#China #BeltRoadInitiative seen as ‘most ambitious development initiative since 1944’

| February 18, 2020

A leading think tank says China’s Belt Road Initiative (BRI) is considered as the “most ambitious development initiative since 1944”, writes Colin Stevens.

Giulia Iuppa, of the European Institute for Asian Studies, says the massive infrastructure project “could indisputably increase trade within the EU”.

Iuppa, a Researcher at the EIAS, based in Brussels, took part in a Q and A with this website on China’s flagship, multi-million-euro scheme. 

Here are his replies.

Q: What do you see as the main advantages of the initiative both to the EU and China?

Iuppa: “Official descriptions of the BRI as an umbrella initiative mention five areas in which not only China and the EU but also all the countries involved could benefit: policy coordination, facility connectivity, trade and investments, financial cooperation and people-to-people exchanges. The principal advantage of infrastructure development concerns increased interconnectivity, a potent driver for global growth and redistribution of wealth. In addition, it will result in reduction of transportation costs and time, as well as a decrease in the risks of trade flows such as blockages caused by conflicts or terrorism.

“The initiative holds considerable economic and political gains especially for China as the BRI could potentially redirect a large part of the world economy towards Asia. In fact, according to China’s policy communiques, Beijing aims at expanding Chinese export markets, promoting the RMB as an international currency and reduce trade tariffs, transportation costs and regulatory complications. Furthermore, to finance the BRI, Beijing has been injecting an enormous amount of capital into the Chinese Development Bank and the Export-Import Bank of China that are characterized by low borrowing costs and low interest rates so that companies working on BRI can enjoy the benefits of this cheap lending. This contributes to make SOEs highly competitive as the case of a bid for the construction of a high-speed rail project in Indonesia has demonstrated in 2015. Consequently, an increase in trade exchanges, investments and connectivity between China and Eurasia could concurrently result in considerable political gains as underdeveloped countries’ dependence on China could grant it political leverage.

“As for Europe, the development of infrastructures could indisputably increase trade within the EU which will eventually strengthen its economy – if it joins the BRI as a united front. Joining the BRI with a conscious, solid plan will allow the EU to negotiate from a favourable position to push its own demands such as environmental standards. Furthermore, Chinese markets becoming more accessible could boost exports to China and create more jobs all over Europe. Over time, the trade deficit could shrink and new venues for bilateral cooperation could appear in third countries.”

Q: Will BRI help lift China’s poorest regions out of poverty?

A: “One of the BRI’s aim was supposedly to boost development in the Western region which was largely excluded from the economic boom in the coastal regions. In fact, the poorest provinces are expected to gain the most from the infrastructure connectivity with Central Asia and beyond. However, some major impediments seem to reside with the low levels of labour mobility (few Chinese workers seems to be willing to move to those regions) as well as with the small – albeit growing – amount of China’s investments directed to Central Asia and the South Caucasus region. Indeed, the greater part of the investments is directed to South Asia, Southeast Asia and Russia and the Eastern and coastal provinces of China are the ones currently benefitting the most from the initiative.

Q: How can Europe/EU tap into the huge potential this project offers? In what way will this open up new markets for China (and maybe the EU)?

A: “Some preliminary considerations are needed before the EU considers how to tackle the opportunities the BRI presents. Both Beijing and Brussels have their own adjustments to implement if they intend to cooperate with one another. First of all, the EU should promptly decide on a common approach regarding China to avoid becoming a peripheral market due to uncoordinated policies. The EU members’ priorities should focus on the protection of the common European market from Chinese market distortions caused by the paradoxical lack of openness and competition to foreign participation in the BRI; and addressing competition in third markets.

“Consequently, the EU could construct a narrative based on its long successful history of promoting connectivity in terms of capacity building and regulatory frameworks and standards via the EU Connectivity Strategy towards Asia. By doing so, the EU could reassert its expertise in these areas and set the trend for any kind of future cooperation with China. In fact, China should align with the EU regulatory principles if it intends to further delve into the European market; study and implement existing cases of mixed economy in Europe so that the monopoly of the state-owned enterprises marking Chinese economy will not translate into market distortions in the common European market. Indeed, one of Europe’s greatest strengths, the open market, has allowed Chinese companies to freely enter and operate in Europe. By contrast, European companies have been struggling to invest in China due to the barriers this market presents. Therefore, transparency, feasibility and sustainability of BRI projects could be increased by exporting European expertise that could consequently pave the way for European companies to deal with Chinese ones on an equal footing.”

