There’s not much to see in Anaklia, but I insist on visiting—I want to find out what 5 million cubic meters of sand looks like.

For almost three months last year, one of the world’s largest dredging ships—a Dutch vessel named the Athena—sat just off the Georgian coast, pumping up sand from the bottom of the Black Sea. The result is, quite honestly, underwhelming: a vast expanse of black-grey sand punctuated by plastic drainage tubes that litter the landscape like a carpet of dead sea worms.

These are the inglorious beginnings of Anaklia port—a project that the CEO of Anaklia Development Consortium, Levan Akhveldiani, tells me will be a turning point in the history of Georgia. Akhveldiani hopes that this mass of sand will soon become the first deep-sea port on the Eastern coast of the Black Sea, positioning Anaklia as a major international logistics hub along the New Silk Road.

But the future of the development is far from certain. It is plagued by rivalry with Poti port to the South, by financing problems, and by a domestic scandal that some say indicates Russian obstruction. Just this month, the consortium lost its founding member: the US construction giant Conti Group pulled out, diminishing the project’s hitherto firmly Euro-Atlantic flavor.

Aside from partial funding from the China-led Asian Infrastructure Investment Bank (AIIB), Chinese interest in the port has largely been frustrated. According to insiders, Beijing sought too much control, wanting to build, operate, own, and finance the port with loans guaranteed by the Georgian state.

The preference for US investors might also be geopolitically motivated. Walk north from the Anaklia construction site, along the seaside promenade and past the tacky resort bars, and you’ll find yourself on the border with Abkhazia, a separatist “republic” recognized by Russia after its invasion of Georgia in 2008. Chinese capital is always appealing, but Beijing can’t offer the kind of security guarantees implied by US involvement.

Despite Georgia’s rhetorical enthusiasm for the Belt and Road Initiative (BRI), China’s footprint in the country is still small. Tbilisi’s Western orientation may play a part in this story, but Georgia also has good access to international finance and a strong sense of fiscal responsibility. This makes the BRI model, which often involves hefty Chinese loans or controlling shares, less appealing in practice.

Beyond the sometimes-contradictory mists of domestic politics, powerful forces in Georgia do seem determined to turn this mass of sand into a bustling Black Sea hub, and the recent departure of Conti Group reopens the prospect of Chinese involvement. Georgia has good reasons to continue overlooking Beijing for the job, but easy Chinese capital is an ever-present temptation.

Dispatch from Anaklia, Georgia

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Mihaljo Pupin (1854-1935) was a Serbian-American physicist and good friend of US President Woodrow Wilson who campaigned for closer relations with the United States. That’s why it’s somewhat ironic that the Serbian-Chinese friendship bridge was named, by public vote, in Pupin’s honour. Jutting out, arrow-straight, and six lanes wide across the mighty Danube, Pupin bridge connects New Belgrade to the neighboring municipality of Borča. On a sunny Tuesday afternoon the grassy banks and sanguine flow of the Danube provide a sharp contrast to the constant thunder of commuter traffic across the bridge.

Pupin bridge was opened in late 2014 by the Premier of China, Li Keqiang. As with many projects along China’s Belt and Road, the bridge was built with a Chinese loan, by a Chinese company, and using mostly Chinese workers and equipment. Although Western commentators rankle at the idea of this kind of self-serving development being branded an investment, or worse, aid, many in Serbia seem satisfied with the Chinese development model.

Of course, it would be better had the bridge provided more local jobs, but, as the phrase goes, beggars can’t be choosers. The Serbian government lacked funds for such a project, and the Chinese provided. Now there is a convenient route for commuters that would otherwise not exist. Ordinary people appreciate this kind of convenience, and prominent banners either side of the bridge highlight Beijing’s role in the project.

Similar stories are told elsewhere in Serbia and in the Western Balkans. Montenegro went cap in hand several times to Brussels for a road that would improve connections to Serbia in the north. Their request went unanswered for many years, until they turned to a lender of last resort—the Exim bank of China. Now the Montenegrins have an incredibly expensive highway under development. It may not be the best deal, it may not even be a good idea, but it’s the highway Brussels denied them.

The economic impact of China in the Balkans is minimal, even in Serbia, where Switzerland and the United Arab Emirates outpace China in terms of investment. The political impact however, is palpable, although this has more to do with the relationship between the EU and accession countries than it does with Beijing’s efforts to infiltrate the Balkans.

Dispatch from Belgrade, Serbia

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© REUTERS/Stringer

The sparkling Adriatic jewel of Dubrovnik was snarled with traffic last Friday as the leaders of 16 Eastern European countries converged on the city to hold a summit with the Chinese premier, Li Keqiang. They came hat in hand, hoping for more Chinese investment in big infrastructure projects in their countries.

