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Xi Jinping, Although Not In Cornwall, Had A Profound Impact On The G7 Summit

Thought Leader: Harry Broadman
June 30, 2021
Source: Link

By Harry Broadman

China is, of course, not a member of the G7, the club of the world’s most powerful democracies. Yet at their 2021 G7 Summit in Cornwall this June, Xi Jinping might as well have been present.

To be sure, some of the discussions around the table, the chats taking place in informal gatherings, and the proclamations formally incorporated in the Summit’s core end-product—the G7 Communique—focused on expanding the distribution of Covid19 vaccines to, and enhancing the delivery health care in, poor countries, agreeing on a global minimum corporate tax, and other issues.

But the lion’s share of the group’s deliberations centered on the continued rise in the economic, technological, geopolitical and military power of China.

Indeed, the G7 spent much time discussing the risks they perceive China’s influence in these domains is posing to prosperity and security worldwide, not only for the advanced countries but also the emerging markets—some of the globe’s fastest growing geographies, where China has been far more involved than the G7, especially in making capital investments.

Although this focus was hardly a surprise to those of us who closely follow both such gatherings and China’s role in the international arena more generally, it does portend that the G7 has its work cut out for itself. Especially so if the G7’s goal is to mitigate these risks and counter Beijing’s increasingly proactive—if not provocative—stance around the globe on so many fronts.

To this end, the Summit Communique outlined two major China-oriented initiatives on which the G7 is pinning its hopes.

One of them—“Build Back Better World” (B3W)—meant to compete with China’s “Belt Road Initiative” (BRI), is ill-defined and misdirected.

The other—the “G7 Research Compact”—designed to formalize and accelerate collaboration in R&D activities among the advanced democracies, holds great promise if (i) it is quickly implemented and (ii) smartly operationalized, by focusing on applied, rather than basic, R&D.

On both of these matters—which I assess below—the real question, of course, is whether the G7 can actually achieve serious progress in line with its overall aspirations regarding China.

Let me first make some observations on that latter point.

The responsibility for this falls first and foremost on Boris Johnson, who will remain as the G7 Chair for the rest of 2021. His lackluster performance as G7 Chair to date—characterized by his well-known —does not bode well for a concerted approach toward China.

Beginning in 2022, Germany will assume the G7 chair. Thus, whoever is Angela Merkel’s successor following Germany’s September 2021 election will take the baton from Johnson.

However, that could present another challenge for robust G7-China relations. Berlin historically has taken a far softer approach to Beijing than have London and Washington—especially in cozying up economically and technologically with China and downplaying any risks arising therefrom.

Indeed, except for Canada, the rest of the permanent G7 countries—France, Italy, and Japan—may well be reluctant to take on a concerted role vis a vis China.

France and Italy—as well as Germany—could be particularly decisive on this matter.  Why? Because both the President of the European Council and the President of the European Commission—representing the collective interests of all the 27 members of the EU are standing guests at G7 Summits. Under this arrangement some see undue influence exercised by France, Germany and Italy within the G7 since they have “double” representation in the group.

One counterbalance to this constellation could be the roles played by non-G7 heads of state who are invited as one-off guests to the annual summits by the then-G7 Chairs.  This year, Boris Johnson’s invited guests were the leaders of Australia, India, South Africa, and South Korea.  Most of these countries have somewhat thorny relations with China at the moment.

In 2019, with France in the G7 chair, Emmanuel Macro invited the leaders of Australia, Chile, India and South Africa, as well as of Burkina Faso, Rwanda, Senegal, and the African Union Commission. In 2020, when the G7 was chaired by the U.S., Donald Trump chose to not even convene a summit—even a virtual one—ostensibly because of the Covid19 pandemic (but equally important were Trump’s well-known proclivities towards Putin, a stance that does not fit well with most G7 members).

“Build Back Better World” (B3W). With great fanfare at the post-Summit news conference, both Prime Minister Johnson and President Biden announced the G7 had agreed to establish a new enterprise to channel large flows of capital investment from the advanced countries to boost growth in emerging markets—dubbed “Build Back Better World” (B3W).

The two leaders couldn’t have been more transparent about the fact that, as the program’s name explicitly suggests (the inclusion of the word “better” was a point of contention), the objective is to compete with China’s Belt Road Initiative (BRI), which has been underway for more than a decade.

Playing on the well-known challenges—if not resentment—China is facing in its BRI recipient states, both Biden and Johnson emphasized that the G7’s B3W would not only provide monetary resources but also foster a different set of “values” in the participating countries.  Yet when pressed by reporters what specific “values” the G7 had in mind and by what process would such values be instilled, both leaders seemed downright unprepared to give coherent answers.

