Despite the hype, Europeans skeptical about the real motives behind China’s Belt-Road-Initiative

By: | Issue #652 | at 07:33 AM | Channel(s): International Trade  

The German term “neue Seidenstrasse“ (the new silk road) is used to refer to what the Chinese President Xi Jinping calls the Belt-Road-Initiative (BRI), which was originally called One Belt One Road project.
Is the BRI an ambitious vision that could open up greater trade opportunities or is it a chimera?

European critics feel the BRI initiative will not be smooth sailing for the Chinese despite their strategic moves to open up global markets by offering to build infrastructure in the BRI member countries which stand to benefit but which, many fear, will eventually become “pawns“ in China’s hands.

Geopolitical Ambition

However, the Chinese should be credited for being the first to act on this massive scale to tap the opportunities inherent in the e-commerce boom and also for their strategy to build a new trading network between Asia and Europe. Global online trade has posted robust growth in recent years, growing by some 25%, according to one market analysis study by McKinsey.

The international e-commerce boom has led to strong growth in sea and aircargo trade, as well as in rail transport which increasingly plays an important role in China-Europe trade.

While China’s BRI is supported by $3 trillion of foreign currency reserves and state-owned enterprises, and while the project professed aim is economic development, it also reflects China’s geopolitical security ambitions with its leadership trying to shape and dominate the order of half of the world’s geography; this is causing concern among some nations, including BRI participants.

It was not a coincidence that soon after US President Donald Trump announced the US withdrawal from the Trans-Pacific Partnership (TPP), Beijing organized the gargantuan Belt Road Forum, attracting a large number of world leaders. However, many European and Asian leaders stayed away because of China’s lack of transparency and other reasons. Some European delegates feel the BRI is China’s ”Trojan horse” to gain political influence across the world.

EU representatives at the BRF were skeptical about China’s willingness to provide the required transparency and ensure economic advantages for all the participants and stakeholders. The EU states refused to sign the final communique on trade issues after the dialogue because China did not address Europe’s concerns. Besides transparency, Europeans want issues of public tenders and adherence to social and environmental standards to be addressed.

German Economics Minister Brigitte Zypries led the charge in Beijing; in her speech before hundreds of delegates, she championed free trade and open markets, urging China to open up its market to stimulate economic growth and development. “As close partners, we encourage China to push reforms and open the market,“ she said.

To keep the BRI momentum alive, China held out the prospect of investing billions in ports, roads, railway lines and other infrastructure projects. It made a similar pitch recently at the Asia Society in New York where a high-profiled Chinese delegation courted US companies to avail of the investment opportunities BRI offers.

Visibility on the Silk Road

The BRI, as a concept, is quite promising, and can open up new business opportunities, giving development impulses, particularly in the Eurasian region, which should also be in Europe’s interests. The forum in Beijing showed that the EU members pursued their own economic interests, and were deterred by the project’s lack of transparency in several issues, including the renewal and integration of Central Asian energy networks. On the other hand, Germany’s automobile industry, for example, is already benefiting from the railway connectivity to Eurasia, allowing it to ship cars. German logistics experts believe China will provide new stops in the future to attract greater Western involvement in the BRI.

While the BRI seeks to establish China’s supremacy on the sea routes, particularly, from the western part of the country through Euroasia to Europe, the Chinese leadership has, apparently, recognized the strategic importance of building a huge railway network connecting major trading regions outside the country.

Rail freight traffic between Europe and China has grown dramatically over the years. Besides Russia, Kazakhstan serves as an important transit country, bordered on the west by the Caspian Sea, though its potential in context of trade and freight traffic lies in the East. The country’s proximity to China is another advantage. Kazakhstan has established near the province Xinjiang the dry port of Khorgos which has become since 2015 an important transit point for rail cargo between Russia and China. The Khorgos center is administered by DP World which operates the Jebel Ali cargo port and the connected free trade zone in Dubai.

The rail freight volume between the 28 EU member countries and China has risen sharply; according to Eurostat, the European statistics office. Chinese exports from 2012 to 2016 surged from 275,000 to 610,000 tonnes, whereas European exports to China grew from 83,200 to nearly 400,000 tonnes.

China has traditionally shipped goods to Russia and then to Europe by rail. According to European experts, the freight volumes have been growing since ten years. But the new feature is that traffic has been growing in the opposite direction – to China. Duisburg in Germany has already been seeing off freight trains passing through Kazakhstan to Kasgar in Western China.

The railways will play a greater role in the future as an alternative to the more expensive airfreight and the slower mode of transportation by sea. Germany’s railway, Deutsche Bahn, transported last year through diverse routes over 40,000 TEUs between China and Germany, an increase of more than a tenth. By 2020 the projected volume will be 100,000 TEUs, and this will require greater investment in railway infrastructure in Russia, Kazakhstan, etc.

China announced in mid May at the BRF in Beijing that it was pledging, as a start, more than 100 billion Euro for the BRI projects. China wants to connect Europe and Asia, as well as parts of Africa by road and rail, and also invest in power plants, pipelines and computer networks, ports and container terminals, etc. According to the Asian Development Bank, the BRI will need by 2030 an investment volume of some 26 trillion Euro, with China providing a large part of it. Germany’s engineering companies see windfall business in the infrastructure development.

While it is tempting to think of the BRI as a business-generating machine, European critics recommend caution in a venture that possibly camouflages China’s goal of establishing its control of global shipping and trade.

American Journal of Transportation