The European Union Benefit from the Chinese One Belt One Road Initiative

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The One Belt One Road initiative is a project started by China in 2013 and that focuses on improving the connectivity and cooperation between China and several other countries in Asia, Africa and Europe to improve the trade relations worldwide. The focus of the initiative is energy, improve the infrastructure and improve transportation (Ma, 2018). However, experts see it also as a strategy to push for worldwide Chinese dominance. Two major trade routes from and to China will be built.

The initiative will have a positive as well as a negative impact on the globe. On the one hand, it will lower the trade costs and therefore stimulate trade relations between countries. OBOR will also attract investment to Europe and its companies. On the other hand, China could be manipulating the world and trying to implement Chinese culture, policies and values in Europe.

The positive arguments and the possible positive consequences of the initiative are meaningful. Differently, all the arguments supporting the negative impact of the OBOR on the world are based on conspiratory theories. Since it is not possible to know if China really has bad intentions with its initiative, the results of the essay state that Europe will benefit of the One Road One Belt project.

Introduction

Xi Jinping, the General Secretary of the Chinese Communist Party and the President of China, has changed the country’s foreign policy strategy since he took up his mandate. The country has made a transition from the ‘Tao Guang Yang Hui’ (“hide capabilities and keep a low profile”) implemented by Deng Xiaoping in the early 90s, to the ‘Fen Fa You Wei’ (‘striving for achievement’) strategy and the consequent creation of the concept ‘Chinese Dream’. Because of this, new actions and new international projects to reinforce China´s power internationally, such as the One Belt One Road (OBOR) initiative, have been implemented (Sorensen, 2015).

The OBOR initiative is the general term for the major programs of building a Silk Road Economic Belt, that connects China to Europe, the Mediterranean, the Persian Gulf and the Indian Ocean, and a 21st Century Maritime Silk Road, that connects China via waterways to Southeast Asia, Oceania, the Indian Ocean and East Africa (Sarker, Hossin, Yin, & Sarkar, 2018).

Research Question, Methodology and Sources

The research question of this paper is: “Will the European Union benefit from the Chinese One Belt One Road initiative?”. China launched the initiative One Belt One Road to improve trade within countries and to improve global connectivity. The project aims at creating networks and alliances that will lead to a better free flow of trade and to better integration of the different markets (LehmanBrown International Accountants, 2018). However, it will not only have positive impacts, but also negative ones. This topic is relevant for the course because it tackles different aspects of global alliances and economic integrations between China and partner countries. It also focuses on politics and international trade. The research will target the European Union and will balance the pros and cons that affect the EU region. To answer this question, first general information regarding the OBOR initiative, its causes and its consequences on a global, as well as on a European level, will be provided. Later, an analysis of the consequences will be made to reach an answer. The research methodology of the paper is the theoretical research. It will be qualitative since the research will be descriptive, non-numerical and exploratory. The sources used for this paper will be as recent as possible and mainly secondary sources, however primary ones will also be referenced. Data has been taken from objective peer-reviewed journals, official reports or from expert interviews. Finally, data will be analysed from a European perspective.

One Belt One Road Initiative

China´s OBOR initiative started in 2013 with president Xi Jinping. This is a revival of the old Silk Road, an ancient network of trade routes that connected the eastern and the western part of the world (Mark, 2018). The initiative includes two major projects that will build trade routes from China to almost the whole world.

The OBOR initiative already includes 71 countries, that altogether account for 50% of the world´s populations and a quarter of global GDP. The initiative is expected to have a cost of more than 1 trillion USD, although it is not clear how much money has been already spent (Kuo & Kommenda, 2018).

To reach that money, many private, but also public Chinese government funding bodies are involving in the initiative. Including these, the Asian Infrastructure Investment Bank was launched in 2014 just to support financial matters of OBOR (Sarker, Hossin, Yin, & Sarkar, 2018)

The aim is to strengthen the infrastructure, trade and investments between China and the cooperating belt countries (Freund & Ruta, 2018). This was one of the forms that the countries Go West policy acquired. The initiative provides a plan for the integration of China into the worldwide economy and shows the commitment of the government in China for a more open economy (Du & Zhang, 2017). Furthermore, OBOR wants to achieve policy coordination between partners, improve the infrastructure for better the connectivity, promote the trades, motivate financial integration and improve the relationships among partner countries population. The initiative also focuses on improving existing routes of transportation like ports, railways, seaways and pipelines of oil and gas. Also, telecommunication for enabling better connectivity among partner countries is improved (Sarker, Hossin, Yin, & Sarkar, 2018).

