Why Europe and the US cannot afford to ignore China’s belt and road

Michael Clauss says Europe must dial in to the China-led infrastructure project, given its massive scope and impact, and seek to bring to the table as an added draw its trademark focus on local content and transparency

PUBLISHED : Friday, 16 June, 2017, 11:02am
UPDATED : Friday, 16 June, 2017, 4:22pm

China’s “Belt and Road Initiative” is gathering momentum. Enthusiasm for the promise of vast infrastructure projects, investment and more “connectivity” is great, but it seems to cool closer to the most developed parts of Europe and the US.

The initiative is supported by US$3 trillion of foreign currency reserves and state-owned enterprises. The new Silk Road also reflects geopolitical ambitions; it shows how the Chinese leadership wants to shape the order of an area that represents more than half the world.

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The initiative has gained additional momentum from the dwindling of US influence in East Asia, after America’s withdrawal from the Trans-Pacific Partnership. Thus, to underestimate the importance of the belt and road plan would be a strategic mistake.

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Not surprisingly, a project of this scale and ambition raises questions: do the highly indebted Chinese state and overleveraged SOEs really have the financial firepower to sustain this project? Are the terms really attractive and transparent enough for foreign companies? Can local populations be convinced that these projects are in their interest, despite in many cases having minor local input?

Can China allay suspicions that, besides pouring concrete onto roads and into ports, the initiative might also mean very concrete political influence? Attempts by European delegates at the Belt and Road Forum in May to raise these concerns and offer ideas for solutions have yet to be addressed.

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And yet, the belt and road is too important to be ignored by Europe, or the US. The basic idea behind it is completely convincing: Central Asia, the Middle East and sub-Saharan Africa need investments in infrastructure on a massive scale, in order to jump-start economic development and increase political stability, while a Europe facing a refugee crisis of historic proportions can’t afford to ignore a scheme that could be crucial in tackling its root causes.

China’s preference for exclusive and confidential bilateral deals poses a serious challenge to EU standards

The belt and road is not just happening “out there”, it aims at Europe’s periphery. Infrastructure in parts of Europe needs urgent upgrading, but China’s preference for exclusive and confidential bilateral deals poses a serious challenge to EU standards, for example on public tenders. This is a challenge for all countries along the Silk Road, and at its other end in Europe. Without stronger respect for WTO procurement rules, the initiative risks becoming a vehicle for more protectionism, with SOEs as gatekeepers in third markets, and only foreign firms willing to accept preset conditions – such as forced technology transfer – being let in.

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The belt and road plan is further proof that China intends to stick to and expand globalisation. This is a positive development for both China and Europe.

However, it is not quite the globalisation we are used to. For Europe, globalisation is open, market-oriented, based on and enforced by treaties equally applicable and negotiated by all, ensuring the free flow of goods and services, information and ideas.

What would globalisation with Chinese characteristics mean? A system where all roads lead to Beijing? Where informal new formats, with all outcomes orchestrated by China, sidestep formal negotiated treaties? Where economic favours are granted by informal bilateral arrangements, to be withdrawn in case of a hiccup in bilateral ties?

China at the vanguard of globalisation and the great paradox of our age

I suggest two ways to deal with China’s Silk Road ambitions. One, partner with China to close development gaps, while reinforcing the open, transparent and non-hierarchical world order, as seems to be working with the AIIB.

Two, Europe could offer its own concept to act as another friendly pole with the power to attract. Local content – that is, maximum participation by local labour, local companies and local products – could be the signature of connectivity, European-style. Open tenders where the best offer wins, hopefully through a bid from the country where the project is built, would be another. Labour safety, environmental standards and fair and sustainable financing would be a third.

Like China, we need a narrative that is highly attractive across political, ideological and cultural divides.

Michael Clauss is the German ambassador to China