China, the EU and One Belt, One Road Strategy

As China’s One Belt One Road (OBOR) initiative gains momentum, most interpretations of Beijing’s initial OBOR-related activities have centered on the implications of OBOR for China and her immediate neighborhood. Europe, however, has a special place within the strategy. Europe features as the end point for both OBOR’s sea (Belt) and land (Road) routes as the ultimate market for Chinese goods. Despite this importance, the European Union (EU) has been slow to respond to the initiative, and OBOR has been largely ignored by the European policy community. Furthermore, the EU’s response was perceived by China as tepid to non-existent, as if Brussels had simply “turned away” (China Daily, November 29, 2014).

Signs are emerging, however, that Europe has awakened to China’s initiative, especially since May, when a number of influential think tanks devoted particular attention to OBOR, publishing special editions of publications and holding events discussing the proposed maritime and land connections. Reportedly, EU decision-makers have also held discussions and publicly ventured their thoughts and ideas about the initiative. [1] Furthermore, other developments indicate that Europe is increasingly responsive to Beijing’s more active international role. A large number of European countries, including 14 EU members, have joined the China-led Asian Infrastructure Investment Bank (AIIB). Together with deepening ties between Central and Eastern Europe (CEE) and China through the so-called “16+1” framework initiated by Beijing, this suggests an intention to engage with and embrace the opportunities brought by China’s increasingly expansive foreign policy (Global Times, June 29; China Brief, January 9).

Charm Offensive

Although OBOR is still conceptually a work in progress, in numerous instances it is already being implemented. The political foundations were laid by an official document presented earlier this year and solidified with a number of multilateral and bilateral platforms and arrangements, some of whom predate the initiative, which will facilitate the implementation of the related policies and initiatives. [2] The past year also saw an awareness-raising campaign conducted internationally through an active public outreach program, with a number of Chinse politicians visiting Europe and other points along OBOR to build support. Moreover, China has created the financial platform it needs for these projects with the establishment of the AIIB and other financial vehicles, such as the New Silk Road Fund (NSRF), the China-CEE Fund and numerous bilateral pledges. With the BRICS’s New Development Bank also about to become operational, there will be plenty of funding sources to expedite developmental projects in the countries along the OBOR routes.

The recent visits to Europe by Vice-Premier Zhang Gaoli–chairman of the OBOR Small Leading Group–and Premier Li, were largely to promote OBOR and mobilize European policy makers to engage with China’s initiative. Zhang travelled to Russia, Lithuania, Serbia and Kazakhstan, between June 17 and June 26, while Li stayed in France and Belgium, between June 28 and July 2. [3] OBOR, including infrastructure projects, was an important part of Zhang and Li’s discussions with their hosts. Premier Li was particularly keen to promote the idea of “trilateral cooperation” between the EU, China and third parties, as well as to integrate China’s “Belt and Road” initiatives with the EU’s own developmental agenda, both with a view of joint development of projects in OBOR countries (People’s Daily, June 26–July 06).

These visits were accompanied by an intensive “charm offensive” carried by the Chinese media and think tank circles that highlighted the benefits, economic and geostrategic, of OBOR for the EU. To illustrate, a recent opinion piece in the English-language Global Times implied that the EU “can gain remarkably more economic benefits from China than from its U.S. ally,” while Europe scholar Wang Yiwei suggested that participating in OBOR provides Europe with “a historic opportunity to return to the center of the world through the revival of Eurasia” and to balance its “asymmetric position” within the transatlantic relationship (Global Times, July 1; Europe’s World, May 13).

Convergent Agendas…

China and the EU both have significant economic interests in OBOR, particularly increased market access and the developmental potential of countries along the OBOR. The Chinese economy continues to slow and must undergo substantial restructuring. Therefore, as China’s economic system transitions away from a reliance on manufacturing, ensuring both short- and long-term profit-making opportunities outside its borders are essential for China and are among the key drivers of OBOR. [4] Europe, meanwhile, wants to make its economic recovery following the Global Financial Crisis permanent and more robust. While China hopes that cooperation will facilitate the transfer of advanced technology eastward, the EU can also expect that European countries will benefit from OBOR as recipients of investment and expertise, which can contribute to economic development and stability, especially on Europe’s less developed periphery.