Already, this city in Croatia is surrounded by examples of such investment. Just a few dozen kilometers to the South, Montenegro has taken out a €809 million loan from China to build a highway through the mountains. Neighboring Bosnia has around €2.5 billion in loans planned for Chinese-backed construction projects, and Serbia has almost €4 billion planned.

The summit’s final statement included a list of nearly 40 existing deals signed between China and the 16 European countries including in agriculture, technology, exports, e-commerce and finance.

Chinese investment in Europe is continuing to grow. Friday’s summit saw the surprise appearance of Greek Prime Minister Alexis Tsipras, who promptly announced he is taking Greece into the partnership, making it the 17+1. Greece is the first new country to join the partnership since the first summit was held in Warsaw in 2012 and included 11 Eastern EU member states, five Balkan countries and China. The Chinese already own the country’s Piraeus port, from which Beijing wants to build roads to bring Chinese goods through the Western Balkans to Southern Europe and beyond.

Not in attendance was Italian Prime Minister Giuseppe Conte, though Italy could be the next country to join the group. Last month, Conte and Chinese President Xi Jinping signed a pact making Italy the first G7 country to join China’s Belt and Road Initiative, which seeks to establish a new Silk Road from the Far East to Europe.

Divide and Conquer

All of this has Western leaders in the European Union very concerned. They would prefer to see relations with China coordinated from Brussels in a way that will protect European industries from possible unfair competition. And there is concern that with formats like the 16+1, China is pursuing a “divide and conquer” strategy, locking small European countries into debt arrangements through which they can control them in what some have dubbed “debt-trap diplomacy.”

“When we negotiate with China as the EU28, we have power,” one frustrated EU official observed this week. “When they negotiate as 16, in a group that doesn’t include any of Europe’s big powers, China is dominating that format.”

This issue was supposed to be discussed at the European Council summit last month in Brussels, where Council President Donald Tusk wanted to have a broad and robust conversation about the EU’s positioning toward China. However, that summit was hijacked by the continued Brexit crisis and a robust discussion did not take place.

There were some signs at this year’s 16+1 summit that both Beijing and the Eastern EU countries are trying to allay Brussels’ concerns. After EU leaders reacted angrily to the fact that last year’s 16+1 in Sofia, Bulgaria preceded the annual EU-China summit in Brussels, this year’s 16+1 followed the Brussels summit, which took place last Tuesday ahead of the EU summit. This was meant to signal that the Brussels summit between the EU28 and China is the more important one.

Speaking in Dubrovnik, Tsipras seemed keen to avoid alarming Brussels over the idea of the partnership’s expansion. “I look forward to working with all of you in this framework of this initiative, in full respect of the rules and procedures of the European Union, to promote economic co-development through this very effective platform of cooperation with China,” he said.

The EU’s Unguarded Back Door

But concerns persist. In February, the EU voted in favor of a new law that would screen foreign investments into EU countries, thus limiting China’s ability to buy companies or infrastructure that has strategic technology, transport or military importance. While the EU could not block such bilateral deals between Beijing and member states, it will be able to screen them and render a verdict about whether they harm the national security of economic interests.

However, the law does not apply to the five countries in the Western Balkans which are not yet EU members: Serbia, Montenegro, Macedonia, Kosovo and Albania. China has particularly focused infrastructure investment in these 16+1 countries, and some EU politicians are worried that these tiny governments, which all have significant corruption problems, represent a back door through which China can skirt EU investment oversight, as well as human rights concerns.

According to the IMF, China is already financing at least €6.2 billion worth of construction in the transport and energy sectors in the Western Balkans. These projects are not subject to the restrictions that investments in EU countries would be. For instance, China is funding new coal-fired power plants in the region, something that EU structures are now set up to discourage. The European Investment Bank, for instance, will not invest any EU money in coal projects.

China represents a hassle-free way for these governments to get financing. Money from the EU usually comes with strings attached, requiring the government to crack down on corruption and human rights abuses in exchange for getting the cash. Chinese money comes with no such restrictions. Brussels worries that for these smaller countries that are struggling economically, the Chinese money may seem like the easier route in the short term. But in the long term it will not help the countries develop and could make them indebted to China both financially and politically.

EU enlargement commissioner Johannes Hahn, who is in charge of overseeing the accession process for these countries, has cautioned them against taking the Chinese money. He has warned that these projects could jeopardize these countries’ chances of getting into the EU, saying on Twitter that irregularities in environmental impact assessments, state aid and public procurement will be “closely looked at” by the Commission.

Hahn told the AFP news agency last week that there are “concerns over the socioeconomic and financial effects some of China’s investments can have.” Saying he is particularly concerned about the amount of Chinese debt being taken on by Montenegro, he told AFP that the strings attached by Beijing to these investments has a detrimental impact on the EU’s aim to improve stability and economic development in the Balkans.

