G7 Partnership on Infrastructure and Investment: Implications for Taiwan

by Huynh Tam Sang

Aug 15, 2022 in CEIAS Insights

G7 Partnership on Infrastructure and Investment: Implications for Taiwan

The G7’s global infrastructure and investment initiative provided an essential base for counterbalancing China’s development financing. Within this framework, the potential engagement of Taiwan would be a meaningful contribution toward strengthening democratic alignment and supporting low- and middle-income countries.

The Partnership for Global Infrastructure and Investment (PGII), a re-branded measure of the previous Build Back Better World (B3W) initiative proposed in June 2021 to “deliver high-quality, sustainable infrastructure,” has recently been launched by the G7 leading industrialized democracies. Under this framework, a budget of US$600 billion will be mobilized within a five-year arrangement to help developing nations with infrastructure projects. The repackaged version of the B3W has new inclusions—that is, “energy security,” “health security,” and the alteration from digital technology to digital connectivity. 

The strategic significance of the G7’s grand economic partnership

The proposition of advanced liberal democracies represents a significant contribution to transparent lending amid the predatory options available to less-developed states, especially those with institutional weakness and political turmoil, overwhelmed with burgeoning debt from lending countries. As COVID-19 has not faltered, smaller nations needing monetary support for infrastructure projects may find the PGII intriguing and necessary.

The partnership is nuanced and dual-purposed—serving both symbolic and pragmatic purposes. First, this partnership could constitute an economic alignment between leading democracies intended to counter China’s Belt and Road Initiative (BRI), the flagship strategy of Chinese president Xi Jinping. This pledge is timely and essential as China has stepped up its economic coercion against countries that do not share its values and ideology. In contrast to the BRI’s state-to-state mechanisms, the PGII’s reliance on private capital could provide an alternative to Beijing’s projected US$1 trillion program.

US President Joe Biden has underlined that the PGII was an “investment,” meaning G7 partners are expected to cooperate to produce tangible gains and concrete benefits, thus offering a vital opportunity to demonstrate their ability to strengthen democratic multilateralism. With this initiative, the G7 has generated an ongoing shift from their traditional bilateral development policy to multilateralism, a viable and modern collaborative approach between like-minded partners.

Moreover, with Russia’s invasion of Ukraine and lingering uncertainties about the next phase of the COVID-19 pandemic, these joint efforts from leading democracies could showcase their astute efforts to support vulnerable countries.

Second, the PGII could support smaller countries pragmatically. Though Beijing does not disguise its ambition of exporting its authoritarian model, the People’s Republic of China (PRC) continuously touts its “no strings attached” approach toward business relations with relatively smaller and fragile nations. “Chinese assistance is perceived to be faster, more responsive to the needs of local political elites, and have fewer conditions attached,” a 2019 report by the Lowy Institute said. 

Yet, Beijing’s unsustainable debt and predatory loans have loomed large in countries like Sri Lanka, which has endured devastating economic crises due to overburdened loans with China coupled with the ongoing domestic political disorder. Many European countries have realized that the BRI may come with a Sino-centric network that could be detrimental to the independence of EU countries and have devastating consequences in the long term. The ongoing war in Kyiv may also remind credulous nations about the risks of being overly indebted to powerful creditors.

Generally, when debt-saddled nations fail to meet repayments, they are compelled to make economic or political concessions, usually by ceding key assets, like Democratic Republic of Congo’s copper for development deal and Ghana’s bauxite for infrastructure deal with Chinese investors. These situations have unfolded repeatedly in fragile economies with small populations, loose institutional linkages, and poor economic resilience in the Pacific, where China is gaining a considerable foothold due to the prolonged absence of democratic economies’ engagement.

Within the contour of the funding initiative, like-minded powers could enhance ties via working schemes and joint actions. Subsequently, this collaboration could generate a spill-over effect—thereby widening the partnership’s scope to other developed economies such as South Korea, India, South Africa, Australia, and New Zealand. If enacted with efficiency and transparency, the PGII partnership has the potential to counterbalance the BRI, the PRC’s grand strategy to export its geostrategic influence, and the Chinese model of common destiny.