Reasons for This Project

China has several reasons for starting this project. A reason for starting the OBOR project was that Chinas economic growth was starting to slow down, and therefore the country aimed to promote the economy by creating a large market across the world. Reasons for the slow down were that Chinas strategy of offering cheap and good manufacturing for capturing international market was not working anymore (Sarker, Hossin, Yin, & Sarkar, 2018). Furthermore, the overseas direct investment of the country has increased in the last years and therefore, the initiative is seen as a way of expanding the reach of the Chinese companies in the economy, especially in the belt road countries (Du & Zhang, 2017).

The country also aims to promote companies to do more investments overseas. Firstly, the massive investment in infrastructure will improve the availability and the quality of logistics in the partnering countries, which will increase the foreign direct investment inflow coming from China. Secondly, Chinese companies that go abroad can benefit from reducing their host country policy uncertainty and political risks due to an increase in international political, policy and government support coordination (Du & Zhang, 2017). Thus, the promotion for overseas investments has led to an increase in acquisitions of Chinese companies of other companies in the belt-road countries following the announcement of the OBOR initiative (Du & Zhang, 2017).

Analysis

Impact on a Global Level

The OBOR initiative is having and will have in the future an impact on a global level. On the one hand, it will bring new opportunities like offering better trade connections and lower costs of trade. If the trade costs get diminished to the half, it is expected that the trade between the belt-countries will increase by 12%. The costs have always represented a barrier for trade since the distance between the trading partners, the available transport options, the logistics efficiency, the border processes and other factors have influenced the costs and maintained them high. The building of railway services from China to the world will lower the costs of trade for many countries. The lowering of the barriers with this initiative will facilitate trade. This will stimulate the trade relations of the smaller economies in the world that belong to the belt-countries (ING, 2018).

On the other hand, the initiative also involves risks for some countries. Countries like Malaysia and Pakistan are starting to rethink the costs that the OBOR project will cause them. According to the Centre of Global Development, there are 8 belt countries more that have the risk of not being able to repay their loans. These countries are many of the poorest in their regions like Djibouti, Laos and Mongolia. These nations will owe more than 50% of their total foreign debt to China (Kuo & Kommenda, 2018).

Impact on a European Level

Asian-European trade accounts for 28% of the worldwide trade, therefore, creating cooperation with European countries like they did with many in the eastern part of the continent is very important for China (ING, 2018). 16.6% of the EU imports are from China and 11.7% of the Chinese imports come from Europe (Picciau, 2016).

Therefore, lately during EU-China Summits, China and Europe discussed the mutual benefits that could arise from synergies together and from a common strategy during the implementing of the OBOR (Picciau, 2016).

Eastern Europe represents the first touchpoint that China must address when reaching for Europe. Therefore, it is focusing its attention into countries located in the eastern part of Europe like Poland, Ukraine, Moldova, Romania, Macedonia, Albania, Hungary and the Czech Republic. We will focus on the most important partnerships like the ones with Poland and Hungary. Poland was the first eastern European destination with the inauguration in 2013 of the China-Poland railway. Since then, governments are exploring new ways of collaborating and even looking at the opportunity of enhancing the most important seaports in the Polish nation. In 2015, Hungary signed an agreement of cooperation with China within the OBOR context. Therefore, the European country was the first EU member to initiate a Chinese high-speed railway project. Also, many Hungarian companies in the automotive and in the airline industry have received Chinese financing (The Economist, 2016).

The OBOR initiative will bring new opportunities for the European continent. Not only Poland and Hungary will profit from the enhancing of rail transport, but also most parts of Europe. As it gets more accessible, importers and exporters can use this way of faster transport instead of the previously used and slower ones through air or sea. The speed of transport is a key aspect in the EU-China trade. Many time-sensitive goods like the components for cars, computers and phones that are part of a supply chain going through several countries and finished products like seasonal clothing, need fast delivery. These types of goods account for ¾ of the value of Chinas exports to Europe and for over 60% of the exports in the opposite direction. This enhancement of rail transport in Europe will stimulate the economies of countries in Europe, many of them in a development stage (ING, 2018).

The initiative is also bringing a lot of investments to Europe. Chinese direct investment in Europe is growing and many acquisitions of European companies are happening. An example is the purchase of the Piraeus port, the biggest port in Greece, by the China Ocean Shipping Company for 369 million euros. These strategic investments of capital in Europe not only help European economies that are going through stagnation and are stifled by debt but also gives China a strategic entry door into Europe by sea.

Analysis of Negative Impact on Europe

Many experts believe that the OBOR initiative can have a negative impact on Europe. China could use the OBOR initiative to create big debts for poorer European countries. This means that a country like Montenegro would owe more than 50% of their foreign debt to China. This activity, during which China lends into high-risk environments make people think that Chinas motives are not only positive and have a hidden purpose. In 2011 for example, the Chinese government wrote of an unpaid debt owed by Tajikistan in exchange of more than 1000 square kilometres of territory (Kuo & Kommenda, 2018).