The problem with this attempt at pressure is that the Commission has publicly said there is little prospect of any new EU accession happening within the next five years, because the corruption problems in these five countries need much more work to get them up to a level where they could be in the EU. This reduces the effectiveness of any carrot-and-stick approach by the Commission, since these governments now view EU accession as a distant prospect, even though most believe it will eventually happen for all of the Western Balkans. However, by the time they join, these countries could be up to their ears in Chinese debt, with Beijing owning their infrastructure.

Reassurances

The final statement issued by the 17+1 clearly tries to allay these concerns.

It references new principles that have not been part of previous years’ statements pertaining to human rights, saying that the “three pillars of the United Nations”—peace and security, human rights and developments—are central to the partnership.

The statement also references the need for a “level playing field” for European and Chinese companies to compete on equal terms—a key Brussels demand. The summit backed away from announcing any major new projects or financing mechanisms, and the 18 countries invited the EU financial institutions to become involved in the financing of the China-backed projects.

“We respect the EU’s laws and standards,” Premier Li said while unveiling the final statement at the end of the summit. “We all need to increase trade and connect our economies.”

The assurances at this year’s summit may have put some minds at ease in Brussels. But the continued existence of a rival formation for coordinating Chinese investment in Europe—one that is very clearly dominated by China—will still raise alarm among Western EU leaders.

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© REUTERS/Laszlo Balogh

Nowhere else in Europe has China’s Belt and Road Initiative (BRI) been met with such a warm embrace as in Central and Eastern European Countries (CEEC). The cash-strapped economies of Europe’s Eastern periphery are hoping that Chinese infrastructure financing and investment will drive economic growth. Even if the economic outcomes on the ground have been varied so far, China’s intense political engagement with the CEEC poses a growing challenge to the EU, and requires not only a cohesive strategy from Brussels, but also the biggest EU member states to revisit their China policies. Otherwise, they risk further tilting the EU-China balance of power in Beijing’s favor.

Beijing’s economic and political advances in the region are hardly news. As early as April 2012, China created a distinct, sub-regional economic and political cooperation format with 16 CEEC, the “16+1 platform.” Made up of 11 EU member states—Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia—five EU neighborhood countries—Albania, Bosnia and Herzegovina, Macedonia, Montenegro, and Serbia—and China, the 16+1 celebrated their fifth anniversary in late November 2017 at a high-level summit in Budapest.

As with previous 16+1 summits, CEEC heads of government from North to South used the Budapest gathering to unequivocally praise the benefits of closer economic cooperation with China. Estonia’s Prime Minister Jüri Ratas even hinted: “There are a lot of untapped opportunities in the economic cooperation of Estonia and China.” Hungary’s Viktor Orbán praised China for recognizing “this region as one in whose progress and development it wants to be present.” Speaking for the whole of Southeastern Europe, Bulgarian’s leader Boiko Borissov reiterated that “investments from China are precisely what I have always said will be beneficial for the Balkans.”

Targeting the Weak Spot

China’s large-scale financing of highways, railways, ports, and other infrastructure to better connect China to Southeast Asia, Africa, the Middle East, and Europe on the back of the BRI has clearly struck a chord with CEEC leaders. This is hardly surprising; the CEEC still display a remarkable infrastructure gap, especially when compared to Western Europe. Rather conveniently, China has pledged an estimated €12.7 billion in investments in CEEC infrastructure since the launch of the 16+1 platform. The five non-EU 16+1 countries expect to benefit in particular, with China offering an alternative to notoriously unreliable Russian financing and EU or multilateral development banks that, in the Balkans, are seen as administratively cumbersome and heavy on reform requests.

In cooperating more closely with China, the 16+1 CEEC countries also hope for an inflow of foreign direct investment in a wide range of sectors. In November 2016, the Industrial and Commercial Bank of China established a €10 billion fund to finance investments in sectors such as high-tech manufacturing and consumer goods. At the Budapest Summit, Chinese Premier Li Keqiang pledged additional money. China has also promised substantial investments in CEEC countries at a bilateral level, underlining that 16+1 is also an important tool for the CEEC to strengthen their bilateral economic and political ties with Beijing.

Aside from the lures of potentially growing Chinese investments, 16+1 has been highly attractive for Central and Eastern European leaders, as it promises to upgrade their countries’ political standings with Beijing—and by extension the rest of the EU and even the United States.

Yet the political dimension cannot disguise the fact that Chinese economic promises have so far not been matched by action. The few China-financed infrastructure projects currently underway in the region—notably, all of them are in the five non-EU 16+1 countries—suffer from the same problems that have plagued BRI projects in other parts of the world: Chinese loans are linked to Chinese companies performing all, or at least substantial parts, of the projects to be delivered. As a result, capital associated with individual projects fail to provide a lasting stimulus to local economies.