Q: Would you like to see Europe/EU deepen its ties with China?

A: “In a fast-changing global order, the major threat for the EU concerns the preservation of its values and social model. Adapting to changing economic realities should then be considered a priority. Considering the relevance of EU-China economic relations as well as Chinese relevant cultural presence within European countries, it seems important to prioritize developing a more balanced relationship.”

Q: Do you have any concerns about Chinese economic and political expansion? What about the costs which are huge? 

A: “China has already been utilizing its economic diplomacy to achieve political objectives. For instance, in 2008, it cancelled Airbus contracts when France hosted the Dalai Lama; in 2010, it shut Norway out of the Chinese market when Liu Xiaobao was awarded the Nobel Prize; it restricted rare earths exports to Japan in retaliation of a maritime incident within the East China Sea dispute. Therefore, China’s increasing economic and political expansion could subsequently increase its leverage on the EU. China could try to exploit economic interdependence to influence EU policy making or retaliate against behaviours Beijing disapproves of. Moreover, if European countries fail to promptly implement a common approach towards China, such lack of coordination could eventually weaken the common market.

“Indeed, China could capitalize on the divergence within the EU member states regarding their stances towards China. In 2012, the Chinese Ministry of Foreign Affairs launched the former 16 + 1 platform (now 17 + 1) to promote cooperation between China and the Central and Eastern European countries (CEECs) which have acknowledged improvement in development levels thenceforth. In fact, CEEC countries look favourably at heightened cooperation vis-à-vis China and, especially after the economic and financial crisis, are leaning towards the more dynamic, less saturated Chinese markets. By contrast, Western European countries perceive Beijing’s interest in Eastern Europe as an attempt at replicating the Roman military strategy divide et impera for which the Belt and Road incarnates the means to that end. Consequently, coordination among the various members will unquestionably prove challenging since different stances permeate the EU.

“At the moment, most of European companies are being overly critical of the initiative and the political debate has concentrated on the perceived debt trap rather than envisaging trade opportunities. In fact, the BRI has been considered as the most ambitious development initiative since 1944 and the establishment of the Bretton Woods institutions and China has been massively investing in the project to fill in the global gap in infrastructure development. China appears to be extremely confident in the success of this initiative since it has declared no limit with financial outflows aimed at the initiative. But the BRI will ultimately be considered successful only if China will recoup what has been investing and if the majority of BRI countries’ economies will benefit from it. Many challenges still lay ahead and the outcomes are yet undefined since many projects are still in their planning phase.”

Q: Do you support Putin’s efforts to link his Eurasian economic union with the BRI?

A: “The Eurasian Economic Union (EAEU) has a great deal to offer to China since the EAEU Member States  have a surplus of natural resources. Russia specifically covets access to the Chinese market as a safer alternative energy partner, due to American and European sanctions over the annexation of Crimea, in 2014, that remain in place. The BRI’s bulk of investments are currently directed towards Russia in the oil and gas sectors. This liaison between the world’s second largest gas producer and the world’s second biggest economy is producing concrete results in the form of a major pipeline, “the Power of Siberia”, that will in fact link Siberia to China. However, such an impressive feat of engineering insinuates more of a geopolitical choice at a time when the supremacy of the United States has been diminishing but not disappearing.

“The growing perception of Washington and Beijing as opposed strategic adversaries could likely expand Chinese interests for more venues for cooperation between Beijing and Moscow including the security realm. Nonetheless, Gazprom refused to seek out Chinese funding to avoid debt traps and maintain leadership over the project. Infrastructures for the pipeline had to be built from scratch since the pipeline starts from one of the remotest and most inhospitable regions of the world and profits from this project won’t be expected before its completion between 2022 and 2025. And according to Gazprom statistics, Russian gas sold to Europe remains the most profitable.”

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