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CWA # 117, 27 May 2019

The BRI Summit 2019
It’s Europe vs EU on China

  Sourina Bej

Post the BRI summit and China’s readiness to deal with the debt crisis, Europe should now come with a joint strategy to work with and balance China. Many have hailed EU’s Asia connectivity project as one such area. But at a time when the US is retreating from the security architecture of Europe, the countries should first mend the union’s internal crisis and then look eastward.

 

The second edition of Belt and Road Initiative (BRI) Summit was held in Beijing from 26 to 27 April. From the last summit two years back, this BRI summit is significant in two ways. Firstly, in terms of numbers, the summit saw only 37 countries attending since the last time when it had 130 attending countries. Secondly, the positive image building saw a new boost when China for the first time in the presence of the IMF chief took a stance to look into the debt trap in the developing countries. Since five years BRI has expanded across the globe, with a recent effort done by Xi to bring Europe into the initiative.  

The European Union which does more than 1.5 billion euros a day in two-way trade with China, how has Europe responded to the BRI and China’s stand on it? How does the outcome of the second edition of BRI affect China?      

The second BRI summit came after the three major events. First, is the largest political event in Beijing called the ‘Two Sessions’ in which China drafted the new Foreign Investment law that aim to redress one of the major complaints against it: the creation of level playing field for both private and public sectors. After giving this message that Beijing is ready to liberalise, Xi looked west. With it came Chinese President Xi Jingping’s six-day visit in Italy, France and Monaco starting on 21 March. This particular Euro visit was ‘historic’ to China as Italy became the first G7 country to join the BRI with France signing 15 business deals worth $63.6 billion and an order of 300 Airbus aeroplanes with China. Thirdly, on 9 April China finished off its Europe trident with a major bilateral summit with the European Union. The bloc was successful in not signing a joint statement but giving a promise to conclude a long-discussed bilateral investment deal by the end of 2020.

Europe’s Weariness

At the second BRI summit, China’s attempt to bring European countries into the fold was noticed. Apart from Italy, Portugal and Luxembourg signing an MOU to join the BRI cooperation, Monaco was also seen eager to join at the summit. China and France signed agreements on the third round of BRI projects in markets of the developing countries and simultaneously launch a ‘third market fund.’ German and EU leaders also expressed interest to find complementarities and foster innovative cooperation between the EU’s Euro-Asian connectivity strategy and the BRI.

Europe’s response to China’s BRI has been two-fold. While on one hand individual European countries have been interested to join, the European Union as a bloc has maintained a hawkish view on China. Hence one can see a disagreement among the bloc members on how to find a balance. While Germany has an increasingly security centric view on Beijing, both as an economic and security challenge, countries like the UK and France are eager to negotiate with Chinese investment. The divided view on China has also stemmed from the fact that the internal crisis has forbade EU countries to focus on anything else. At the European Union summit in Brussels on 10 April 2019, leaders had met to discuss on what was supposed to be a roadmap to deal with China, instead, EU spent the two days talking about Brexit again. The problem is the EU lacks any effective mechanisms to manage conflicts between member states thereby leaving leeway for external actors to challenge its status quo. This knowledge has furthered the fractions inside the EU and left the individual countries to frame their relation with China.  

Secondly, in spite of the interest one can see a steady weariness among the countries to integrate their market with China. The reason being, countries appear apprehensive on the imbalanced trade pattern and excessive dependence on Chinese imports. Among the European countries who have attended last year but didn’t this year also included Spain and Poland. These countries have slowly come to believe that the BRI stands for Chinese goals that undermine European interests, such as transparency in public procurement and a level playing field for businesses, as well as European labour, environmental, and social standards.

Chinese infrastructure investment within Europe has been only partly successful even within the 16+1 format which is a special cooperation format between China and the 16 Central and Eastern European countries. Few countries such as Poland, the Czech Republic and Hungary have started getting early returns from Chinese investment. But for the first time, a European country was affected by a sharp increase in debt after accepting a Chinese loan. Montenegro has taken a loan from China to construct a highway to link the port of Bar to Serbia, a project that might never finish as Montenegro’s debt could increase by three fold of its GDP and they might find it difficult to repay.

 

Why is Europe fractured on BRI?

The debt weariness has left the individual countries to take a cautious approach to deal with China and with no positive examples to show for in South and Southeast Asia and Africa the suspicion has increased. In addition to the debt trap weariness, there is another reason for Europe to be divided on BRI. If one looks at the countries joining the BRI those are mainly East European countries and a little less developing countries in Western Europe who has a relatively less political say in the European Union. Thus when Eastern European countries are falling to debt with China, the EU is worried that as its member the debt will reach its market. EU’s dealing with Greece over the increasing debt has been difficult and if another debt crisis spins off, the EU market would face the domino effect. With Brexit already in the line, Europe may not be able to cushion against another market crisis.  

Amongst the existing divisions, France has emerged to be a leader who is manoeuvring Europe’s narrative on China even though it hasn’t sided with the BRI yet. President Emmanuel Macron said that the European Union had finally woken up to China. “China plays on our divisions,” he said. “The period of European naïveté is over.” Thus during Xi’s visit to France, one can understand why the signing of the deal was symbolic in many ways.

Firstly, France took a position of negotiation by hosting German Chancellor Angela Merkel and EU Commission chief Jean-Claude Juncker to meet with Xi thus moving away from a purely bilateral approach to the ties. By hosting the EU leaders, France has kept an option open to get a multilateral signature and maybe a deal between the EU and China later. This was also clear from Macron’s tweet later that France and China are ‘long-term partners’ at a time where the EU is at a crossroads.

Secondly, it has been Macron’s precondition to showing that France is willing to negotiate with China. This is a departure from the earlier defensive stance that most of the core Western European countries have maintained.

Thirdly, the deal was also to show to the domestic private sector that France has the liberty to take decisions outside of the EU spectrum. The push for signing could thus be seen as a response to the positive environment built by the private sector who are looking to partner with China more to cash on the developing markets in Asia. For example, the French power company Alstom is looking to supply technology to assist Chinese hydropower companies bidding for dam contracts in Central Asia.

Post the BRI summit and China’s readiness to deal with the debt crisis, Europe should now come with a joint strategy to work with and balance China. Many have hailed EU’s Asia connectivity project as one such area. But at a time when the US is retreating from the security architecture of Europe, the countries should first mend the union’s internal crisis and then look eastward.

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