In the 16+1 EU member countries, the economic picture is similarly bleak. In February 2017, the European Commission opened a formal investigation into the flagship BRI construction project in Europe, a €2.45 billion high-speed rail link between Belgrade and Budapest. Brussels has expressed doubts about the financial viability of the project and its compliance with EU public procurement rules. Overall, Chinese loans for large-scale infrastructure remain rather unattractive in light of existing EU financing, such as the EU’s structural cohesion funds, the European Fund for Strategic Investment (EFSI), and the Trans European Transport Networks (TEN-T), which tend to come as partial grants.

However, even if China’s infrastructure financing and investments in Central and Eastern Europe were to significantly expand in the years ahead, this would only create another set of fundamental challenges for CEEC economies, since a key rationale underpinning China’s economic engagement is opening up local and Western European markets to Chinese products and services. Already, the CEEC trade relationship with China is characterized by massive trade imbalances. The countries having attracted the most Chinese investment to date also have some of the biggest trade deficits.

Driving Breaks

Despite the sobering economic realities, political elites in some CEEC states cling to cooperation with Beijing. They actively position closer ties with China as a counter-narrative to European cooperation and the liberal values underpinning the European project. In a clear reference to the EU, Hungary’s Viktor Orbán remarked at the Budapest 16+1 Summit: “We see the Chinese president’s ‘One Belt, One Road’ initiative as a new form of globalization that does not divide the world into teachers and students but is based on common respect and common advantages.” And in May 2017, Serbian President Aleksandar Vučić declared: “There are no problems in our economic and political relations, we are always on the same side, and when China has something to say, we are always on the side of China.”

As China seeks to expand its political footprint, the political damage to the European Union is already visible. For some time now, the EU has been unable to act cohesively towards China on what have been trademarks of EU foreign policy, namely upholding the international rule of law and protecting human rights. In March 2017, Hungary derailed the EU’s consensus, refusing to sign a joint letter denouncing the reported torture of detained lawyers. In June 2017, Greece—a 16+1 observer and major beneficiary of Chinese investment in recent years—blocked an EU statement at the UN Human Rights Council criticizing China’s human rights record. This marked the first time the EU had failed to make a joint statement at the UN’s top human rights body. Similar instances of CEEC blocking EU statements on China have occurred since.

Current discussions in Brussels about creating a European investment screening mechanism, which is geared initially at Chinese strategic investments in European high-tech industries, will become a litmus test for the EU’s ability to act decisively on China. Chinese investments have already prompted individual 16+1 EU members to challenge the current proposal. Opposition is also building up among EU accession countries with sizable Chinese investments. Even if the EU manages to adopt the mechanism by summer 2018—as is currently envisaged by the biggest member states—this will not help overcome what is already a central theme in European China policy-making: a growing lack of trust between the Eastern and the Western member states.

High Time for a Response

In light of these developments, Brussels has set up a working group to develop a European narrative and strategy for engaging with China’s BRI and its economic offensive in the EU and its neighborhood. An internal EU strategy paper is due to be released this year. Key recommendations are already clear: the European Commission should actively close infrastructure financing gaps that China would otherwise seek to fill, earmarking European resources from the structural cohesion funds. EU member states also need to make sure that the post-Brexit 2020 EU budget will not result in a significant reduction of funding for the CEEC and thus a greater opening for China.

At the same time, the EU will need to implement more modest measures to align BRI investments in its neighborhood with European interests. These include enabling third countries to properly evaluate, monitor, and prepare large-scale infrastructure projects, including those financed by China. To protect and promote EU norms and standards in the neighborhood, the development policy apparatus of European institutions and EU member states need to support related capacity-building.

The EU also needs to leverage institutional frameworks that can help to promote greater convergence of EU investment priorities and principles and Chinese investment activities. This includes channeling as much Chinese infrastructure investment as possible through multilateral frameworks like the EU-China Connectivity Platform and the largely Western-styled Asia Infrastructure Investment Bank (AIIB), as well as through co-financing models involving Chinese institutions and the EIB and EBRD.

As China plays to deep political divisions within Europe, it will not be sufficient for bigger EU member states to appeal to Central and Eastern Europeans’ “European sentiment” when dealing with China. Besides strengthening EU solidarity across the board and fighting the rise of populist governments across Europe, France, Germany, and Italy should expand their policy coordination on economic engagement with China to also include Poland. Among the 16+1, Warsaw has chosen to pursue a soberer approach towards Beijing, and therefore might seem susceptible to greater EU engagement on China.

Calling on China to pursue a “One Europe” policy, as German Foreign Minister Sigmar Gabriel did in August 2017, and encouraging CEEC to close the ranks also implies that bigger EU member states need to consider their own hypocrisy. As long as Berlin and Paris pursue their own interests in their relationships with China, they will struggle to convince the CEEC not to use the 16+1 for similar ends. Germany and France should deploy their privileged relationships with China to serve wider European interests. Both Angela Merkel and Emmanuel Macron have recently pointed out how important it was for European companies to get better access to the Chinese market. They also warned about the risks of state-driven Chinese takeovers of European hi-tech companies.

