The United States and China, locked in a trade war, are now poised to enter another battle over infrastructure.
The signs can be seen in Italy’s foray into China’s Belt and Road Initiative (BRI), and the naming of a Trump loyalist to head the World Bank.Donald Trump and Xi Jinping have a lot riding on this infrastructure combat, which is all about global strategic advantage and economic rivalry.
Up to now it had been a rivalry between governments, but now it is pulling in two international development institutions. What some describe as China’s covert plan to secure strategic access to Eastern and western Europe via Central Asia through new highways, railways and ports under the Belt and Road Initiative (BRI) is facing an increasingly robust response from the US and its key allies.
The fact that Italy is the first Group of Seven (G7) country to endorse China’s BRI is of considerable significance. It has to do with the global deployment of institutional and financial firepower.
The presence of the BRI which was always about connecting China with Europe anyway – in the European Union does not matter quite as much as the presence of the Asian Infrastructure Investment Bank (AIIB).
The China-led bank has so far avoided being identified too closely with the BRI for fear of being seen as an instrument of Chinese economic imperialism. In comments after the AIIB’s launch, the bank’s president and chairman Jin Liqun stressed that his bank was separate from the BRI.
“Certainly the AIIB is related to the [BRI] but they are not the same thing,” Jin said in an interview. But the AIIB “covers more countries across the world,” he said.
Jin’s reticence was not unconnected with AIIB’s quest for Triple A credit status from international rating agencies, and could not be seen to be focused too much on a limited group of debtors. The bank has since obtained that rating.
The world’s financiers have long perceived the AIIB and the BRI as being tied at the hips like Siamese twins, and it always made financial sense to view them as complementary to each other.
With its bold ambition to girdle half of the earth with transport infrastructure, the BRI needs finance on a scale beyond even China’s US$3 trillion foreign exchange reserves. The AIIB is equipped to provide such finance via its access to global bond markets.
But BRI is not an institution as such, but a series of bilateral agreements between China and countries that host BRI projects. It is not a legal entity accountable to anybody. The AIIB has 69 shareholders in the form of governments, with another 24 prospective members, who are able to influence BRI lending policies. In that sense, closer cooperation between them will be to everyone’s benefit.
Reticence to link them seems to be falling away, as is clear from AIIB’s support of the construction of a new port in the Italian city of Trieste, a maritime hub and gateway to Europe whose importance goes back to the days of the Austro-Hungarian empire.
The reason the AIIB is backing the BRI at this point has to do with growing China-US rivalry, which is being manifested not only in trade, manufacturing and hi-tech innovation but in the economically and strategically critical area of infrastructure.
In my forthcoming book on global infrastructure, I write that whoever controls key land and maritime routes is in the position to control much of the world. The competition between the US and its allies with China could develop into a more intense battle.
The 2018 launch of the Trilateral Partnership comprising the US, Japan and Australia has sharpened the competition. With an eye to rival China’s BRI, the partnership is investing collectively in infrastructure and other major projects across the Indo-Pacific region. India too is a likely partner in this alliance.