Europe’s Relationship with China?

When the Chinese offer massive infrastructure projects to countries inside the EU like the Helsinki Tallinn undersea tunnel, it is useful to check both the costs, the risks and the feasibility of such offers.

The following delves into one useful approach from the Peterson Institute in Washington on how European countries should manage this important relationship, which become even more important when Europe is faced, like the rest of the world with the devastating consequences of the Virus.

Two eminent writers Madi Sarsenbayev and Nicolas Véron at the Peterson Institute for International Economics have written an excellent paper on this important subject entitled: “European versus American Perspectives on the Belt and Road Initiative”.

Here is the link for those who want to read the whole article which is excellent.

Readers should note that the Peterson Institute for International Economics is managed by Michael Peterson, the son of Peter G. Peterson, a former US Secretary of Commerce in the Nixon Administration and co-founder of the Blackstone Group, an American financial-services company. 

On the other hand philanthropy can also have a good side… like this article…

The article advocates a European approach to China that is clearly different from the adversarial one followed by Trump’s administration.

The writers set out their main thesis that China’s deployment of its Belt and Road Initiative (BRI) is global with various underdeveloped interactions with the European Union (EU). 

In line with many other analysts, this paper sees that the BRI is mostly focused on “hard” infrastructure investment, in particular transportation and energy, which does not include agriculture, real estate, tourism, manufacturing or telecommunications investment.

Many media reports have said that some BRI Chinese investment projects have seen a debt-trap theories proliferate but the article poins out that, “the Chinese authorities have taken note of such criticism and from 2019 have increasingly signaled their intent to correct their course on aspects such as debt sustainability, transparency and corruption. At the Second Belt and Road Forum in April 2019, President Xi Jinping emphasized the “commercial and fiscal sustainability of all projects;” mentioned the Debt Sustainability Framework for Participating Countries published by the Ministry of Finance of China (MFPRC, 2019); and encouraged other parties, such as multilateral and national financial institutions as well as private lenders, to take part in BRI financing (Xi, 2019). If implemented, the latter would constitute a significant departure from an earlier practice of funding BRI projects, which tended to exclusively involve Chinese money.

The authors point out that the EU does indeed has regional and global interests that intersect with the BRI’s scope. The EU needs more infrastructure investment and to promote international trade and commerce. Co-operation with China on such projects is possible when in the form of equity investments and when it does not pose a security threat should be considered. 

The article points out that, “The former High Representative Federica Mogherini said that “our approach is the European Union’s way […] based on a respect for common rules,” and Jyrki Katainen, one of the former EC Vice-presidents, stated that “we want to work with our Asian partners to improve connections […] while bringing our values and approach in doing so” (EC, 2018a). The text emphasizes that connectivity investments should be economically, fiscally, environmentally and socially sustainable in the long term (EC, 2018a) – implying higher standards than the BRI, which has been criticized in the EU for leading to sovereign over-indebtedness and supporting projects that make little economic sense.”

The most interesting part of the article are the recommendations which start with a warning that it appears unlikely that the US–China relationship will improve any time soon. Their basic expectation is one of further deterioration driven by US mistrust if not outright hostility, interpreting China’s expected continued rise in a generally negative light. 

Meanwhile, the writers expect China to experience high economic growth compared with the rest of the world.

In summary, the writers make the following main recommendations:

  1. The EU should not aim to follow the US in any unreasonable escalation with China even though it may entail some painful moments for the EU–US relationship. 
  2. The EU needs to improve its knowledge of China and its capacity to make informed assessment of the risks and/or opportunities associated with China-related projects, such as the BRI. 
  3. The EU should welcome sensible BRI projects on its territory, including relevant Chinese equity investments in infrastructure or competitive bids by Chinese companies for infrastructure contracts. Projects should be assessed on their individual merits, however they mention that Chinese debt financing for infrastructure projects is unlikely to be useful to EU member states, unlike in other locations. 
  4. The EU also needs to beef up its framework for screening FDI projects for national/European security purposes. The recently agreed EU legislation is a first but insufficient step in that direction. 
  5. As for China, it should keep the EU engaged in parallel to its relationships with individual member states. They also suggest that China should be invited to join the Paris Club… 
  6. Finally, this paper does not make specific recommendations for the US, given the current conditions of US policymaking. It is fervently hoped, however, that the US will avoid a catastrophic escalation of its confrontation with China, in its own interest and in that of the world more broadly!

They conclude with the statement that the BRI generates challenges but also potential benefits for the EU. “The EU should improve its ability to welcome sensible BRI projects, including through the adoption of greater reform of screening frameworks for foreign direct investment. More generally, the EU should enhance its ability to define policies independent of the US on China and the challenges resulting from China’s rise. China should also make further efforts to foster a constructive relationship with the EU.”

Photo: Markusszy / CC BY-SA (https://creativecommons.org/licenses/by-sa/4.0)

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