The awkward presentation aside, the outline of the B3W program lacks specifics as to its governance structure regarding the disbursement of funds—one of the many areas which has left China . In a growing number of cases, BRI is creating stranded projects (“white elephants”); enabling corrupt behavior on the part of local government officials who sign on to projects not only without consultation with local stakeholders (who presumably are the actual intended beneficiaries of such ventures) but who also are ; and raising the amount of outstanding sovereign debt to levels that are simply unsustainable for the borrowing countries. Think Zambia, for example, among a number of BRI recipients.

At the same time, the launch of the B3W initiative begs the question of how will its objectives and functions fit in with long-established development institutions such as the World Bank, the African Development Bank, the Inter-American Development Bank, the IMF, among others?

If those institutions are in need of reform, from which they surely always can benefit (and I say this as a former World Bank official), then perhaps that’s where the G7’s energies and resources ought to be devoted.

Or is it the case that the G7 countries—many of which are in fact some of the largest shareholders of these bodies—actually wishing to create duplicative facilities or introduce competition in an “industry” that already operates on low margins?

Indeed, the issue of competition—in the guise of the G7 vying with China in providing capital to emerging markets—would appear to lie at the heart of the formulation of B3W.

If so, that objective is likely to be a fool’s errand. For two reasons.

First, the capital being provided by China is from the country’s state-owned policy banks, entities who hardly operate like commercial financiers—contrary to what many press reports and some China analysts assert.

Truth be told, these “banks” are largely free from the market-oriented institutional constraints found in the G7. It’s likely to be a losing battle for any G7 entity that tries to engage in head to head competition with them.

Second, it is by no means clear that China’s BRI will prove to be a sustainable enterprise. As I’ve indicated earlier in this space and elsewhere, there are fundamental contradictions in BRI’s basic tenets, goals, and operational structure. While China has pioneered truly innovative economic reforms over the last 40+ years, sadly, Xi Jinping’s BRI does not draw on the lessons learned from those earlier endeavors.

Coupled with the growing resentment in BRI recipient countries, there’s some chance that BRI will collapse under its own weight and/or a Chinese retreat.

The G7 would do well not only to evaluate rigorously BRI’s longevity but also think long and hard if the B3W is a wise course of action.

G7 “Research Compact.”  The far more consequential and well-thought out initiative launched by the G7 countries at their Summit to counter China is the component of their Communique that established a G7 “Research Compact.”

The document sets out the parameters to govern inter-country collaboration on R&D activities. It reflects recognition by the G7 of the power of collective action in the science and technology (S&T) space by advanced democratic countries. This is an initiative some of us who work on innovation and advanced technology  for some time.

It is widely known that over many decades, the G7 countries have created an impactful network of international trade and investment agreements, including the development of mechanisms for the participation of each country’s domestic stakeholders to help steer the direction of policy positions on those two fronts.  And, of course, in global trade and investment matters, institutions have been created to foster collective action. (While some of these institutions, such as the WTO, have been the punching bag for protectionists and certainly are in need of continued reform, the .)

However, in the area of international agreements in science and technology (S&T) among the G7 both the content and the underlying processes for negotiating and executing them are .

Perhaps most important, (i) few of the G7’s international S&T agreements are plurilateral, (ii) they rarely embodied the critical principles of reciprocity and transparency that are central to the G7’s trade and investment agreements, and (iii) the participation in crafting and monitoring these agreements by the national actors in each country’s “R&D enterprise”—funding agencies, national laboratories, universities, and corporate R&D centers—is too often ceremonial.

That the long-standing objective of international S&T agreements among the G7 is to pursue “science diplomacy” says it all.

Some observers believe the source of the problem is the heterogeneity among the G7—in terms of their policies, market structures, cultures and norms.  While that may play a role, more important is that in recent years some of these differences, especially the character and functioning of each nation-state’s R&D enterprise, as well as the mechanisms for commercialization of innovations, have become not only more evident, but are also exposing the G7 states to risks of being unable to compete effectively in the global economy and of eroding their national security.

Why this turn of events? It stems from the fact that, like much of the rest of the world, the economic fortunes of the G7 increasingly have become tethered to China. The result is that the Chinese are exploiting the differences among the G7 in their R&D architecture and degree of collaboration.

One consequence of this have been naive calls for a forced . Even if such a policy of “going on defense” could be enforced, it enegenders substantial risks, if not become self-defeating.

The wiser course of action is “going on offense” and doing so both cleverly and collectively. Hence why the G7’s issuance of its “Research Compact” holds much promise.

The real test now, however, is twofold: (i) how the UK as the G7 Chair for the remainder of 2021, operationalizes the Compact, and then how the Germans in 2022 carry the ball forward; and (ii) whether the initiative focuses on applied R&D rather than on basic R&D.  It is the former that is the main driver of a country’s (or countries’) international competitiveness. This is the where the Chinese outshine the G7.

The result? You can be sure Xi Jinping will be watching what happens to the G7 R&D Compact very closely.

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