Conveniently, the EU’s new economic strategy prioritizes the development of various types of infrastructure in the EU and its neighborhood. A $358 billion Investment Plan for Europe (IPE) is currently being negotiated to facilitate the strategy. Significant overlap exists between the pillars and objectives of the IPE and OBOR-related investment in infrastructure, improved connectivity and development of advanced technology. In particular, the domains of digital technology and clean energy are at the heart of both initiatives. Importantly, the IPE is driven by the European Fund for Strategic Investment (EFSI), which aims to enlist contributions from non-EU and private sector sources (European Commission, 2015).

The compatibility of the two platforms has not escaped the European Commission (EC) President Jean-Claude Juncker, who noted that “the benefits [of OBOR] are not just for China itself; Europe, too, stands to benefit from better connections with Asia’s dynamic economies.” Junker added, he “did not see any significant obstacle in connecting the Investment Plan for Europe and the ‘One Belt, One Road’ initiative” (Xinhua, May 7). Furthermore, Brussels has already shown a willingness to engage. According to the EU Ambassador to China Hans-Dietmar Schweisgut, both parties are seeking to coordinate the two initiatives (EU-China Observer, April 2015). EC Vice President Jyrki Katainen will visit China to promote and discuss the IPE in September (European Commission, July 16).

… And Divergent Goals

In terms of OBOR, Europe and China share many tangible benefits in the shape of lucrative and sizable deals and cooperation in the international arena achieved within the last months, China has particularly made energetic diplomatic overtures on this issue. There has been notable and positive diplomacy on both sides. Nevertheless, China has evaluated the EU’s response to OBOR as “lukewarm” and “disappointing” (China Internet Information Center, June 29; China Daily, July 1). So, while the agenda may, at first glance, seem complementary, there are many aspects of OBOR that pose questions about the possibility of bringing about a truly “win-win” model of cooperation.

The question of how to connect the IPE and OBOR has emerged as a key issue during Premier Li’s most recent visit to Europe. Currently, Premier Li seems to have thrown his weight behind the establishment of a joint investment platform for infrastructure cooperation (China Daily, June 30). The EU, however, prefers for China to participate in specific projects and within the general infrastructure development framework as set by the EU and now operated by EFSI (China Internet Information Center, June 29; China-EU Observer, March 2015). While the very existence of this discussion bodes well for the prospects of cooperation, at the moment both sides appear to be locked in a discussion over essentially who gains the ultimate leadership and control over the investment agenda and flows.

Regardless of the shape of future China-EU cooperation, Beijing will likely continue to use both political and financial platforms–such as the China-CEE fund or the NSRF–to secure further projects in the EU and its neighborhood. Apart from the leverage such a setup entails for China, it also brings the issue of financial sustainability of China’s loan-based approach to the forefront. The IPE is keen to attract private investment in infrastructure to avoid adding to already dangerously high levels of public debt in many European countries (European Commission, 2015). However, it remains to be seen whether potential borrowers in Europe can ignore the prospects of using China’s extremely favorable loans for major developmental projects expected to immensely benefit local economies.

The operating mechanism remains unclear as well. EU officials seem to be particularly worried about whether Chinese-backed platforms and projects can reach high standards for governance as well as technical and environmental requirements. Whether the next round of discussion scheduled for September can produce a cooperative platform that satisfies both sides remains to be seen (Friends of Europe, June 26).

Complications arise from more than just the difficult questions of how to cooperate in infrastructure development. In order for increased flows of goods and finances envisioned by the OBOR to materialize, a set of broader support policies and incentives, such as the Bilateral Investment Treaty (BIT) currently being negotiated, must be in place. BIT will provide stimulus for economic growth to both the EU and China as it will open markets to investment in both directions. China wants to move quickly on this front, as it sees BIT as a stepping stone to a Free Trade Agreement with the EU. However, the most important point for the EU is to ensure the same level of access to China’s market to European companies as Chinese companies enjoy in Europe. At the moment, European companies face restricted or prohibited access to many sectors and are denied opportunities to bid for public procurement projects.

More broadly, the issue of equality within the relationship is a top concern for the EU. While Beijing hopes that European markets will be able to absorb some of its industrial overcapacity and ever increasing amounts of Chinese goods, the EU appears more concerned about whether OBOR will create more export opportunities for European products and services and facilitate more balanced trade between the two.

