8.1 Sino-US Strategic Competition and the U.S.’s “Indo-Pacific Strategy”

Sino-U.S. strategic competition presents a major obstacle to China’s BRI implementation. US-China rivalry is intensifying and the world appears to be on a path to great power confrontation. The two countries hold increasingly divergent views on their respective strategic roles in the region and worldwide, with each country suspicious of the other’s geopolitical intentions. The U.S. fears that the rise of China, as reflected by the launch of the Belt and Road Initiative, poses the most consequential long-term threat to U.S. interests and national security.

Despite their many differences on domestic issues, ironically, the Democratic Party and the Republican Party share the same view that China has both the geopolitical intention and economic resources to reshape the US-dominated global order. While from China’s perspective, it is concerned that the U.S. is forging an alliance network through such as the AUKUS and the QUAD, to contain and suppress the rise of China.

Since the era of former U.S. President Donald Trump, the United States has begun to take various measures to try comprehensively to contain China’s rising influence at the regional and global levels. As part of his strategy to counter China, in December 2017, Trump published his first U.S. National Security Strategy Report since taking office, calling China “a revisionist power that engages in economic aggression against the United States and endangers regional security and their sovereignty”. The report describes China as “a peer competitor against U.S. values and interests” designed to challenge U.S. influence and wealth (U.S. Department of Defense 2018).

The U.S. elite view a rising China as having the power to shape a new international order, rules and global governance system, exert increasing influence in international affairs and suspect it of intending to replace the Western-dominated international order and rules system (Mazarr et al. 2022). Since President Biden took office in January 2021, the current US administration has basically continued the Trump-era policy of containing and countervailing China, characterizing China as “the only compound competitor” and “the only competitor potentially capable of combining its economic, diplomatic, military and technological power to mount a sustained challenge to a stable and open international system”.

President Biden emphasized that the United States will increase investment in domestic infrastructure, as well as in key areas such as artificial intelligence, quantum computing and biotechnology, to ensure that the United States wins in the competition with China.

U.S. national strategy and foreign policy have been reshaped, with increasing focus on the competition with major powers, especially China. When Xi Jinping came to power in 2012, he repeatedly called for an equal relationship with the United States, under the framework of a “new type of major power relationship”. Nevertheless, the U.S. has largely ignored such calls, as it is intent on retaining its status as the world’s sole superpower. In order to boost its position in the competition with China, the Biden administration has tried to build a global alliance network, focusing on strengthening cooperation between the United States and allies such as Japan, Australia, Canada and the United Kingdom.

Intense competition is emerging in Asia and beyond between the United States as the established superpower and China as the rising global power. In another attempt to counterbalance the rise of China and its increasing prominence in the region, since the Trump era, the United States has been implementing “Indo-Pacific Strategy” to strengthen cooperation between the United States and its allies and other like-minded partners, to which the Biden administration attaches much more importance than his predecessor President Trump. The QUAD, AUKUS, and the IPEF are all United States-led multilateral cooperation mechanisms, which are long-term strategies designed to exclude, contain and constrain China and its rising influence. Specifically, the QUAD and IPEF seek to exclude China from the global economy and global supply chain, while the AUKUS seeks to contain China’s military might in the region.

The United States joined up with Japan, Australia and India to reactivate the Quadrilateral Mechanism (QUAD) after a ten-year hiatus. Meanwhile, the United States joined up with the United Kingdom and Australia to form the “U.S.-UK-AU” Trilateral Military Partnership (AUKUS), which is perceived as the military and security component of the “Indo-Pacific Strategy”. Through the QUAD and AUKUS mechanisms, the United States intends to reshape China’s surrounding geopolitical environment, to counter China’s BRI and thereby curb China’s rising influence in the Indo-Pacific region.

On the military and security side, the U.S.’s moves to increase military cooperation with Australia, Japan, South Korea and the Philippines have caused concern for China. In the eyes of many Chinese scholars and policymakers, the U.S. “Indo-Pacific” strategy is essentially a tool to enable the United States to reinforce regional security alliances and its dominance in the region, primarily by counteracting the influence of China.

