Tuesday

23rd Jan 2018

Column / Crude World

Chinese road to riches or road to ruin?

  • Many of the much vaunted ‘Chinese trains’ are largely full when they arrive, but empty when they return. (Photo: DB Schenker)

News emerged earlier this week that the EU is looking to more rigorously screen foreign takeovers of European companies.

The move comes amid growing concerns about an influx of Chinese investment into Europe’s manufacturing, energy and infrastructure sectors.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

Since 2013, Beijing has been throwing all of its weight behind rolling out its ‘New Silk Road’.

The ‘Belt and Road Initiative’, as its called nowadays, encompasses over $900 billion in planned investments of infrastructure across Central and South Asia, the Middle East, and Central and Eastern Europe (CEE).

However, behind all of that money coming to Europe, there are some major strategic concerns lurking in the shadows.

Expectations gap

Beijing’s principal aim with respect to the Belt and Road project is to develop a series of trade and economic corridors and to use Chinese companies to help China develop domestically. It exports industrial overcapacity abroad.

In that respect, the new Silk Road should be seen as a tool that contributes to sustained economic growth at home - something that is viewed by the Chinese leadership as a crucial condition for domestic stability.

Chinese investment interests within Central and Eastern Europe appear strongly related to ongoing privatisation opportunities, including large-scale infrastructure projects and public procurement opportunities. That does not always match with domestic priorities in the host countries.

Already there is a growing expectations-gap, given that countries in the Central and Eastern Europe (CEE) region are primarily looking to draw in Greenfield investments, a form of foreign direct investment, and wish to see an increase in their own exports.

So far, the number of Chinese Greenfield investments that have actually produced jobs, however, have been small in number and many of the much vaunted ‘Chinese trains’ are largely full when they arrive, but empty when they return.

Playing by the rules?

The message being sent by Europe appears to be one akin to telling Beijing to ‘play by the rules’. But this is not without reason.

There are issues with the extent to which China is said to be abiding by European rules and standards when it rolls out its Silk Road related investments.

The investigation by the European Commission into the tendering procedure surrounding the Belgrade-Budapest high speed railway is a good example in this regard.

The extent to which countries are concerned about this issue rose to the surface during the two-day Silk Road Summit held in Beijing in May of this year.

France, Germany, Estonia, Greece, Portugal and the UK were among the countries that refused to sign up to the final summit text. Concerns included a lack of transparency on public procurement and social and environmental standards.

The warning issued by Germany’s economy minister in which she states that “more guarantees from Beijing on free trade, environmental protection and working conditions are needed before the EU will be able to sign a joint statement on China's 'One Belt, One Road' trade initiative”, is further illustrative of these tensions.

The issue of debt

To support the Belt and Road, China has been doling out lavish sums of money to countries along the proposed route.

Although sometimes granted under soft conditions, the loans inadvertently lead to an increase in these countries’ debt burden.

Given that most countries in the Western Balkans and the former Soviet Space run a current account deficit, it is difficult for them to repay the debt, particularly if the projects primarily serve China’s domestic agenda and are of dubious economic rationale for the region itself.

In addition to the potentially negative effect on economic stability, the influx of Chinese companies will reinforce difficulties surrounding the establishment of a domestic industrial base for these nations.

It should also be stressed that, through these loans, China will be able to exercise leverage, should these countries get into financial difficulties. And there is ample precedent for this.

For years, China has provided loans - up to around half of all foreign credit provided - to Venezuela.

Beijing was looking for new export and resource markets, as well as friends in the western hemisphere. Caracas happily obliged.

The loans were hardcore commercial loans with a hefty interest rate - already under Venezuelan revolutionary Hugo Chavez, the country was considered a risky investment.

Now under president Nicolas Maduro, after years of mismanagement and with oil worth half of what it was in mid-2014, Caracas has a problem.

However, the Chinese have refused to renegotiate the country’s debt burden.

Explosive cocktail in the making?

With looser rules in place for prospective EU members, regarding procurement and tendering, the temptation to bend the rules is arguably higher in the Western Balkans than it is within EU countries.

Bending the rules inadvertently means upsetting the playing field and undermining decades of work to ensure a greater convergence of laws between EU and non-EU states. This risk is further aggravated in light of the decreasing attractiveness of the EU narrative in the region.

With EU membership more off the table than on it, this is to the benefit of countries such as Russia and Turkey, which seek to exploit historical and cultural ties in the region and undermine the process of European integration.

Taking into account that the economies of the Western Balkans - Serbia, Bosnia and Albania in particular - are vulnerable to economic shocks and have a negative trade balance with China, Europe is possibly facing an explosive cocktail of political (Russia, Turkey) and financial (China) meddling in its backyard.

Revitalising the prospect of EU membership therefore has never been a more pressing issue.

The Crude World monthly column on Eurasian (energy) security and power politics in Europe’s eastern neighbourhood is written by Sijbren de Jong, a strategic analyst with The Hague Centre for Strategic Studies (HCSS), specialised in Eurasian (energy) security and the EU’s relations with Russia and the former Soviet Union.

Column / Crude World

Why China and Russia will be best frenemies forever

Russia and China bond over anti-Western rhetoric and the shared interest of keeping the US at bay, but beyond that, there is little that binds Moscow and Beijing together.

Focus

China's 16+1 foray into Central and Eastern Europe

Half a decade after it was launched, the network of cooperation between China and 16 Central and Eastern European countries has brought uneven economical and political fruits so far.