CEEC governments, however, do not consider these issues priorities. They hope that Chinese investment will give their economies a push, and that closer relations with Beijing will increase their political influence. It is up to Germany and France to initiate a debate within the EU to find a compromise for Europe’s policy vis-à-vis China that takes everybody’s interests into account.

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© REUTERS/Kim Kyung Hoon

On May 18-19, representatives from participating states and partner countries will gather in Berlin for an Organization for Security and Cooperation in Europe (OSCE) conference on economic connectivity. While China is not a part of the 57-member organization, the German OSCE chairmanship has invited senior Chinese officials to join the discussion.

Engaging China on security challenges in Central Asia within the framework of the OSCE could turn out to be a smart strategy for the EU. As China expands its security activities globally, EU member states need to rethink the way they pursue their own security interests. The need is especially pressing with regard to Central Asia, where both the EU and China have high security stakes.

Originally founded as a venue for dialogue between East and West during the Cold War, the OSCE today is an intercontinental forum encompassing the five former Soviet republics in Central Asia, three of which share a border with China. A wide range of Eurasian security issues, from the protection of infrastructure to the fight against organized crime, have topped the OSCE’s agenda recently.

The Emerging EU-OSCE-China Security Nexus

The OSCE and China will not be meeting for the first time in Berlin. A decade ago, the organization engaged Beijing in tentative talks on China becoming an OSCE cooperation partner in Asia. And over the past 20 years, EU and US security experts have attempted to convince Beijing to embrace the OSCE as a blueprint for East Asia’s security architecture. None of these initiatives yielded any results.

Now, as Beijing continues to promote its “One Belt, One Road” initiative to build an infrastructure and transportation corridor from Asia to Europe, it is in a fundamentally different context that the OSCE and China encounter each other in the German capital.

China’s projects in Central Asia are increasingly confronted with the same security concerns as Chinese economic entanglements in other unstable regions. Beijing is under growing pressure to protect Chinese assets and citizens abroad in the face of civil unrest, terrorism, and anti-Chinese sentiment over environmental and labor issues. China’s steadily growing dependence on energy imports from Central Asia, combined with the fear of transnational terrorism and refugee flows, has also heightened Beijing’s interest in stabilizing Central Asia and neighboring countries, notably Afghanistan.

Like China, EU member states also have significant stakes in the energy infrastructure of Central Asia. Moreover, the recent mass influx of migrants into the EU and the terrorist attacks in Paris and Brussels served as forceful reminders of the need to remain actively engaged in stabilizing Europe’s wider neighborhood.

EU and Chinese security interests do not just converge in Central Asia, however. There is substantial disagreement between the EU and China over how security should be achieved in the region, with differences being particularly pronounced when it comes to the role of human rights, the rule of law, and the sustainability of infrastructure.

EU Deployment of the OSCE

In light of these differences, the OSCE is an attractive tool for pursuing EU member states’ security interests in Central Asia vis-à-vis – and on occasion together with – China.

First, EU member states have already invested considerable resources into the OSCE’s efforts to get security in Central Asia right, for example by building capacities for good governance, border management, and combatting illicit trafficking. These capacities should be deployed when responding to Chinese security activities in the region.

Second, EU member states’ engagement with China within the framework of the OSCE, renowned for its “stealth diplomacy,” would attract much less public attention than similar engagement on a bilateral or EU level, opening up room for a frank exchange with Beijing.

Third, the OSCE’s holistic notion of security — encompassing politico-military, economic, environmental, and human aspects — provides a suitable “playing field” for addressing a wide range of issues in a cross-dimensional manner.

Finally, given the challenging behavior of Russia and the Central Asian republics within the OSCE, EU diplomats serving with the organization have extensive experience when it comes to promoting and upholding a security paradigm derived from the liberal norms of Western democracies in the face of competing authoritarian notions of governance.

To convince Beijing of the value of engaging more actively with the OSCE, EU member states should suggest areas of cooperation that would be of obvious and genuine interest to China. At the same time, they should focus on areas that will also have the support of the US and Canada, the EU’s most important partners within the OSCE. Proposed projects should have at least the tacit consent of other OSCE states, each of whom holds the power to veto initiatives.

With these considerations in mind, the EU should start deploying the OSCE strategically to engage China in all key areas of common concern: the protection of critical infrastructure as well as the fight against organized crime and terrorism.

Points of Departure for Engaging Beijing

Seizing the momentum that might emerge from the Berlin connectivity conference, EU member states should promote greater Chinese participation in OSCE expert workshops. In particular, Chinese officials should be invited to join training courses for Central Asian law enforcement officials on the protection of energy infrastructure from cyber-attacks. Further confidence-building measures in this field could eventually lead to a wider dialogue on cyber security.

With a view to combating the illicit trafficking of arms, drugs, and human beings, Chinese experts should be encouraged to participate in seminars at OSCE field offices, for instance at the organization’s Border Management Staff College in Dushanbe. OSCE training events on drug trafficking for Afghan police officers could be another venue open to Chinese participation.