As the economic component of the “Indo-Pacific Strategy”, on 23 May 2022, President Biden officially launched the “Indo-Pacific Economic Framework” (or the IPEF in short) during his visit to Japan. This framework is an attempt to suppress China’s rising economic influence and BRI implementation in the region. At present, the Indo-Pacific Economic Framework includes 14 member countries, accounting for 40% of the world’s total economy and involving a total population of about 2.5 billion people. The IPEF is not a single agreement, but a series of loose institutional arrangements covering four pillars: digital trade, strengthening supply chain resilience, clean energy, infrastructure and taxation and anti-bribery. These arrangements constitute a platform for the Biden administration to strengthen trade and economic ties with regional countries. It is particularly worth emphasizing that the United States hopes to use this framework to exclude China from economic rule-making, and to undermine the China-centred regional supply chains by forming supply chain alliances, thereby reducing dependence on China in key industries and services and maintaining its advantage over China in high-tech fields such as semiconductors.

The Biden administration views reducing dependence on China-centric supply chains as an important part of strategic competition with China as a great power. It intends to work with regional allies to build “resilient and reliable supply chains”, based on joint development of technical standards and specifications in key industrial sectors, such as the semiconductor industry, and joint inventory mechanisms for critical raw materials. In addition, participation in these supply chains will be extended through “friendly shore outsourcing” (the transfer of supply chains to allied countries) and “nearshoring” (the transfer of supply chains to geographically close neighbours).

The Biden government hopes to collaborate closely with both Japan and South Korea to create an IPEF as a model for reshaping supply chains, especially in key industries such as the digital economy and manufacturing of semiconductors and electric vehicle batteries. The United States wants to expand imports of chips made in South Korea and chip equipment and key raw materials made in Japan, thereby reducing dependence on the Chinese mainland and Taiwan in the semiconductor industry.

Semiconductors are among the few products for which China is still highly dependent on foreign imports, and represent the soft underbelly of China’s scientific and technological development. China spends a lot of money every year on importing large quantities of semiconductor integrated circuit products. China is aware that the semiconductor industry is a “stuck neck” technology and has been seeking breakthroughs, with little success. The U.S.’s “Chips and Science Act of 2022” is expected to have a negative impact on the development of China's semiconductor industry. The bill will enable the United States to use administrative intervention and industrial policy to reshape the global semiconductor industry supply chain and will restrict and slow down the development of China’s semiconductor industry, but without completely stifling it.

Despite its rising international status, China is not yet ready to challenge the U.S.-led Western primacy and needs to acknowledge the limitations of its power. Neither should it exaggerate the U.S.’s decline in strength or underestimate its resilience, since the U.S. economy is still much larger than that of China. Furthermore, the United States still leads the world in terms of technological capability, innovation, science and military might, due in no small part to its ability to attract a plentiful supply of skilled talent to its shores from every corner of the world.

According to the International Monetary Fund, although China is the world’s second-largest economy after the United States, the per capita gross domestic product (GDP) of the United States reached US$63,051 in 2020, while the average Chinese GDP was only around one-sixth of that total, at US$10,582. As the world’s only superpower, the United States still has absolute superiority in the fields of military, education and scientific and technological research and development. Meanwhile, infrastructure construction has become an important area of the fierce competition between the United States and China.

8.2 The U.S. To Compete with China on Infrastructure Financing and Construction

In terms of infrastructure development, China has the world’s best ports, the fastest railways, the largest airports and the best telecommunications infrastructure. China has become a global leader in infrastructure construction, with great strength in infrastructure hardware construction and software operation management (Cheong 2022). In contrast, many transportation facilities in the United States, such as roads, bridges and airports, are in a state of disrepair. The U.S. and its allies are concerned that China is using its infrastructure-based BRI to establish a Sino-centric regional order.

In March 2021, Hillman and Sacks of the Council on Foreign Relations published a report entitled “How the United States Should Compete with China’s Belt and Road Initiative”, which pointed out that the BRI poses comprehensive challenges to U.S. politics, economy, national security, and climate change interests. To ensure that U.S. interests are not compromised, the United States needs to formulate a new strategy that can effectively respond to the BRI, based on high-quality and environmentally sustainable infrastructure development. (Hillman and David, 2021)

On 25 March 2021, at the first presidential press conference since his inauguration, President Biden said that during his term of office, China would never be allowed to surpass the United States as the most powerful country in the world. The Biden administration has realized that China’s massive Belt and Road Initiative poses challenges to the United States in areas ranging from politics and economy to national security and overseas interests.

The BRI is the hallmark of China’s emergence as an economic power. Through this platform, China is rapidly extending its economic influence in Asia and other parts of the world. Yu (2022) pointed out that the growing clout of China throughout the world has enhanced its leaders’ confidence and their ambition to continue to promote and implement the BRI internationally. The BRI has greatly unsettled the existing global geopolitical landscape, since it is largely welcomed by developing and middle-income countries across Asia, the Pacific Island states, Africa and Latin America.