Why the EU doesn't get China's Belt and Road

It is not enough for European officials to simply tell the press that they do not understand the Belt and Road – the vision is clear enough, the point is to decide how to engage with it.

Focus

EU-China united on climate, divided on trade

Within 24 hours of Trump announcing that the US will pull out of the Paris climate accord, EU and Chinese leaders presented a united front on fighting climate change. But divergence on trade plagues the new alliance.

Europe is lacking tech leadership

Despite some 'unicorns', Europe lags way behind the US in tech innovation - and is in danger of being overtaken by China, whilst preoccupied by the online threat from Russia. The EU needs to back France's Macron's new thinking.

Taking full benefit of supercomputers in Europe

Newly-announced financial help for so-called 'supercomputers' can help both EU member states, and small and medium-sized companies to grow - in fields such as health diagnostics, driverless cars and even earthquake predicting.

Ten Commandments to overcome the EU's many crises

A series of missteps - from the faulty institutional infrastructure of the euro, to the migration crisis - have left the EU battered and in near crisis. Here are ten steps to re-democratise the union.

EU's 'old men' must pressure Poland on abortion rights

Despite fresh crackdowns on Poland's already restrictive abortion laws, EU commission president Juncker did not raise the issue with the new Polish PM Morawiecki - perhaps because it was an all-male event?

News in Brief

  1. Auditors criticise EU economic governance implementation
  2. Dutch environment group appeals air quality ruling
  3. Commission opens case into Polish railways state aid
  4. EU remove eight places from tax havens blacklist
  5. UK to keep forces in Germany over Russia fears
  6. Finnish presidential vote could go to second round
  7. Report: EU might pay Brexit residency fees for EU citizens
  8. Puigdemont free to travel around EU

Stakeholders' Highlights

  1. European Free AlllianceNo Justice From the Spanish Supreme Court Ruling
  2. Nordic Council of MinistersNordic Solutions for Sustainable Cities: New Grants Awarded for Branding Projects
  3. Mission of China to the EUTrade Between China, Belt and Road Countries up 15%
  4. Nordic Council of MinistersOresund Inspires Other EU Border Regions to Work Together to Generate Growth
  5. Mission of China to the EUTrade Between China, Belt and Road Countries up 15%
  6. AJC Transatlantic InstituteAJC Calls on EU to Sanction Iran’s Revolutionary Guards, Expel Ambassadors
  7. Dialogue PlatformRoundtable on "Political Islam, Civil Islam and The West" 31 January
  8. ILGA EuropeFreedom of Movement and Same-Sex Couples in Romania – Case Update!
  9. EU2017EEEstonia Completes First EU Presidency, Introduced New Topics to the Agenda
  10. Bio-Based IndustriesLeading the Transition Towards a Post-Petroleum Society
  11. ACCAWelcomes the Start of the New Bulgarian Presidency
  12. Mission of China to the EUPremier Li and President Tusk Stress Importance of Ties at ASEM Summit

Stakeholders' Highlights

  1. EU2017EEVAT on Electronic Commerce: New Rules Adopted
  2. European Jewish CongressChair of EU Parliament Working Group on Antisemitism Condemns Wave of Attacks
  3. Counter BalanceA New Study Challenges the Infrastructure Mega Corridors Agenda
  4. Dialogue PlatformThe Gülen Community: Who to Believe - Politicians or Actions?" by Thomas Michel
  5. Plastics Recyclers Europe65% Plastics Recycling Rate Attainable by 2025 New Study Shows
  6. European Heart NetworkCommissioner Andriukaitis' Address to EHN on the Occasion of Its 25th Anniversary
  7. ACCACFOs Risk Losing Relevance If They Do Not Embrace Technology
  8. UNICEFMake the Digital World Safer for Children & Increase Access for the Most Disadvantaged
  9. European Jewish CongressWelcomes Recognition of Jerusalem as the Capital of Israel and Calls on EU States to Follow Suit
  10. Mission of China to the EUChina and EU Boost Innovation Cooperation Under Horizon 2020
  11. European Gaming & Betting AssociationJuncker’s "Political" Commission Leaves Gambling Reforms to the Court
  12. AJC Transatlantic InstituteAJC Applauds U.S. Recognition of Jerusalem as Israel’s Capital City

Stakeholders' Highlights

  1. EU2017EEEU Telecom Ministers Reached an Agreement on the 5G Roadmap
  2. European Friends of ArmeniaEU-Armenia Relations in the CEPA Era: What's Next?
  3. Mission of China to the EU16+1 Cooperation Injects New Vigour Into China-EU Ties
  4. EPSUEU Blacklist of Tax Havens Is a Sham
  5. EU2017EERole of Culture in Building Cohesive Societies in Europe
  6. ILGA EuropeCongratulations to Austria - Court Overturns Barriers to Equal Marriage
  7. Centre Maurits CoppietersCelebrating Diversity, Citizenship and the European Project With Fundació Josep Irla
  8. European Healthy Lifestyle AllianceUnderstanding the Social Consequences of Obesity
  9. Union for the MediterraneanMediterranean Countries Commit to Strengthening Women's Role in Region
  10. European Heart NetworkThe Time Is Ripe for Simplified Front-Of-Pack Nutrition Labelling
  11. Counter BalanceNew EU External Investment Plan Risks Sidelining Development Objectives
  12. Dialogue PlatformThe Turkey I No Longer Know