Even though the EU and China clearly have a joint interest in combating transnational terrorism in Central Asia, the OSCE is not the right forum for a strategic dialogue on counter-terrorism or the exchange of sensitive information. What the OSCE can do is help the EU engage China in a dialogue on the root causes of violent extremism and terrorism.

EU member states should encourage the OSCE to invite Beijing to take part in select events of its campaign against violent extremism, which is intended to raise awareness in participating states and partner countries. Engaging China in a dialogue on countering radicalization within the OSCE framework could open up a venue for addressing wider human rights and rule-of-law issues, which have so far been stumbling blocks in EU-China cooperation in the fight against international terrorism.

As the EU and its allies grapple with China’s expanding global security activities, creating a new space for engagement with Beijing can be a useful tool for building trust and increasing global security. Yet European policymakers should proceed with caution and refrain from overreaching.

Entering into security cooperation agreements should not be seen as an end in itself. Engagement with China in Central Asia through the OSCE has to have realistic, substantive, and measurable goals. Above all it needs to help further the EU’s own security interests.

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REUTERS/Shamil Zhumatov

Jang Jiechi, China’s State Councilor for Foreign Affairs, recently claimed that the New Silk Road would promote “the spirit of peace, cooperation, openness, inclusiveness, mutual learning, and win-win cooperation.” Reviving the ancient Silk Road would bring about “leapfrog progress in mutually beneficial cooperation between Asia, Europe and Africa.”

However, European think tanks in particular have seen the initiative as “more of the same.”

Move to Re-Shape Diplomacy

For China, “One Belt, One Road” is about far more than romanticizing historical legacies – it carries major strategic economic and geopolitical calculations. At least four key national interests are at play:

Spurring the ailing Chinese economy: The phase of double-digit growth which underpinned China’s unprecedented rise from a poverty-ridden laggard to the world’s second largest economy in only one generation is over. Indeed, the Chinese economy will unlikely be able to uphold the target of 7 percent GDP growth which the government has projected for 2015, and a further slowdown seems inevitable. Given the massive overcapacity in the manufacturing sector, the vast and largely inefficient state-owned enterprises with falling return on equity, a relatively ineffective financing system, real estate bubbles, high land prices, and increasing environmental pressures, China urgently needs to find new economic engines.

The “One Belt, One Road” focus on infrastructure development clearly suits China’s state-owned enterprises nursing an overcapacity headache. However, as the demand for infrastructural development in Central Asia is far too high for any single country to satisfy, even for an economic giant like China, Beijing has decided to take the lead in setting up a multi-sector, multi-party cooperation project of historic dimensions – in sharp contrast to austerity-driven economic policies – and intends to use new markets along the belts to absorb Chinese domestic overcapacity.
We can already see new investment trends: the opening of Iran and the emergence of new energy hubs like Ethiopia and Mozambique should drive energy infrastructure. Growing industrial outsourcing to Africa (in the garment and other light industries) should drive the need for more container hubs and deep sea ports along the Indian Ocean coast. Newly established free trade zones along the extended Suez Canal should drive the development of the building material industry for rapidly urbanizing Egypt. Energy-hungry and populated Pakistan – where China is building a nuclear power plant – should see massive investments in grid, power systems, and energy-intensive industries like cement and glass, as well as transportation infrastructure.

The – very successful – first step in the implementation of the New Silk Road, the setting up of the Asian Infrastructure Investment Bank (AIIB) against Washington’s explicit opposition, is meant to complement the efforts of the Asian Development Bank. It constitutes a strategic move to organize a novel framework for collective regional financing, building on the best practices of the old Bretton Woods institutions, but introducing a new concept – a “lean, clean, and green organization”, its Chairman-designate Jin Liqun called it.

Alleviating China’s hunger for resources: China’s domestic stability will depend largely on its continued ability to convince its citizens that they have a realistic chance to benefit from the nation’s increasing prosperity. Although China’s model is beginning to change from quantitative to qualitative growth, its appetite for energy and resources will remain strong, at least until 2030.
A long-term, secure, and efficient supply of energy and other scarce resources will thus be one of the preconditions for stability. As a consequence, China’s foreign and security policy has shifted from a passive role of securing national sovereignty to more actively engaging in strategic areas of national interest, with secure access to natural resources and energy being one of its priorities. The “One Belt, One Road” initiative can be seen as a key mechanism safeguarding these interests.

If one looks at the geographical spread of the New Silk Road project, the northern mainly land-based belt has an obvious task: further paving the way for exploiting China’s western neighbors’ natural wealth – gas, oil, water, and scarce minerals. New gas pipelines and smart grids from Russia and Central Asia will help develop China’s western regions, which have not fully profited from the country’s boom as the eastern coastline provinces have. At the same time, better roads and railway networks linking corridor states will certainly help push the development of new and potentially large markets.

