Eurasian connectivity: the EU and India enter the fray

In an effort to mitigate the geopolitical impact of China’s Belt and Road Initiative (BRI), the European Union and India are considering their own infrastructure plans for greater integration of the Eurasian supercontinent.

But building modern Silk Roads across Eurasia will be no easy task for Delhi and the EU, as China itself is finding out while coping with the financial challenges of its grandiose transport project.

EU’s connectivity plan

The EU is working on a scheme to bolster connectivity between Europe and the Asia-Pacific region. The Europe-Asia Connectivity plan will be presented to Asian partners during the 12th Asia-Europe (ASEM) Summit in October.

Last month, German business newspaper Handelsblatt revealed that 27 of the 28 ambassadors from the EU in Beijing compiled a report accusing the BRI of limiting free trade and providing subsidized Chinese companies with unfair advantages – the Hungarian envoy was the only European representative to refuse to sign the document.

The EU bloc is increasingly critical of Belt and Road, seen as China’s tool to expand its trade footprint overseas, find an outlet for its industrial overcapacity, revise Western-defined global rules on commerce and investment, and make BRI countries dependent on Chinese resources and policies.

In particular, the EU is concerned that China could use Belt and Road to exert a form of control over its member states in Central and Eastern Europe, which aim at Chinese loans and investments to prop up their economic growth.

EU leaders believe the BRI must comply with the financial, environmental, social and labor standards recognized by most Western nations. EU countries do not rule out joining Beijing’s transport initiative, but they want a level playing field, with a transparent tendering process, to be ensured for European investors.

India’s north-south corridor

Just like the EU’s connectivity plan for Eurasia, the India-sponsored International North-South Transport Corridor (INSTC), a 7,200-kilometer route between Mumbai and St Petersburg, which runs through the Arabian Sea, Iran, the Caucasus and Russia, seems a response to China’s BRI.

Projected well before China’s New Silk Roads, the INSTC is viewed by New Delhi as an alternative to the traditional maritime corridor through the Suez Canal connecting the Mediterranean region and the Baltic Sea to Asia. It allows India to gain access to markets in Central Asia and Western Europe by skirting China and Pakistan, its two regional rivals.

The INSTC could be linked to the Iranian port of Chabahar, the southern tip of a transport corridor aimed at connecting landlocked Afghanistan with the Arabian Sea. New Delhi is purportedly supporting the Chabahar-Afghanistan route to counter Beijing’s influence in the region. China is currently developing a 3,000km rail and road passageway between its western region and the Pakistani port of Gwadar, a project that according to the Indian government “violates India’s sovereignty and territorial integrity.”

What’s more, India is cooperating with Japan to create the Asia-Africa Growth Corridor, an initiative designed to promote development in a free and open Indo-Pacific region, which appears complementary to New Delhi’s north-south transport route.

Funding gaps

China’s problems with the funding of BRI is an illustration of what may lie ahead for the EU and India while they try to realize their own infrastructure projects across Eurasia.

Beijing has so far promised US$1 trillion worth of infrastructure investments under the BRI. But according to the Reconnecting Asia Project at the Center for Strategic and International Studies, the Asian giant’s funding for transportation projects stood at $90 billion between 2014 and 2017 – Chinese President Xi Jinping launched Belt and Road in 2013.

As well, the China Global Investment Tracker has calculated that the value of Chinese investments and constructions in BRI countries did not exceed $340 billion during the same period. Wang Yiming, deputy head of the Development Research Center of China’s State Council, said last month that the BRI had a gap in private funding of up to $500 billion a year.

The EU will likely struggle to fund new Eurasian transport routes, given that it has already had problems financing its planned core network corridors in Europe, which will require about $885 billion worth of financial investments by 2030. Limited resources could derail India’s Eurasian connectivity plan too. New Delhi will need investments of about $4.5 trillion by 2040 only to build infrastructure at home, with a funding gap estimated at about $526 billion, according to Indian media reports.

Cooperation in place of competition?

The Asian Development Bank (ADB) estimated last year that Asia would require infrastructure investments of $1.7 trillion per year until 2030 to support growth. Such an astronomical number should persuade China, the EU and India to join forces. In this respect, a framework of cooperation is already in place.

The Asian Infrastructure Investment Bank (AIIB), which should foster Belt and Road’s implementation, has approved the funding of four infrastructure and transport initiatives in India. Many projects supported by the AIIB are co-financed with the European Investment Bank, the European Bank of Reconstruction and Development, the World Bank and the ADB. And the financial contribution of non-Chinese actors to these BRI-related ventures is often greater than the AIIB’s outlays.

This potential collaboration among China, the EU and India will definitively take off only if Beijing is able, with concrete policies and actions, to dispel the fears that the BRI is simply an instrument of power for Chinese rulers. At the current conditions, the rush to build transport corridors in Eurasia is destined to remain a great geopolitical game. If nothing else, it will diversify financial and investment sources for developing nations in Asia, helping them reduce reliance on Chinese money.