China's Silk Road dreams in Europe

China's Silk Road dreams in Europe
PHOTO: ST

IN THE late 18th century and early 19th century, Britain built a vast empire while denying that it was doing anything of the kind. Its trade conglomerates, such as the East India Company, Swire, or Jardine Matheson, claimed to be merely engaged in commerce and infrastructure-building, such as roads, ports and shipping. The fact that this invariably led to the establishment of colonies was, apparently, just accidental.

Is China, which has just launched a similarly massive effort to push infrastructure mega deals in Europe, about to turn history on its head by repeating the British path to empire?

"Absolutely not," Chinese Foreign Minister Wang Yi told me during a recent stopover in London, at the conclusion of another whistle-stop tour of European capitals. "Nobody should politicise China's offers of economic co-operation and development, offers which meet the needs of many European states," he added.

There is little doubt that Mr Wang, who devoted an unusually long time to briefing a handful of British analysts about his country's policy initiatives, was sincere in what he had to say. Nor is there much doubt that the Chinese investment projects currently touted in Europe will end up benefiting the "old continent".

Still, suspicions linger that co-operation projects of this kind will never be immune from political implications and that ultimately, as the British used to say, "where trade goes, the flag follows".

The key challenge for both China's and Europe's leaders is not to avoid these political implications but, rather, to confront them head-on in a productive partnership. For, when all is said and done, this may be the opportunity to anchor China in a new global order, one which the Chinese helped fashion, and one in which they feel more comfortable.

China's push into Europe

WHEN newly anointed Chinese President Xi Jinping first unveiled in September 2013 his vision for the Silk Road Economic Belt and the Maritime Silk Road, plans now collectively known as the "One Belt, One Road" or "Belt and Road" proposals, few European leaders took it seriously. After all, Beijing loves to talk in slogans, and grand visions are not easy to sell to jaded European electorates.

And even if some European politicians did take Mr Xi's pronouncements seriously, they assumed that most of Beijing's initiatives were aimed at Central Asia, the region through which the original, historic Silk Road passed, an area which also happens to be a contested economic space between China and Russia, the old regional colonial master.

But the Chinese followed words with deeds, in Europe. A huge new bridge over the Danube, Europe's second-longest river, entirely financed and built by China, was inaugurated at the end of last year in the Serbian capital of Belgrade. It was only the second such bridge built in the city in a century and it was promptly dubbed "Zemun Borca", the "Chinese Bridge" in the local language.

Soon thereafter, Romania signed a "binding and exclusive" co-operation agreement with Chinese companies for the construction of two nuclear power plants.

The Chinese are also building a high-speed train link connecting the south-eastern tip of Europe with the central part of the continent. And last week, Hungary became the first European country to sign a memorandum of understanding with China on promoting Beijing's Belt and Road proposals.

"We hope this is one of many," Mr Wang told me, pointing out that Chinese Premier Li Keqiang will attend the European Union- China summit later this month, at which the issue may be raised. Infrastructure projects already concluded are valued at about €10 billion (S$15 billion), with more in the offing.

Officially, the EU and the continent's national leaders welcome the Chinese push: "This is a golden period in our relations," gushed British Prime Minister David Cameron after receiving Mr Wang last week. Privately, however, misgivings abound.

European misgivings

MOST European governments worry that the Chinese investment drive, with its emphasis on big infrastructure projects, lacks transparency: Contracts which saddle European countries with big debts for decades to come are concluded with no obvious process of tendering, no feasibility studies that are publicly available, and no assessment of their long- term viability.

The scope for corruption or simply waste is vast. Instead of importing good governance practices, Chinese companies are exporting their less-than-perfect methods to Europe.

Nor are these Chinese-funded projects as beneficial to the receiving country as they are initially touted to be.

The contract for the Danube bridge in Serbia, for instance, was meant to share the work equally between Chinese and local companies. But few Serbian suppliers got any slice of the business - the overwhelming share of the materials for the bridge came from China, as did the labour force, notwithstanding the fact that Serbia has a well-educated population and a high unemployment rate.

What has happened in Africa is also now happening in Europe. In effect, Chinese banks are financing Chinese companies to complete projects which give work to Chinese suppliers and workers.

But the biggest fears in Europe are political, based on the fact that China seems to have targeted its largesse on the 16 former communist countries of the continent, most of which are in the EU. Mr Wang Yi explains that this "16+1" format of co-operation is "very natural", since the former communist countries are still poor and "they are naturally attracted" to Chinese infrastructure bids, which are cheaper and offer better financing terms.

But the EU worries that such deals will diminish the influence it has over nation states on the continent. It is noticeable, for instance, that Serbia and Hungary, which jumped first on Beijing's Belt and Road proposals, are countries that have a fraught diplomatic relationship with the rest of the EU. Whether the Chinese like it or not, their European tie-ups are often portrayed as a snub to the EU.

Overland route to Europe

STILL, it would be a grave mistake for Europe to treat this new Chinese investment drive as a menace.

To start with, the Chinese have perfectly good economic reasons to push such infrastructure projects, if only in order to find markets for the huge excess capacity which Beijing's de facto state-owned companies have. Needless to say, some of these projects will turn into "white elephants" and Chinese banks may end up having to write the debts off. But if China is prepared to take such risks, should the Europeans complain?

As the world's top exporting nation, China also clearly has an interest in simplifying its transport access routes to Europe, its single biggest market.

The opening up of Greek harbours in southern Europe (some of which are already partly owned by Chinese companies) and their link-up with Chinese-built high-speed trains could cut average transport times by about 10 working days, and spare Chinese exports the need to use only ports in western Europe to supply customers who may be nearer the centre of the continent.

China's ultimate objective is to diversify away from sea-based transport routes, by creating more land-based ones.

Again, practice may turn out to be different. Mr David Dollar, a trade expert at the Brookings Institution think-tank in the United States, has claimed in a recent study that "overland transportation between East Asia and Europe will remain expensive compared with seagoing shipments", so the Chinese objective may not be realisable. But if the Chinese are still willing to try, why should the Europeans object?

Ultimately, attracting China into a deeper economic relationship with Europe, and particularly one that involves long-term infrastructure projects, should be a smart strategy, because it encourages China to shoulder a greater share of global responsibility, in a way that is acceptable to the Chinese themselves, rather than one dictated by those in the West who keep talking about making China a "responsible stakeholder".

Therefore, China's Belt and Road proposals should be embraced in the hope that, as it matures, it will become both more transparent and extend its scope to the rest of Europe, rather than remaining confined to the poorer and more vulnerable parts of the continent.

Either way, one conclusion is already obvious: While the US "pivot" to Asia remains rickety as the American President's Asia-Pacific free trade agenda is being torn to shreds by legislators in Washington, China's westward march to Europe is gaining both speed and substance - even if Chinese taxpayers end up footing the bill.

Jonathan.eyal@gmail.com


This article was first published on June 15, 2015.
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