Europe Responds to China’s Assertive Foreign Infrastructure Policy

Spearhead Analysis – 25.09.2018

By Shirin Naseer
Senior Research Analyst, Spearhead Research

European UnionChina is working full steam to promote the ambitious Belt and Road Initiative (BRI) as a project promising “win-win cooperation” for the entire region. In introducing a system based on ‘political and economic cooperation and shared benefits’, China has stood behind its claim that Europe is a major region crucial to Xi Jinping’s vision for the BRI. China benefits in terms of a positive global image from this ‘narrative of cooperation’. It also benefits from a common market for goods and services, which is swiftly emerging out of its foreign infrastructure policy.

Within the BRI, 89 percent of infrastructure projects are handled by Chinese companies. China’s reluctance to accepting foreign investments and providing market access to European businesses is well-known. China buying important infrastructure in Europe has also not gone unnoticed. According to critics in Europe, in truth the BRI seems to be more than anything else, a ‘Chinese initiative’ focused on driving ‘Chinese investment’ overseas and building its global power. The 16+1 Initiative between China and 16 Central and Eastern European countries(CEE) also faces difficulties in terms of getting Europe on board. The initiative has slowed down due to failed projects and delays but continues to attract interest; recently 16+1 observers Austria and Greece were invited to become full-members. What is most concerning however is the idea that several Chinese political analysts have publicly spoken out and admitted to how the 16+1 initiative took-off with the intention to influence EU politics at a time when the EU did not seem as enthusiastic or trusting of Chinese projects.    

More recently, the Chinese Prime Minister Li Keqiang went to great lengths to make obvious that the regional cooperation format with 16 Central and Eastern European countries was not meant in any sense to challenge the European Union (EU).

In an effort to put reservations at bay, at a news briefing with Bulgarian Prime Minister Boyko Borissov, Li said: “We welcome a united and prosperous Europe. We welcome a strong euro.”

Even though the attempt to clear the air was obvious enough with Li reassuring Beijing’s commitment to integrate Europe wholeheartedly in the project, China’s infrastructure policy in practice within the region continues to confuse.

Majority projects under the BRI in the CEE region remain in the hands of a few Chinese lenders and companies. Most infrastructure projects are managed on a bilateral basis, oft-times giving little heed to the international trade and investment rules set in the region. The Belgrade-Budapest Railway – China’s most ambitious transport project in Europe – is an example of one such project. Initially both parties including the Chinese and stakeholders from Hungary attempted to keep bidding closed in hopes that they would be able to evade EU regulations. In this particular case EU authorities were able to stop that from happening.

However, in other cases China has been using similar methods more successfully to pressure smaller countries with weaker economies into negotiations. Sri Lanka stands as a model example of what happens as a result; unable to pay back Chinese loans for the construction of its Hambantota port, the port itself and the surrounding acres of land, located at the crossroads of the Indian Ocean, the Bay of Bengal and the Arabian Sea are now under the control of China, reportedly up until the year 2116. To give context to Europe’s discomfort with Chinese investment pouring in, there are several other examples of similar Chinese-loan-led circumstances: the takeover of ports in Belgium, the Netherlands, Spain, Italy, and Greece being some of the more obvious ones that come to mind.

The EU has on numerous occasions highlighted China’s blatant disrespect for EU rules and standards on: public procurement and state aid, environmental impact assessments, and sound cost-benefit analyses, in building large-scale infrastructure in the region. European officials have also been critical of the environmental sustainability of six China-led coal-based power plants in Pakistan, whose joint output capacity reportedly equals 27 percent of the country’s current capacity.  In April the Handelsblatt reported that 27 out of 28 EU ambassadors to China signed a report criticizing China’s BRI. The report pointed to the ways in which the BRI “runs counter to the EU agenda for liberalizing trade and pushes the balance of power in favor of subsidized Chinese companies.” The Bar-Boljare highway project in Montenegro being built by the China Road and Bridge Corporation (CRBC) with an 809 million EUR loan from Exim Bank is a case in point. The IMF reportedly warned against carrying the project out of fear that the country would not be able to sustain the large debt the project would inevitably accrue. 

China has made several attempts to calm tensions in that regard. Beijing proposed a partnership wherein Chinese policy banks could partner with the European Bank for Reconstruction and Development (EBRD) and several other European development agencies in the construction of the BRI within Europe.

It has taken some time for the EU to take China seriously as a rising power. Over the past 30 years China has expanded rapidly and significantly to become the trading giant that it is now. China has established itself as an important provider of foreign investment in Europe. Reading the present situation, Europe has it seems decided to fight to protect its political and economic interests and reclaim its rightful space in the greater geopolitical game that has major powers like the US, China and Russia competing for influence. The European Commission on 19 September introduced its sustainable and comprehensive alternative to China’s BRI: a new Connectivity Strategy linking Europe and Asia with a special emphasis on sustainability. While the new strategy is still being worked on, the EU has stressed that any investment will respect labor rights, not create any dependencies and guarantee a level-field for the business community. It is too early to suggest with absolute certainty what Europe’s initiative will mean for the region, but China’s inability to make any significant changes in its policies in Europe despite significant backlash certainly allows some clarity in forming a judgement on the question of honest intent that has for long shadowed China’s foreign infrastructure policy.