The Maritime Silk Road, which connects China with sub-Saharan Africa as well as the Middle East and North Africa, including Iran, will create new deep water harbors and hubs in South Asia, East Africa, and the Arab peninsula for the secure and efficient transportation of oil and other strategic resources to China. China’s proposed maritime route will also reduce its current over-reliance on the Strait of Malacca for international shipping, a narrow corridor which is frequently under threat by terrorists or pirates and is closely watched by the powerful US navy. At the same time, the maritime road will support Chinese exports to markets from South-Eastern Asia via India to Africa.

Building soft power through inclusive governance: Neither objective would resonate well with the corridor states or target economies if it seemed as though China were only pursuing its own national interests. That is why the “One Belt, One Road” initiative is conceptualized as an integral and systematic project, making policy coordination, facilities connectivity, unimpeded trade, financial integration, and people-to-people bonds key objectives of cooperation between all participating countries and organizations. Countries along the routes are expected to coordinate their economic development strategies and policies, work out joint plans for regional cooperation, and jointly provide policy support for the implementation of large-scale projects.

To translate high-flying intentions into actionable policies will nevertheless be a major challenge. It will require not only trillions of dollars of funding, but also an innovative business culture and a new form of cooperative diplomacy to assure China’s neighbors that they will profit from this initiative. This was indeed the key message transmitted by President Xi at the Boao Forum in March 2015 when he stressed that the initiative was open and inclusive, rather than exclusive, representing a jointly orchestrated concert of countries along the routes, rather than a Chinese solo venture.

No doubt the initiative is a clear signal by China to its Asian neighbors and other global actors that Beijing is offering a new kind of cooperation that will be distinctly different from the “Western”, and in particular US, approach to global governance – which in Asia is often perceived as intrusive, dominated by exclusively Western interests and values, and characterized by imposing the Western-style system of free markets and liberal democracy. China, in reverse, is claiming that the “One Belt, One Road” project is an inclusive framework, open to all who wish to join, irrespective of their current political and economic systems. The adherence to the international legal principle of “non-interference with the internal affairs of another state,” which is key to China’s foreign policy and is often perceived as a sign of defensive Chinese policies, is thereby given a positive spin: connectivity and inclusiveness as new parameters of a modern form of diplomacy.

The “One Belt, One Road” initiative must, therefore, be seen as a major effort by China to improve its soft power image, which is badly needed. This will, of course, not be easy, as China will have to prove in practice that it is really ready to accept cooperation with smaller countries in the “Silk Road corridor” on equal terms, in particular in view of China’s evolving concepts of responsibility of power and “hierarchical harmony”. None of these grand plans will be realized if there remains a lack of trust and confidence. Hence, people-to-people exchange is visibly underlined in China’s initiative, which includes a whole spectrum of mobility programs that promote cultural and academic exchanges, professional training, media cooperation, youth and women exchanges, and volunteer services.

The Strategic and Geopolitical Importance: Last but not least, the core of the “One Belt, One Road” initiative may well be China’s strategic calculation to stabilize its highly volatile western neighborhood, reaching from troubled Central Asia via fragmented Pakistan and war-torn Afghanistan to the terror belt in the Middle East. As the Autonomous Province of Xinjiang remains the strategic entry point for drugs, illegal migration, weapons, and trained terrorists from Afghanistan, Pakistan, and the Fergana valley into China, the stability of this vast western region is of utmost security interest for Beijing.

It is of course within China’s legitimate interest to build a cordon sanitaire of regional stability. Its leadership firmly believes economic prosperity will be the only way to maintain peace in this region. Beijing has resisted labeling “One Belt, One Road” as its own “Marshall Plan”, but in the mind-set of Chinese leaders, the commonality of economic interests among the corridor nations and a sound infrastructure bond will be the best way to prevent any potential regional conflicts, making it the most viable way to export China’s model of development – the right to develop irrespective of political ideologies.

At the same time, the initiative sends out a clear signal: China is ready to take on a greater role in regional and global governance. Over the past decades, Beijing was an “agenda follower” rather than “agenda setter”. An era that was characterized by the key principle of a “peaceful rise with a low profile” seems to have come to an end. China’s economic power and political weight are strong arguments for Beijing that its development must not continue to be subject to rules decided predominantly by industrialized nations. Beijing intends to be more pro-active in protecting its national interests. Its demand is to have a role in further developing the structures of global governance. Based on a mixture of Marxist and Confucian traditions, the Chinese leadership has started to articulate more explicit policies towards regional and global governance, through concepts such as the “Harmonious Society” of former president Hu Jintao and Xi’s “new type of major power relations.” These concepts, mostly ignored by Western governments, are not just slogans. They have led already to a number of visible changes in China’s foreign engagement: the Shanghai Cooperation Organization, the BRICS and their new Development Bank, G13, and economic fora such as the Summer Davos in Tianjin/Dalian and the Boao Forum.