Another concern with the OBOR project is that Chinas expansion can be a form of economic imperialism that gives China too much power over often smaller and poorer countries. Jana Golley, a professor at the Australian National University, says that rather starting the project to win friends, it seems as they have distributed more fear that it all is about influencing the rest of the world. Moreover, experts also worry that Chinas commercial presence worldwide could also lead to a more expanded military presence. The most concerned experts say that all the ports and other transport infrastructure built can be used for commercial as well as for military purposes (Kuo & Kommenda, 2018). Furthermore, a Bloomberg columnist compared the Chinese government to an octopus extending its tentacles to Europe to gain global influence over the government and a researcher from Princeton University, Sophie Meunier, believes that China´s investments could become a Trojan horse to bring Chinese culture, policies and values into Europe (Müller-Markus, 2016).

Another negative impact is that the initiative puts the unity of Europe at risk. Several countries among the EU are desperate for attracting investments from China to improve their decaying infrastructure, whereas others are still sceptical about Chinas plans (Martin, 2018). Countries like Greece and Hungary have shown in the past, that they are vulnerable to the pressure coming from China (Heide, Hoppe, Scheuer, & Stratmann, 2018).

27 of the 28 EU ambassadors to Beijing, have also written a report where they criticise the One Belt, One Road project denouncing that it is designed to give advantages to Chinese companies and to prevent free trade, which pushes the power to the subsidized Chinese companies. China is also accused of only following their own interests and of not wanting to follow European principles of transparency as well as social and environmental standards. This could prevent European companies of locking up good contracts (Heide, Hoppe, Scheuer, & Stratmann, 2018).

Conclusion & Limitations

After having analysed the OBOR initiative, it is possible to conclude that the impact on the globe and especially on Europe will be positive if the real intentions of the Chinese government are those that they are presenting, and no hidden purposes are available. The arguments that Europe will benefit from the project are stronger since all the negative impacts that the initiative could have and that were mentioned before are relying on the theory of a Chinese conspiracy.

Many people agree that China is trying to manipulate the world and that the initiative can be dangerous and can make China a too big power in the world. These accusations will not stop, since the Communist Party of China has eliminated term limits for the presidency. This means that President Xi can continue as long as he wants to exercise his power and applying his plans while refusing to offer more transparency of his deal. Also, in May 2017, the German Economics Minister Brigitte Zypries together with EU officials were meant to sign a joint declaration with the government in China. However, this did not happen since the EU officials wanted to incorporate some amendments and change some wording to provide equal opportunities for all the countries. But China refused (Heide, Hoppe, Scheuer, & Stratmann, 2018).

There is no doubt that Europe will benefit economically and politically from the One Belt, One Road initiative. However, to do so China must end uncertainty with this project, make sure that all countries are able to fulfil their interests and stick to the five principles of Peaceful Coexistence as the fundamental values for the project. These are: “(1) mutual respect for each other’s sovereignty and territorial integrity; (2) mutual non-aggression; (3) non-interference in each other’s internal affairs; (4) equality and mutual benefit; (5) peaceful co-existence” (Müller-Markus, 2016).

There are a few limitations in this essay. The essay is almost purely qualitative and not many official numbers were stated. This is one of the main limitations. It is very difficult to find reliable data since most of the research is based on assumptions of how the initiative will develop. Also, the Chinese government is not willing to publish too many data. Moreover, the initiative only started 5 years ago, and not much historical data is available. A lot has been done since then, however, it is not sufficient to see the real impact on Europe. Furthermore, the research has not looked at the influence that one of the biggest external factors could have on the initiative, the USA. The country is the biggest economy in the world and is situated exactly ahead of China. It is still needed to see what the US will do to battle against China.

To conclude, it is important to mention that only in the future the world will see if all the countries will benefit of the OBOR initiative or if China will become the biggest economic power in the world.

References

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Heide, D., Hoppe, T., Scheuer, S., & Stratmann, K. (2018, April 17). EU ambassadors band together against Silk Road. Handelsblatt.
ING. (2018). Trade impacts of the Belt and Road Initiative. ING.
Kuo, L., & Kommenda, N. (2018). What is China’s Belt and Road Initiative? The Guardian.
LehmanBrown International Accountants. (2018). The Belt and Road Initiative. LehmanBrown International Accountants.
Mark, J. J. (2018). Silk Road. Retrieved from Ancient History Encyclopedia: https://www.ancient.eu/Silk_Road/
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Müller-Markus, C. (2016). One Belt, One Road: the Chinese Dream ad its impact on Europe. CIDOB.
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