, and promote trade among U.S. partners. European Commission president Ursula von der Leyen, for instance, noted that IMEC would make trade between India and Europe 40 percent faster. At the same time, the new corridors’ geopolitical motivations are hard to miss. If the Lobito Corridor is able to increase the production and trade of critical minerals such as copper and cobalt, it will decrease reliance on China for the electric vehicle supply chain. IMEC can be seen as an effort to respond to Saudi Arabia and the UAE’s tilt toward China, facilitate economic integration between Israel and the Arab world, and promote an alternative to Russian energy supplies.
IMEC and the Lobito Corridor are big undertakings that will take many years to bear fruit even under the best circumstances. But there is a better and simpler way to compete with BRI right now: reorienting the World Bank to focus more on digital connectivity, infrastructure, and energy access while expanding its lending capacity. Given its long history of leadership in the World Bank and its unique position in World Bank governance, the United States is well positioned to spearhead such efforts. The Biden administration should be commended for beginning this process, which could prove even more consequential than headline-grabbing economic corridors.
Next month, attention will turn back to Beijing as Xi hosts the third Belt and Road Forum for International Cooperation, where he will likely introduce further tweaks to BRI. The United States, for its part, has put an affirmative agenda on the table but has a long way to go in turning the idea into a reality. As Washington begins to do so, it should also reinvigorate the World Bank and introduce a trade strategy that demonstrates its commitment to the Indo-Pacific.