Indications also exist that OBOR may not be an equally beneficial deal even within proposed “trilateral” arrangements. China and the EU increasingly compete in global markets. Chinese products now directly compete with 35 percent of European goods, and increasingly, high-tech industries and products (EU Institute for Security Studies, October 2013). As an example, when Chinese companies “win” energy and transport infrastructure projects in the CEE region, this directly translates to a market loss for European companies that have so far dominated in these countries. Given China’s willingness to offer attractive financing and implementation by Chinese enterprises, this trend seems set to continue. To regulate the competition and ensure business interests on both sides are satisfied will require coordination and compromise that might be beyond Brussels and Beijing.

Strategic Implications: China to Set the Rules in Eurasia?

OBOR has already made a tangible impact on China’s international position. Articulated through the images of a New Silk Road that connects China and the world, it has helped side-line discussions about the implied threat of “China’s rise.” Instead, the vision of comprehensive development across an area inhabited by more than four billion people and the accompanying expectation of profits and various other benefits has allowed China to recast the “rising China” narrative in much more positive light. That may be a first sign that China may indeed have a capacity to impose its own vision, values and agenda on the international community.

Finally, geostrategic aspects of OBOR will influence Brussels’s assessment of the right place for the EU within the initiative. China seems particularly willing for OBOR to overlap with other multilateral platforms. The Eurasian Economic Union (EEU) has also been given a role in OBOR, and recent diplomacy by Moscow indicates that Russia is seeking further opportunities in China’s Economic Belt initiative (Xinhua, May 9; TASS, July 8). How the EU views such development is not clear at the moment, but Sino-Russian cooperation on OBOR provides incentives to the EU to engage with the initiative in order to not only ensure it remains relevant for China, but also for Russia and EEU countries.

Conclusion

China is dramatically changing the strategic environment in Eurasia. What does it all mean for the EU’s China policy? While there is little to suggest that China aims to be an ideological counter-model and an agenda-setting actor in Europe and its periphery, such worries are voiced more often as China engages Europe more intensively and closer to home (China-EU Observer, March 2015; China Policy Institute, June 23; European Institute for Asian Studies, January 2014). Whether policy makers in the EU and the individual European countries take these concerns into consideration as they craft a response to OBOR will greatly influence how Sino-European relations are shaped. However, despite a slow initial response to OBOR, Europe will find it hard to resist the benefits a cooperative approach could bring. As the EU and China celebrate 40 years relations this year, it indeed appears to mark the end of one stage and the beginning of another in Sino-EU cooperation.

Dragan Pavlićević holds a PhD from the University of Nottingham’s School of Contemporary Chinese Studies. Pavlićević researches China’s domestic politics and foreign relations. His analysis has appeared in Serbian and international media.

Notes

1. See, for example: European Council For Foreign Relations, June 10; Friends of Europe, June 11; Xinhua, May 7

2. “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road.” Issued by the National Development and Reform Commission, Ministry of Foreign Affairs and Ministry of Commerce of the People’s Republic of China, with State Council authorization (Xinhua, March 28).

3. During the European segment of the trip, Zhang witnessed the signing of an agreement concerning preparations for construction of a high-speed railway between Moscow and Kazan in Russia, expressed an interest in Chinese participation in construction of Rail Baltica–an EU-backed railway that connects Lithuania with other Baltic countries, Finland and Poland; and checked on preparations for construction of the Belgrade-Budapest High-Speed Railway and other ongoing and potential infrastructure projects in Serbia (Global Times, June 20; CCTV, June 22; Ekonomske Vesti, June 22). During the trip, Li visited the headquarters of the OECD and co-chaired the 17th China-EU leaders’ meeting with European Council President Donald Tusk and Commission President of the Jean-Claude Juncker. Over 70 deals worth billions were signed, including cooperation in nuclear energy, aviation, agriculture and finance (Global Times, June 29).

4. OBOR aims to relieve China of some of her overcapacity in manufacturing while the restructuring is ongoing, including heavy industries involved in building and maintenance of transportation and energy infrastructure, but also consumer goods. Hence, OBOR is as much about upgrading the Chinese economy as it is about maintaining existing and finding new markets for manufactured goods to ensure the growth of the manufacturing sector even while there is a slowdown and restructuring domestically.