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China's Belt And Road: A Game Changer?

By The Italian Institute for International Political Studies (ISPI)

New Belts and Roads: Redrawing EU-China Relations

The impact of OBOR on different EU zones

In general, Western and Northern EU states’ engagement with the One Belt One Road (OBOR) initiative remains mainly limited to their membership in the Asian Infrastructure Investment Bank (AIIB). The Chinese government also appears not to consider this part of the EU one of its priorities regarding OBOR implementation. Still, some states or local governments are more actively involved, trying to take advantage of potential Chinese investments. We selected a few examples to demonstrate how OBOR is impacting or could impact China’s relations with these countries.

Among the Western EU members, Germany is probably the most directly concerned by OBOR as five German-Chinese railway projects (Leipzig-Shenyang, Duisburg-Chongqing, Hamburg-Zhengzhou, Hamburg-Harbin and Nurnberg-Chengdu) have been put in place and more OBOR-labelled railway projects are envisaged. The railway connection between Duisburg and Chongqing has received great attention and strong promotion from both municipalities, leading to regular political and business delegations visiting on both sides. OBOR-related investment forums and research conferences were held in Duisburg in 2015 and 2016. However, while trains importing merchandise from China are generally fully laden with electronic and other products, trains back to China often have problems finding sufficient goods. Russian sanctions on European goods further complicate the situation. Public and private efforts have been made to increase the efficiency and frequency of these railway connections, but there are still technical details, such as the refrigeration system and temperature variations, to be solved.

Since so far, except for the railways, OBOR has not led to further infrastructure investments, nor M&A investments, nor greenfield investments in Germany, Germany has been advocating in Brussels the EU-China Connectivity Platform as a way to ensure that OBOR-related Chinese investments in Europe comply with EU rules and standards. A German director together with two French and Dutch alternative directors hold 15% voting rights on the AIIB board on behalf of the Eurozone members, which could also play an indirect role in shaping OBOR activities. Berlin will certainly take advantage of its G20 presidency in 2017 to integrate OBOR with its development policy and to push forward EU-China connections and cooperation based on mutual interest.

Compared to Germany, France has received much less attention from the Chinese government and few Chinese investments within the OBOR framework. China’s strategy has been very low key in France, consisting mostly of discussing potential economic opportunities and brainstorming with businessmen, officials and researchers. The French government also lacks a clear position on the topic. More actively involved are a few French regions. Lyon, the French “City of Silk”, has welcomed its role as a historic, commercial and political hub in Europe, and seeks opportunities to attract Chinese investment and open the Chinese market. The Chongqing-Duisburg Yuxinou express was extended to Lyon in April 2016. The region of Normandy tries to interest Chinese investors in its deep-water port, Le Havre, and connections to the inland ports of Rouen and Paris. In fact, in recent years, in order to attract Chinese investors many French regions and municipalities have taken active action to promote their local advantages and business ecosystem. A few recent Chinese investments in France have also made headlines, such as the Symbiose Consortium’s acquisition of a 49.9% stake in the operator of the Toulouse Blagnac airport in 2014, Fosun’s full acquisition of Club Med, and Jin Jiang International’s takeover of the Louvre Hotels Group in 2015. Aging French infrastructure and reduced public resources provide privatization potential. Opportunities are also present in sectors such as transportation, telecommunications, tourism and pharmaceuticals. It is, however, rare to find OBOR-labelled projects in France. The only symbolic step has been a Silk Road partnership agreement signed in June 2015 between French shipping company CMA CGM and China Merchants Holdings International. CMA CGM obtained a US$1 billion credit line from the Export-Import Bank of China to purchase Chinese container ships5.

The Netherlands is one of China’s largest trade partners in the EU. Imports from China account for 1/3 of all goods arriving at the port of Rotterdam, which plays a crucial role for the Dutch economy. Schiphol Airport, opening direct links with various Chinese cities in recent years, has spurred fast growth in air freight from the Netherlands to China. Yet on his first visit to the Netherlands in March 2014, President Xi did not mention OBOR, while during his subsequent visit to Germany at the inland port of Duisburg he publicly called for Sino-German cooperation to expand the Silk Road’s overland route. Nevertheless, some companies are actively promoting OBOR-related businesses. One is China COSCO Shipping’s acquisition of a 35% stake in the Euromax Terminal at Rotterdam in May 2016. Another is the weekly freight train between Chengdu and Tilburg started in April 2016, which was further extended to Rotterdam in September 2016. Trains from Chengdu contain consumer electronics from companies such as Sony, Samsung and Fuji, while trains from Tilburg carry products for the oil industry, cars, wine and trees. In July 2016, three Dutch transport companies launched a joint venture called New Silkway Logistics (NSWL), providing service for end-to-end transport of goods via the Duisburg-Chongqing railway.

Although the impact of Brexit is still uncertain, the UK’s engagement in OBOR as a major European country is affirmative. Also, the geographic limits of OBOR have not prevented the UK government and businesses from responding proactively to the initiative. A good demonstration is that the UK was the first European country to join the AIIB in March 2015, which was a political message supporting a Beijing-led institution that the UK sees as being useful in the long-term economic development of Asia and Europe. The primary logic behind the desire to engage with the OBOR initiative is the opportunities it could bring for British companies and “infrastructure alliance” with Chinese companies in third markets through the role of financial hub for OBOR. A major report entitled “One Belt, One Road” issued in 2015 by the CBBC (China-Britain Business Council) highlighted particular opportunities in a range of sectors. The CBBC has produced another report of OBOR case studies in collaboration with Tsinghua University6, citing cooperation between British companies, such as HSBC, BP, Linklaters and KPMG, and Chinese partners in forms of consultancy, engineering, technological know-how and construction expertise. The UK’s proactive attitude indicates the primacy it gives to economic and commercial diplomacy, as well as its pragmatic response to the growth of Chinese influence in global affairs.

Regarding the Northern EU, OBOR’s impact has been even more limited. There are hardly any diplomatic exchanges on the topic of OBOR and few references to OBOR in the public sphere. Although a Swedish high-speed railway and two private windfarm projects are labelled OBOR projects by the Chinese, there are no current OBOR projects in Sweden according to the Swedish Foreign Ministry. It is more likely that these states, already frequently present in Central and Southeast Asia, could contribute to OBOR through participation in activities in third regions and by providing green technology to infrastructure and energy projects.

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