Only five state and government heads from the European Union attended the Belt and Road Forum in Beijing on Sunday and Monday. What’s more, a number of European delegations, including from Germany, France and Britain, refused to sign a final summit statement on trade because it did not clearly address such issues as public tenders and environmental and social standards.
Core EU members are basically wary of Chinese President Xi Jinping’s initiative to boost interconnectivity across Eurasia and beyond through the realization of new Silk Roads. Xi promised a fresh injection of funds into the scheme during the two-day event, but the numbers still look insufficient – something that will likely sow further doubts among European leaders.
The EU grouping looks favorably on Beijing’s demand for inclusive globalization and most European countries continue to show interest in Chinese investment. But despite the Union’s formal backing of China’s grand infrastructure plans, Belt and Road risks being a non-starter in Europe under the current economic and financial conditions.
Looking for multilateral lenders
In an interview with Chinese state-run People’s Daily last week, the vice-governor of the People’s Bank of China, Yi Gang, said Belt and Road suffered from structural financing problems and needed support from international lenders. His boss, PBOC governor Zhou Xiaochuan, has voiced the same concern, saying governments alone could not fund all the potential Silk Road projects.
The Asian Development Bank assesses that Asia needs as much as US$26 trillion in infrastructure investment by 2030. Xi pledged $122 billion in extra funding for the Belt and Road Initiative in his opening speech to the forum, though he gave no timeframe for the disbursement of funds. Earlier this month, Credit Suisse had speculated that Beijing could invest $313 billion to US$502 billion in the initiative over the next five years.
Since Xi launched the plan in 2013, China has channelled more than $50 billion into Silk Road countries, according to Chinese media reports. All projects have so far been financed almost entirely through Chinese policy banks, foreign-exchange reserves and China-led financial institutions like the Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB).
Multilateral lenders and the private sector, however, appear reluctant to invest in Belt and Road projects. Many countries involved in the initiative do not reach investment-grade status, so it will be difficult for them to attract funds for infrastructure, as underscored by German Ambassador to Beijing Michael Clauss last week.
European resources for European plans
Investing in politically and economically troubled nations is a high risk and China will struggle to find a crutch in Europe. On the other hand, given the scope of resources that Asia alone requires for its development, it is doubtful that Beijing will funnel money into the EU’s middle-term infrastructure plan.
Simply put, China and the EU cannot help each other to meet their respective infrastructure funding demands, even if the Chinese and European transport projects could be complementary in parts of Eastern Europe and the Mediterranean region. The Union’s economy is not in good shape yet and its limited resources are primarily directed to domestic programs.
EU financial institutions are saddled by the bloc’s commitment to modernizing transport infrastructure across the continent. The cost of building Europe’s planned nine core network corridors by 2030 is around $834 billion, which will have to be raised in good part through EU-managed funds, in particular the European Fund for Strategic Investment.
China’s participation in the European Bank for Reconstruction and Development only resulted in a Belt and Road-related minor project in 2016, the improvement of a section of the expressway connecting Dushanbe, the capital city of Tajikistan, to neighboring Uzbekistan, with the EBRD and AIIB investing $27.5 million each.
Beijing’s Silk Road plans for Eastern Europe have so far yielded limited results as well. Project financing is still being completed, though the Asian giant has promoted two ad hoc financial schemes for the region, the China-Central and Eastern Europe Investment Cooperation Fund and the China-Central Eastern Europe Fund, backed up by Export-Import Bank of China and Industrial and Commercial Bank of China respectively.
The reality is that Chinese investment in Europe continues to be concentrated on the continent’s western giants – Germany, France, Britain, Italy and the Netherlands.
Further, Beijing’s much-trumpeted support of the European Commission’s Investment Plan to create jobs and foster growth in Europe, which the Chinese government announced last year to link the Belt and Road Initiative with European infrastructure plans, has never materialized.
Many EU countries are concerned that the rhetoric of “win-win cooperation” enshrined in the Silk Road initiative actually hides China’s will to assert itself globally. But more than geopolitics, it is economics that prevents Europe from fully embracing the Chinese mega-project.
The Belt and Road Initiative has a financing hole, and the EU cannot contribute to plugging it.