Western Europe should pay more attention to China’s Silk Road plans.

Part 1 of a series on the Chinese Silk Road.

For the original Dutch version see http://www.chinarelations.nl

Creating a new Silk Road, or as China calls it, “One Belt, One Road”, is one of China’s official priorities for 2015. The “Belt” is the Economic Belt of the Silk Road, a restoration of the ancient trade routes that connected China in the past with Europe and the Middle East; the “Road” refers to the “Maritime Silk Road of the 21st Century” that will connect China, via the Straits of Malacca, with South and Southeast Asia, Africa and Europe. This year China plans to make great strides to realize its ideas. Last Sunday, 1 February 2015, Chinese Vice Premier Zhang Gaoli gathered a group of policymakers to list the priorities of the Silk Road strategy: the construction of infrastructure, facilitation of investment and trade, financial cooperation, and cultural exchange between the countries on the Silk Road (s). In practical terms, this means that China will build many railways, including high-speed railway lines, roads, bridges, ports and Internet connections.

China has long invested in the construction of infrastructure on the Eurasian continent, but these projects are now brought together under the umbrella of the Silk Road initiative, which enables China to raise more funds and take a more strategic approach. That China is serious about the Silk Road initiative is also illustrated by last week’s announcement of the creation of a second fund that will contribute to the realization of the new Silk Road: the Energy Development Fund. The fund aims to raise 20 billion US dollars and will focus on energy infrastructure in countries along the Silk Road. The first fund was established in November 2014: the Silk Road Fund, to which China will contribute 40 billion US dollars.  Whether the intended capital will actually be raised and invested, however, remains to be seen (more on that in a future episode of this blog).

China thus has big plans for the new Silk Road but while Europe has a lot to gain or lose under these plans, Brussels seems to pay little attention. Chinese leaders stress that all the countries on the Silk Road will benefit from improved connectivity and that China does not seek regional dominance, but will rather contribute to regional and international peace. This does not stop Beijing, however, from ensuring that China itself will profit the most from its plans. The Silk Road initiative is part of a broad and well-thought-out strategy that can be viewed as an element of China’s response to the US “pivot to Asia”, as Zheng Wang writes in The Diplomat or, as Min Ye argues in Foreign Policy, as an answer to the US-led initiative for a Trans-Pacific the Partnership (TPP).  It seeks to give new impetus to China’s’ “go out” policies – the international expansion of Chinese companies – and to strengthen China’s international economic, political and cultural influence. The Chinese government has a strong interest in further integration into the world economy through intensified economic and trade relations with countries on the Eurasian continent, especially when these relations boost Western China’s less-developed provinces’ role as economic gateway from Eurasia to China. Furthermore, better connections and relationships with Eurasia contribute to more efficient and safer energy shipments to China. Last but not least, the construction of infrastructure in countries along the route will help Beijing to get rid of its excess foreign currency reserves and excess products, such as steel, and it will raise much needed financial support for Chinese State Owned Companies.

China’s Silk Road Plans in Europe

China’s Silk Road Plans with regard to Europe currently focus on a strengthening of ties with Central and Eastern Europe, the development of the Greek port of Piraeus as a major gateway to Europe for Chinese goods, and the expansion of direct railway links between China and Europe. In 2012, Beijing took the initiative to establish the ’16 + 1 ‘platform for cooperation with 16 Central and Eastern European countries. China offered investment, trade opportunities and a credit line of 10 billion euros and called for closer cooperation in the field of science and technology. Last December, at the third ’16 +1 ‘summit in Belgrade, China’s Premier Li Keqiang announced the creation of an investment fund for Central and Eastern Europe of 3 billion euro. This economic support is warmly welcomed in these 16 countries, many of which are economically dependent on Europe but believe to have little influence on policymaking in Brussels. EU policymakers follow these developments with suspicion. They are worried that the position of European institutions in Brussels will be undermined and that the cohesion within the EU will be negatively affected. At the same time, however, they disregard potential gains of Silk-Road cooperation with China for Europe as a whole. According to the 16 countries involved, the ’16+1′ platform does not cause any harm to cooperation within the European Union. They argue it just provides much needed economic support and political attention to Central and Eastern Europe.

China’s plans for the reinforcement of its connections with Greece are part of the Maritime Silk Road and focus on the extension of activities in and around the port of Piraeus. Thanks to the investments and presence of the Chinese shipping giant China Ocean Shipping Group Company (COSCO) in Piraeus from 2009 onwards, the Greek port has become one of the fastest growing ports in Europe. Chinese containers filled with Chinese products find their way into Europe through the port of Piraeus and regional railways. In order to improve the links between the port of Piraeus and the European inland China currently finances and builds various railway lines in Central and Eastern Europe. During the aforementioned “16 +1” summit in Belgrade last December, China announced that it will start in mid-2015 with the construction of a high speed railway line between Budapest and Belgrade, a section that forms an important part of the route Greece-Macedonia-Serbia-Hungary-Western Europe. Over time, the growing importance of the port of Piraeus as a gateway to Europe for Chinese products may affect business in Western European ports that function as gateways to Europe, including the Dutch port of Rotterdam. China’s activities in Greece are not limited to the port of Piraeus. China also invests, for example, in Greek shipbuilding and airports, and it supports activities of Greek small and medium enterprises in China. Given the large economic benefits of cooperation with China, Beijing is confident that it will not be hit very hard by the policies of the new Greek government, such as the announcement of Greek Premier Tsipras that the privatization of Greek ports will be rolled back.

As a third element of the Silk Road strategy in Europe China is steadily expanding direct rail links between Chinese and European cities. Freight train lines in operation include those from China to Germany (Chongqing-Duisburg and Zhengzhou-Hamburg), the Netherlands (Lianyungang-Rotterdam), Spain (Yiwu-Madrid), Poland (Suzhou-Warsaw and Chengdu-Lodz) and the Czech Republic (Wuhan-Pardubice). The freight trains are currently bringing goods from China to Europe but not vice-versa, they return to China largely empty. An important reason for this is that transport of goods to China by rail is economically viable for only a limited number of products but Europe could do more to investigate how the European side can benefit from these existing connections.

China’s Silk Road Strategy is still in its infancy. There are many obstacles that need to be overcome before China will make a sound profit on all its investments. Whether or not Europe will gain from the Silk Road initiative largely depends on Europe itself. For a start, policymakers in Brussels and West-European capitals could carefully study the Chinese Silk Road plans, not only in order to avert any negative consequences, but, more importantly, to look for opportunities to participate in these plans and ensure that they will benefit Europe too.

Sources/recommended literature

-Justyna Szczudlik-Tatar, ‘China and the CEE Look for New Development Opportunities’, PISM Bulletin, No. 134 (729), 12 December 2014. http://www.pism.pl/files/?id_plik=18852

-Richard Turcsányi, ‘Central and Eastern Europe’s courtship with China: Trojan horse within the EU?’, (European Institute of Asian Studies, 2014). http://www.eias.org/sites/default/files/EU-Asia-at-a-glance-Richard-Turcsanyi-China-CEE.pdf

-Frans-Paul van der Putten, ‘Chinese Investment in the Port of Piraeus, Greece: The Relevance for the EU and the Netherlands’ (Clingendael, 2014). http://www.clingendael.nl/sites/default/files/2014%20-%20Chinese%20investment%20in%20Piraeus%20-%20Clingendael%20Report.pdf

-Dragan Pavlicevic, ‘China’s Railway Diplomacy in the Balkans’, China Brief, Vol. 14 Issue 20 (October 23, 2014).