China’s global influence is rapidly growing through the BRI implementation, and new geopolitical and geoeconomic realities in Asia and beyond are unfolding. China’s push for the BRI has created considerable pressure and impetus in the United States to rebuild and strengthen its relations with like-minded partners in the Indo-Pacific region, such as Australia, Japan, Republic of Korea and the Philippines, to counter the rising Chinese influence.

In Biden’s view, infrastructure development will be an important arena for the US to compete with China. President Biden intends for the PGII “to be one of the hallmarks of the Biden administration foreign policy over the remainder of his tenure” (Jenny and Jennifer 2022). Biden cop an initiative similar to the BRI by bringing together its allies in democratic nations to help developing nations upgrade their infrastructure. In June 2021, at the G7 summit held in the United Kingdom, Biden unveiled the Build Back Better World initiative (known as the B3W), focusing on addressing climate change, digital infrastructure, gender equality and healthcare system issues. The B3W was perceived as the G7’s alternative to China’s BRI. Nevertheless, the Biden administration offered few details about what exactly B3W would involve. Around one year after the B3W initiative was announced, the Biden administration had made a commitment to the cause of global infrastructure renewal of only up to US$6 million (Charles and Scott 2022).

This paltry amount is a far cry from the billions in infrastructure investment promised by Biden’s original announcement. It compares poorly with the billions of dollars provided by Chinese companies and banks under the BRI umbrella. In the period since its announcement, the B3W attracted little regional or international attention in terms of its capability to finance infrastructure development.

In June 2022, the U.S. and other fellow G7 countries officially launched the rebranding of the B3W as the Partnership for Global Infrastructure and Investment (PGII), an initiative that aims to mobilize up to US$600 billion over the next five years, with US$200 billion, US$317.5 billion and US$65 billion coming from the U.S., European Union (EU) and Japan, respectively.

China and the United States are now competing fiercely for influence over the developing countries across the world. In June 2022, Xi Jinping, China’s President, hosted a special high-level dialogue on global development for representatives of developing countries across all continents (Ministry of Foreign Affairs of the People’s Republic of China 2022),Footnote 1 which included infrastructure financing and construction as its key components.

The PGII could potentially offer developing countries the option to seek external loans to finance infrastructure development in addition to funding from Beijing’s Belt and Road Initiative. Meanwhile, several countries in the region and beyond are pushing back against the BRI on the grounds that its China-invested infrastructure projects are costly and impractical, with internal transactions tainted by corruption issues.

8.3 What is the PGII All About?

The PGII is a private enterprise-led initiative, intended to bring together democratic nations to help developing nations to upgrade their infrastructure, whereas the BRI is a state-driven initiative. Consequently, China’s state-owned banks and firms have played a dominant role in infrastructure financing and construction overseas, while the United States and other Western countries have committed very little money to the PGII, since most of the funds are expected to come from private companies.

The idea for financing the PGII is that it will comprise a combination of government grants and funding from G7 countries. The funding will be mobilized primarily from multilateral development banks (MDBs), as well as leveraged on sovereign wealth funds and complementary private capital from pension funds, private equity funds and insurance funds, among others. Using this strategy, the G7 countries seek to develop the influence of the PGII through achieving multiple positive impacts on global infrastructure development and national economies. Nevertheless, details of the working mechanisms for financing and implementing PGII projects are not available yet; for example, it is not known how the MDB source will be tapped.

The existing MDBs have over the years leveraged on their experience and expertise to provide loans and technical services to developing countries for infrastructure development. MDB loans can help tackle environmental sustainability and social safeguard issues and promote transparency and better governance in the developing countries. For example, the Asian Development Bank’s (ADB) loans had increased from US$14 billion in 2014 to over US$20 billion in 2020, with 70% of these ADB loans going towards infrastructure development (Asian Development Bank 2022). In 2021, the World Bank approved around US$17 billion in loans to the developing countries for infrastructure, in sectors ranging from transport, energy and water to information and communication technologies (The World Bank 2021). Partnership between PGII and the MDBs is crucial to the execution of PGII projects. The G7 can provide a credible alternative to China’s BRI by using the existing MDBs as implementing agencies for building and maintaining infrastructure projects in the developing countries while reducing reliance on public funds and grants (e.g. taxpayers’ money).