This strategic shift is potentially a game changer for global governance. China’s explicit focus on the wide definition of inclusiveness, the right to development, and non-interference into the sovereignty of states, coupled with a relatively fuzzy management style of these new governance structures, will inevitably challenge the current “Western” principles of global governance.

Central Asia: Improving Life

For the Central Asian corridor states, infrastructure investment is a precondition for long-term development. Inadequate infrastructure and limited connectivity have been key factors contributing to limited growth in large parts of Asia. This includes both physical links – roads, railways, airports, sea-ports, and power grids – as well as telecommunications and intangible links, such as improved policy harmonization, which are needed to facilitate the flow of goods, services, and financial resources. The need for financial capital to support infrastructure development in Asia is massive. In September 2010, the Asian Development Bank Institute estimated that in order to meet the demand “developing countries in Asia require financing of $776 billion per year for national and regional infrastructure until 2020.”

“One Belt, One Road” is meant to better connect the two ends of Eurasia: dynamic East Asia with the economically powerful, if presently ailing European Union. It is supposed to help accelerate the formation of an integrated Eurasian market, including Russia, opening new business opportunities for Chinese and other international companies, and accelerating the export of goods and services to this vast regional market, thus supporting the further opening-up and reform of the Chinese economy. By providing modern infrastructure to the adjacent corridor states, the intended windfall profits for the target economies in Central Asia are clear: more jobs, more income, more prosperity, and more stability.

The “One Belt, One Road” initiative has been welcomed by all Central Asia countries – at least officially. The prospect of Chinese and other partners’ funds for developing Central Asian infrastructure with all its assumed positive side effects is tempting. On the other hand, there remains an underlying anxiety stemming from the potentially overburdening presence of the key player in this scenario: China. This is why, from the Central Asian perspective, a strong role by the other adjacent big player, Europe, would be of great importance. The trust in the EU’s ability to balance the Chinese influence in the region should not be underestimated. This alone would be a good reason for Europe to engage.

Europe’s Vital Interests

But there are, of course, more good reasons for the EU to consider a role bigger than that of a bit player. While 14 European countries joining the AIIB as founding members have sent a first signal of Europe’s strategic interest, the European Union as a whole has been little more than lukewarm. The ball is now in Brussels’ court; the EU needs to decide if and how to engage with this emerging process. And while Europe continues to struggle with its own internal crises – from Greece to refugees – it should make the New Silk Road its own strategic priority and start shaping the “Silk Road” concept proactively.

For the EU, there is a convergence of some key interests, both with China and the corridor states: regional stability in Europe’s eastern and southern neighborhood, which is particularly sensitive in view of the present influx of refugees into the EU, a problem that will require a qualitatively new cooperation between Europe and its neighboring regions; opening new markets for European goods, services, and finance in times of higher volatility in global markets, which for export-driven economies is of great strategic importance; and further diversifying Europe’s energy supply, by improving the connectivity of regions thus far inaccessible for European companies.

Europe could also use the New Silk Road as a door opener in the increasingly difficult but critical Chinese market itself, as China will need allies when engaging in Europe and beyond. Last but not least, cooperating with the “One Belt, One Road” initiative could give a new impetus to the Organization for Security Cooperation in Europe (OSCE), which is under German presidency in 2016. In addition, it could lead to engagement with the still dormant but potentially thriving Eurasian Economic Union (EAEU), which in turn would be an intelligent move to bring back Russia into an inter-regional cooperation, irrespective of the ongoing conflict over Ukraine. Discussions between EU, the EAEU, and China on a Free Trade Agreement could be a medium-term objective.

In global terms the EU should use the New Silk Road approach to underline that European governments agree with its underlying principles of connectivity and inclusiveness. Europe needs open markets even more than the US, and would suffer if there were more regional or interregional fortresses, be they in trade, investment, or security.

Europe must be interested in engaging with the newly rising global players in Africa, Asia, and Latin America – even if the rise of a multipolar international system will take longer than expected by many, it will certainly come. The EU should build relations with powers like China, India, and Brazil, allowing them to start designing a new architecture of global governance for the 21st century together, on a level playing field. This will require a radical rethink on the part of Western governments that are used to pre-negotiating the terms of reference for the rest of the international community. However, it also demands patience on the part of newcomers when building sustainable new structures with the old stakeholders.

China’s New Silk Road may well represent an authentic attempt by the world’s second largest economy to start this new kind of diplomacy based on inclusiveness, equal opportunity, and the respect for the diversity of cultures and political systems. The EU should take China’s offer seriously – and act soon.

WEI SHEN, Director of Lancaster University Confucius Institute and Jean Monnet Chair in EU-China Relations, and ANDRÉ LOESEKRUG-PIETRI, Chairman of A CAPITAL Funds, contributed to this article.

Read more in the Berlin Policy Journal App – January/February 2016 issue.

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