Europe prefers market driven connectivity over Belt and Road

The European Union’s proposal to enhance connections between Europe and Asia is a welcome development for European businesses in China. Many parts of the Asian continent still have a great need for basic infrastructure and improved connectivity is a major contributor to economic growth.

The EU plan is a response to China’s Belt and Road Initiative, which is aimed at boosting trade and infrastructure integration across Eurasia. Eventually, the two frameworks could be connected.

Ioana Kraft, general manager of the European Union Chamber of Commerce in China, noted that the European approach to cross-border connectivity “contrast significantly” with Beijing’s. “The European Chamber thinks that a market-based approach is always strongly preferred over a state-led one, and that it guarantees better outcomes than the latter,” she told Asia Times.

Sustainable connectivity

The Europe-Asia Connectivity plan was set out by the European Commission, the executive body of the EU, last week and provides for the construction of transport links, as well as the development of human, energy and digital networks. It needs to be approved by the EU Parliament and the European Council before proceeding. Next month, during the Asia-Europe Meeting (ASEM) summit, it will also be shared with Asian partners.

Through its new strategy, the EU wants to promote commonly agreed cross-border rules, standards and regulations to strengthen Eurasian cooperation and ensure fair competition for all businesses. It aims to guarantee that investments in infrastructure integration from the eastern Atlantic to the western Pacific are fiscally, financially, socially and environmentally sustainable.

The EU has good reasons to believe its bet on better connectivity with Asia will pay off. Annual trade between the bloc and Asian countries stands at US$1.8 trillion, with the two regions accounting for more than 60% of the world’s GDP, the EU Commission reports.

To promote its initiative, the EU plans to source funds from a combination of potential investors such as multilateral development banks, international financial institutions and the private sector. In this respect, Brussels emphasized the success of both the Juncker Plan and the External Investment Plan in mobilizing $587 billion and $51.7 billion worth of investments, respectively, to spur growth across Europe.

The EU is actually already financing Eurasian connectivity. Its Asia Investment and Central Asia Investment facilities was involved in over $4.9 billion of investment between 2010 and mid-2018 through a mix of grants and loans. The European grouping has invested $41 million in the construction of a bridge in Serbia as part of its project to extend the Trans-European Transport Network (Ten-T), a blueprint for better transport and connectivity across the continent, to Asian transport networks.

As well, Brussels has in place a student exchange and staff mobility program with India, is financially contributing to the integration of the Association of Southeast Asian Nation and has set up with Japan the world’s largest area of safe data transfers. What’s more, the European Investment Bank (EIB) has committed $82.2 million to creating an electricity transmission system between Central and South Asia.

Forced to cooperate?

Despite an increasingly competitive economy, Asia still lags far behind in terms of connectivity. The Asian Development Bank calculated last year that the continent would need $1.7 trillion worth of investments in infrastructure and transport systems annually until 2030 to prop up growth. Neither China nor the EU could close this financial gap by themselves.

The EU said it would pursue bilateral connectivity partnerships, like the EU-China Connectivity Platform, to create synergies and address differences. China apparently agrees with this approach. The Chinese Ministry of Foreign Affairs claimed last Thursday that with the concerted efforts of both parties, “the China-EU connectivity will continuously make new progress and deliver benefits to the people of all countries in the region.”

China has some financing problems with Belt and Road, and Europe’s Tent-T corridors need about $1.8 billion worth of financial investments in the period 2021-30. So the integration of the two initiatives could be advantageous for both sides. It should be noted that the EU and China are already cooperating on this front. Indeed, some Belt and Road projects supported by the Asian Infrastructure Investment Bank, a Chinese-sponsored financial vehicle, are co-financed with the EIB and the European Bank of Reconstruction and Development.

But Europeans have a deep mistrust of the Asian giant. The European Chamber highlights the fact that there is currently a huge trade and investment imbalance between the EU and China. Europe buys $1.2 billion worth of goods from China per day, while China only buys half that amount from European countries. And in 2016, China invested four times more in Europe than EU companies invested in the Chinese market.

Germany, France and other EU core member countries are concerned that modern Silk Roads are essentially a subterfuge to export Chinese industrial overcapacity and revise Western-defined global standards on trade and investments. But their biggest fear is that China could use the Belt and Road Initiative to make some investment-hungry countries in south and east Europe align with its policies.

Kraft said that European companies invested in China and the region hoped for close consultation with the EU, as well as engagement with the Chinese side, during the process of implementation of planned Europe-Asia corridors.

“The European Chamber believes that the success of the Belt and Road Initiative will largely be predicated on open markets, balanced trade, transparency and reciprocity,” she pointed out. “We expect to see transparent public procurement processes put in place that will allow European and Chinese companies, and especially private companies, to compete on an even playing field with projects going to the strongest bidders.”

Not doing so would likely result in “funds being wasted and projects failing,” she warned.