In March 2022, US Secretary of the Treasury Janet Yellen, an important member of the PGII project, held a meeting to discuss global infrastructure investment with the presidents of many major MDBs, including the World Bank, African Development Bank, ADB, European Bank for Reconstruction and Development and the Inter-American Development Bank (US Department of the Treasury 2022). The Biden administration intends to build on its relationships with the MDBs in its drive for future PGII implementation.

As part of a whole-of-government approach, Biden appointed Ambassador Amos Hochstein as Special Presidential Coordinator for PGII implementation and coordination works. The PGII aims to deliver game-changing projects that will fill the infrastructure gaps in developing countries. Details of the U.S.-led G7 Countries’ Partnership for Global Infrastructure and Investment (PGII) remain vague. Some infrastructure investment projects under the PGII, worth US$3 billion in total investment, are under implementation, including those in the following countries and sectors (White House 2022a):

  • US$2 billion investment for a solar power project located in Angola.

  • US$600 million US investment to build a subsea high-speed telecommunications cable, which will connect Singapore to France via Egypt and the Horn of Africa.

  • US$50 million from the United States for the World Bank’s Childcare Incentive Fund.

  • US$14  million investment to Senegal for developing a multivaccine manufacturing facility, provided by the United States, partnered with the World Bank and the G7 partners.

  • US$14 million investment from the United States for deployment of a small modular reactor plant in Romania.

  • US$16 million of investment from the United States for renovating or constructing over 100 hospitals and clinics across Côte d’Ivoire.

Shortly before the G7 countries’ announcement of the PGII, Jake Sullivan, the United States National Security Advisor, stated that the US-led initiative will provide “an alternative to what the Chinese are offering”. Then, at the launch of the PGII, President Biden made the following comment on the initiative (White House 2022b):

What we’re doing is fundamentally different because it’s grounded on our shared values of all those representing the countries and organizations behind me. It’s built using the global best practices: transparency, partnership, protections for labor and the environment. We’re offering better options for countries and for people around the world to invest in critical infrastructure that improves the lives …

There is a huge demand for financing infrastructure projects in the developing countries. As estimated by the Asian Development Bank, Asia and the Pacific countries will require over US$22.5 trillion for climate-adjusted infrastructure development up to 2030. No plan proposed by a single country or grouping could come close to meeting the developing nations’ infrastructure investment needs. To accelerate infrastructure investment and development in the developing countries, the G7 PGII and China’s BRI could collaborate to promote “third-party market” cooperation. Nevertheless, the Biden administration has promoted the PGII as a “democratic” alternative to the “autocratic” BRI. The latter has been criticized by the Biden administration for lack of transparency and low standards on environment and social issues. This positioning is likely to limit the scope for cooperation between the two.

8.4 The Infrastructure Investment Push Amidst the China-U.S. Rivalry

The PGII is a rebrand of the B3W and represents a bid for a head-to-head matchup with China. As evidenced by the announcements of the B3W and the PGII, the U.S.-led G7 seems to be playing a catch-up game with China on global infrastructure development.

Since its announcement by President Xi Jinping in 2013, the Belt and Road Initiative has formed the central pillar of China’s drive to become a global power. China has financed and built thousands of infrastructure projects abroad, ranging from railways, seaports, airports, power plants and bridges to industrial parks and telecommunication networks around the world. China’s total investment in infrastructure in the Belt and Road countries was estimated at between US$156.2 billion and US$332.6 billion from 2013 to 2021.

The G7 countries must convince the global community that they can provide a credible alternative to China’s BRI that has the capability to undertake the urgent upgrading of infrastructure needed in a vast number of developing nations. It is noteworthy, however, that U.S. investments in many developing nations have declined and have been unable to meet their development needs in recent years.

On the domestic front, China has the best container port, the fastest rail, the largest airport and the most complete telecommunications infrastructure in the world. It has become the global leader in infrastructure, with solid capabilities in facility construction and operations management (Yu 2021). In contrast, many transportation facilities in the U.S., such as roads, bridges and airports, are in disrepair. In the stiff competition with China, the U.S. is playing to its weaknesses rather than its strengths. For example, in the field of technological capacity and infrastructure construction, according to the ENR ranking of construction revenue generated outside of each company’s home country in 2020, fourteen Chinese construction firms are listed among the 20 largest infrastructure contractors in the world, whereas none are from the United States.

Building connectivity based on infrastructure development is the key to China’s BRI and also the key selling point in encouraging the regional countries’ participation. According to official data from China, 150 nations had already signed up for the BRI by the end of 2022. Since launching the BRI in 2013, China has spent billions in overseas investments and construction contracts for BRI projects in more than 100 nations. The U.S. and the wider world cannot ignore the potential impacts of the rise of China and the BRI implementation.