Low- and middle-income nations, especially those seeking financial support to address climate change, build digital infrastructure, and enhance agricultural productivity, may consider turning to the global infrastructure program for financing and investment. Gradually, benefits from the infrastructure plan could eventually challenge the investment attractiveness of the BRI. 

To this end, the US and its partners must resuscitate the grouping’s boldness and find common ground to counterbalance China’s economic coercion while enhancing solidarity between members of the PGII. Moreover, the PGII may have to consider helping borrowing countries improve their institutional mechanisms, clear roadmaps for receiving aid grants, and implement strategies to deal with unpredictabilities such as natural disasters and unforeseen diseases.

Taiwan’s potential engagement with the G7’s infrastructure plan

As for Taiwan, a highly advanced free-market economy that currently ranks sixth globally and third among Asian-Pacific economies in the 2022 Index of Economic Freedom, the country could make a meaningful contribution toward bolstering the resilience of the PGII. The partnership’s agenda of helping developing nations address growing challenges such as climate change, clean energy, global health, communications technology, gender equity, and digital infrastructure aligns neatly with Taiwan’s interests and priorities.

Recently, Taiwan’s deputy head of the Ministry of Foreign Affairs’ European Department, Lu Shih-fan, said that Taiwan would be willing to support the G7’s infrastructure plan and work closely with like-minded partners. Lu added that Taiwan is “happy” to see joint efforts by the US and European democracies to “infuse resources in helping develop infrastructure in mid-to-low income nations.”

The G7 Leaders’ Communiqué released on June 28 called on China to “uphold the principle of the UN Charter on peaceful settlement of disputes and to abstain from threats, coercion, intimidation measures or use of force.” They also added that these seven democracies accentuated “the importance of peace and stability across the Taiwan Strait and encouraged a peaceful resolution of cross-Strait issues.” A key takeaway is that security across the Taiwan Strait has become far more salient to the grouping of seven democracies. 

As the global infrastructure investment partnership aims to strengthen and diversify global supply chains, the engagement of Taiwan in this economic plan is significant. Taiwan represents a “choke point” in the global supply chains due to its semiconductor business advantage. This could contribute substantially to the multibillion-dollar funding plan as Taiwan has the tradition of embracing niche diplomacy to reach out to mid- to low-income partners. 

With its grip on economic liberalism and semiconductor manufacturing, Taiwan could benefit developing countries by providing both funding and hands-on experience towards building a resilient business environment and a robust digital economy. A high-performing economy like Taiwan could be a meaningful contribution to supporting developing and emerging economies in the Indo-Pacific. 

However, Beijing would likely view collaboration between Taiwan and the G7 powers as a threat to Chinese leaders. Taiwan’s participation is possible despite China’s wishes if the G7 grants it flexible status as an observer or if it adds Taiwan as a “plus one” member. Taiwan’s involvement is becoming increasingly likely due to China’s status as one of the G7’s “organizing principles,” according to Matthew Goodman, senior vice president for economics at the US-based think-tank Center for Strategic and International Studies.

This approach by no means represents an effort towards restructuring these powers’ ties with Beijing. It does not indicate an end to the so-called “One-China policy” maintained by individual G7 members. Instead, Taiwan would be recognized as a “valuable partner” whose engagement could benefit lower-income nations and bolster their democratic alignment. Ultimately, the viability of Taiwan’s participation is not in the hands of Chinese leaders but would highly depend on the willingness of G7 leaders and the lobbying efforts of the Tsai Ing-wen administration.

Huynh Tam Sang is an international relations lecturer at Ho Chi Minh City University of Social Sciences and Humanities, a research fellow at the Taiwan NextGen Foundation, and a non-resident WSD-Handa Fellow at Pacific Forum. He tweets @huynhtamsang2.

This article is published under the auspices of the CEIAS Center for CEE-Taiwan Relations.


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