China's "One Belt, One Road"

Europe’s Strategic Interest to Drive the New Silk Road


7 Sep 2015 I Michael Schaefer, Wei Shen, André Loesekrug-Pietri I Europe and the Emerging Economies

China reinvents the Silk Road and plans to build new roads, railways, ports and pipelines. So far there has been no proper EU response, but Europe should not miss the opportunity to formulate its own respective interests and make the Silkroad a Europe-China initiative.

Chinas "New Silk Road" at the Global Table

This article was written by three participants of the 4th Global Table in Luslawice based on the discussions on site. The regional and global impact of the Silk Road concept are also a topic during the 5th Global Table in the Ngorongoro Conservation Area and the 1st Berlin Global Forum.

This year marks a milestone for the relations between the European Union and China, as they celebrate the 40th anniversary of diplomatic relations established on 6 May 1975, which has now evolved to a myriad of global issues. Though the recent EU-China Summit in Brussels was unsurprisingly shadowed by the Greek crisis, important discussions centered on how both parties can mutually benefit from the synergies of China’s ambitious ‘One Belt, One Road’ initiative and European Commission President Juncker's Investment Plan.

Officially first announced in Astana in 2013 by President Xi Jinping, this ‘New Silk Road’ concept has been the catchword in China, which aims at improving connectivity between China, Asia and Europe. So far there has been no proper EU response to it. The Silk Road Initiative merges both land-based Silk Road from China via Central Asia to Turkey and the EU as well as the Maritime route via the Indian Ocean and Africa to Europe. Both are intended to develop transportation infrastructure, facilitate economic development, increase trade and people to people exchange. This 21st century initiative is not merely for China to romanticise its historical legacies, it carries major strategic economic and geopolitical calculations.

China seems to pursue three key objectives

First, China needs a new impetus for its economy. Although its GDP grew around 7.4% last year, the lowest since the 1990s, 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, the real estate bubble and increasing environmental pressures, China urgently needs to find new economic engines. ‘One Belt, One Road’ focus on infrastructure development matches well with the appetite of Chinese SOEs with overcapacity headache.

Second, the Silk Road will also help to alleviate China’s thirst for energy, with new gas pipelines in Central Asia and new deep water harbours in South Asia to be constructed. These massive infrastructure projects will also accelerate the RMB’s internationalization and its emergence as an alternative reserve currency, a strategic economic objective.

Third and most important: the core of this initiative lies in its strategic and geopolitical importance. China seeks to build a cordon sanitaire of regional stability. China’s leadership firmly believes economic prosperity is the only way to maintain peace in its fragile neighbourhood, from volatile Central Asia via a fragmented Pakistan and war-torn Afghanistan to the terror belt in MENA. The Chinese Government has resisted the idea of labelling the ‘Belt and Road’ project as its own Marshall Plan - but in the mind-set of Chinese leaders, the commonality of economic interests with the corridor nations and a sound infrastructure bond will be the best way to prevent regional conflicts and a viable way to export China’s model of development – the right to develop irrespective of political systems.

China is ready to take a greater role

Strategically, the ‘Belt and Road’ concept and the establishment of the Asian Infrastructure Investment Bank (AIIB), the Silk Road Fund and other related initiatives send out a clear signal: China is ready to take a greater role in regional and global governance. Over the past decades, China’s was an ‘agenda-follower’ rather than ‘agenda setter’. A key principle of China’s foreign policy has been a ‘peaceful rise with a low profile’. Accordingly, China initially accepted and integrated into the existing system of global governance.

This phase is coming 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 mainly decided by industrialized nations. Beijing intends to be more pro-active in protecting its national interests.

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’ by former President Hu Jintao, and President Xi Jinping’s ‘new type of major power relations’. These concepts, mostly ignored by western governments, are not just slogans. They have led to a number of visible changes in its foreign engagement: the Shanghai Cooperation Organization, the BRICS, G13, and economic forums such as the Boao Forum.

A potential game changer for global governance

This strategic shift is potentially a game changer for global governance. Its explicit focus on the wide definition of inclusiveness, the right to development, and based on a relatively fuzzy management style, will inevitably challenge the current ‘Western’ principles of global governance.

The surprisingly highly successful launch of AIIB may just be a ‘teaser’ from China on the existing institutions. But it should be taken as a wake-up call. The ball is now in the hands of the EU to decide if and how to engage in these emerging processes. Although Europe continues to struggle with its own crisis, It should make the Silk Road its own and its strategic priority.

For the EU, there are major interests at stake: regional stability at Europe’s doors, economic development and energy supply, by improving diversification of supply.

This region, with India, Pakistan, Iran and Kazakhstan in the middle, could be major new markets for European firms, leveraging old European influence to both engage profitably with Chinese and local firms. Europe could also use it as a door-opener in the increasingly difficult but critical Chinese market itself, as China will need allies when engaging overseas.

This would likewise be an intelligent move to bind Russia into a regional cooperation through these two initiatives, irrespective of the present conflict. Discussions between EU, EAEU and China on a Free Trade Agreement could be a medium-term objective.

Will the EU be an agenda follower or an agenda setter?

As China’s largest trading partner and a partner without geopolitical conflicts with China, Europe should not wait for the One Belt One Road concept to be further elaborated at this stage – as it is a “moving concept”: for Chinese decision-makers, concepts are subject to trial and error, like pilot projects, they are being developed as they mature. The EU has a unique opportunity to formulate its own respective interests and intentions and offer concrete proposals to China for collaboration in the context of the Silk Road, and make it a true Europe-China initiative, at both ends of the Road.

Slightly different versions of this article were published in La Tribune (2015/07/02) and China Daily (2015/07/31).