Achieving cooperation through connectivity in EU-China relations: the BRI and beyond

China’s Belt and Road Initiative (BRI) will continue to be a key element in Beijing’s policy strategy throughout 2019, connecting the party-state’s priorities of sustaining domestic economic growth, promoting China-led infrastructure development and securing political outreach. In 2017, the BRI was not only endorsed by the Chinese Communist Party’s 19th Congress, but also incorporated into the Party’s constitution. Across Europe, debate over the initiative has often oscillated between recognising the positive prospects of economic engagement and being wary of the potential costs of political endorsement. In fact, the evidence suggests that the BRI is both an economic and a political tool, operating simultaneously to support Chinese interests.

The real question, therefore, is whether the European Union can succeed in crafting a coherent, operational response to the opportunities presented by China’s BRI, whilst safeguarding long-cherished principles of behaviour in funding development projects. At the very beginning of the BRI concept, there was discussion over whether Chinese investment might usefully complement European Commission President Juncker’s own plans for regenerative funding across the continent – the so-called Juncker Plan – but in the end, this potential never really moved beyond rhetoric. The Chinese have cooperated with some Member State partners at the bilateral level, such as with Hungary and Greece, but there has not previously been an identifiable intersection at the Union level. However, this may be changing.

The EU’s current priority is to pursue a broader strategy, anchored on an operating rulebook. In accordance with the Union’s norms of behaviour, the initiative aims to better connect Europe with Asia, beyond transport corridors, so as to include digital links, energy networks and people-to-people dialogue through educators, researchers and students. The ASEM Connectivity Inventory, published in June 2018, outlines these ambitious plans, whilst the 12th ASEM Summit integrated these objectives into its final communiqué, explaining how such initiatives were to be pursued and by emphasising principles over projects. While there may be opportunities, there are also challenges.

The concept of trust, a key component in international relations, has proven especially pivotal in the EU-China relationship. In this context, the BRI has not had an especially positive welcome in European circles. In April 2018, all but one of the EU’s Ambassadors to China had signed a critical report about the alleged unfair and unbalanced operating principles which seemed to underpin BRI infrastructure projects. Weeks earlier, UK Prime Minister Theresa May had declined to sign a Memorandum of Understanding over the BRI on behalf of the British government, despite continuously alluding to the golden era of UK-China cooperation. There remain ongoing concerns in the EU that Chinese-led BRI projects fail to safeguard environmental standards, ignore debt exposure of recipient economies and perpetuate unfair practices in procurement procedures.

Yet some progress may be achievable. Two ways stand out.

First, China could deliver on its own commitment to fairness by adopting competitive neutrality in respect to BRI tenders by all firms that mirror reforms being evaluated by the authorities for state-owned enterprises within China’s own economy. If all enterprises are to be treated equally, irrespective of ownership, then it would be logical for the Chinese to showcase their determination to commit to such an approach by removing state-backed preferences for Chinese suppliers in BRI project procurement. Not only would this assuage at least some EU criticisms, it would also help combat the growing sense of promise fatigue that is prevalent amongst many European policymakers as they await implementation of past reform pledges whilst reviewing current trends.

Second, China could engage more fully with multilateral sources of funding for BRI projects in ways outlined by a recent City of London report. Such a move, in addition to benefitting all the parties involved, would enable China to diversify project funding sources beyond its own US dollar reserves. This would offer avenues to boost RMB internationalisation while at the same time facilitating the design of lending strategies that could accord more with the debt sustainability norms that overlap with the EU’s goals.

These moves do not necessarily imply that China is ceding operational oversight of coveted BRI projects. Instead, these proposed strategies could be interpreted as vital trust-building measures, bringing China and the EU closer together and making future cooperation a more realistic prospect.

In return, it behoves the EU to openly recognise that China’s operating model and future reform journey is unlikely to lead to a neoliberal clone of either European or American variants, whatever level of visibility the private sector secures. Instead, EU policymakers should acknowledge the reality that the Chinese party-state’s distinctive role as a key actor across China’s economy will persist for the foreseeable future. Accepting this, albeit not welcoming it, would offer symbolic respect.

Going forward, the EU should avoid enforcing structural change when it is clear that resistance will be inevitable, and instead try to seek operational adjustment in ways that can be shown to be genuinely mutually advantageous. Connectivity is just one such example. All of this will require political commitment at the highest level, and while it will not be easy to achieve, the potential benefits of greater cooperation between the EU and China will certainly be worth the effort.