While the Belt and Road Initiative is Xi Jinping’s pet project and has been a central pillar of China’s foreign policy initiative since 2013, it is not China’s only outreach strategy. To advance its national economic interests and its geostrategic ambition, China has also become a key player in many regional cooperation institutions, such as a grouping comprising five emerging economies: Brazil, Russia, India, China and South Africa (BRICS), Shanghai Cooperation Organization (SCO) and Regional Comprehensive Economic Partnership agreement (RCEP). China’s endeavour to play a more influential role in both the regional and global affairs is multipronged and extends beyond the BRI.

8.5 Unfolding of Competing Regional and Global Connectivity Initiatives

Recent years have seen the unfolding of a successive wave of competing regional and global initiatives, all of which aim to accelerate interregional connectivity through infrastructure investment and construction. Examples include the ASEAN Master Plan for Connectivity, the Belt and Road Initiative, Japan’s Partnership for Quality Infrastructure, ASEAN-Korea Infrastructure Fund, Russia’s Eurasian Economic Union (EAEU), the European Union’s “Connecting Europe and Asia”, and the PGII as the newest initiative of this kind. However, many of these competing connectivity initiatives are still at the vision stage, without concrete achievements. None of these initiatives so far have been able to compete with the BRI from the perspective of scale, geographical coverage and geostrategic influence.

The Belt and Road Initiative is currently the world’s largest geoeconomic initiative. Neither the other Western-oriented infrastructure initiatives, namely, the EU’s Global Gateway, the United States’ Blue Dot Network, Japan’s Quality Infrastructure Investment, nor the G7’s B3W have yet produced enough geoeconomic momentum globally to seriously rival the BRI.

Vast capital is required for infrastructure upgrading in developing nations, and the risks are high. Private enterprises do not have the required capital or the ability to undertake the associated risks. China is continuing to implement and expand the BRI, whereas the U.S. is currently unable to put forward a more effective alternative. Through the BRI implementation, China hopes to establish a new model for global infrastructure financing and development. Its state-led model is China’s unique advantage in the BRI, a model not found in the U.S. and the West. Moreover, this infrastructure development model is implemented through China’s state-owned enterprises and banks. China’s leaders deem private enterprises to be ill-disciplined, have the tendency to expand indiscriminately, and be incapable of fulfilling China’s strategic objectives.

Meanwhile, China is globally competitive in industries such as infrastructure construction, equipment manufacturing, metallurgical building material and communications equipment. The BRI could be used by China to transform its economic and financial power into geostrategic leverage and influence, by continuing to promote infrastructure connectivity as an important national strategy in its attempts to gain control over markets and industrial supply chains. (Khanna 2016)

However, China’s self-imposed Zero-COVID strategy (or the Dynamic Clearing policy) and the ongoing Ukraine war created obstacles for Beijing’s push for BRI implementation worldwide. The strict lockdown and control measures made it extremely difficult for Chinese officials, business executives and engineers to travel abroad to conduct in-person promotion and management of the BRI projects. The pandemic also pushed up the construction and labour costs of the BRI infrastructure projects due to supply chain disruption, soaring energy prices and manpower shortages of supplies of critical raw materials and equipment for infrastructure construction projects.

Russia’s war in Ukraine could potentially cause collateral damage to the BRI, as China’s land-based connectivity with the European Union via the China–Europe Express may be jeopardized. The China–Europe Express is crucial for overland-based connectivity between China, Eurasian countries and the European Union. Almost half of the routes and lines (78 lines reaching 180 cities in 23 European countries by 2021) pass through Russia; however, due to the massive sanctions imposed on Russia and the ongoing war, European firms may choose not to ship goods via Russia.

More significantly, China views Russia as an indispensable ally and strategic partner. From the long-term perspective, China’s refusal to condemn Russia’s aggression in the Ukraine war and its alignment with Russia have deepened the strategic distrust between China and the West, which could make Beijing’s BRI push in the Western countries more challenging.

The BRI is still, by and large, a China-centric solo or bilateral initiative. China has thus far been unable to project the BRI as a credible multilateral endeavour. President Biden hopes to take advantage of the dissatisfaction of these nations along the BRI routes and engage with them and US allies to form an alliance against the BRI.

In the face of these increasing challenges, China must modify its original BRI model in order to respond effectively to the new geopolitics of the post-COVID-19 era.