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Belt and Road Initiative in Europe: Between Shapes of Cooperation and Shades of Pressure

20 July 2021

The Belt and Road Initiative (BRI) is a global infrastructure development strategy launched by the Chinese government in 2013 to invest in 70 countries (World Bank, 2018) to promote economic development and enhance connectivity between China and Central-East Asia, the Middle East, Europe, and Africa. Around 150 countries have joined BRI so far, including 18 EU members (BRI Center, 2021). What recently happened in Montenegro raised several concerns within the EU about Beijing’s approach, labelled by some observers as a sinocentric international trade network potentially harmful to the independence of some countries at the EU’s doorsteps. What then is the standpoint of both BRI and EU members? Can different attitudes towards the Chinese projects cause a fracture within an already diverse EU in terms of policies, paces to reach goals, and economic indicators? To what extent is BRI a tool in the hands of Beijing to leverage European countries by proposing offers of development that, at first glance, cannot be declined?

The role of the People’s Republic of China (PRC) in the international arena has profoundly changed since the end of the ‘90s, shifting from a regional power, seeking development to a great power aiming to set a global leadership that challenges the status quo established after the end of the Cold War. The Chinese foreign affairs discourse evolution from “keeping a low profile” to “striving for achievement” has effectively shaped PRC relations with third countries in favour of the Chinese interest (Yan, 2014, 158). This new discourse comes together with a more proactive foreign policy, where the PRC considers itself a “game maker” rather than just a “game player” (Qiu, 2015). So far, this is nothing particularly threatening: history has always witnessed rising and declining powers as well as the alternating of states as global leaders. What is alarming is that the PRC seems to use tools and approaches to exert pressure and influence, to an extent, an intensity and a long-term perspective different from the past.

The first decade of the new millennium not only marked the end of the US unipolar moment, the emergence of new powers, and the resurgence of old ones, but also highlighted a gradual turn to more purely economic power, rather than economic power to serve military purposes. In other words, geopolitics now proceed hand in hand with geo-economics, and the Cold War ‘hearts and minds’ strategies promoted by Washington seem to gradually give way to ‘hearts and wallets’ programs, of which Beijing is the soundest interpreter. Moreover, unlike other great powers which are not shy to affirm their role, even by the use of force, though willing to operate within a multi-polar context, PRC is pursuing a foreign policy equally aggressive but less blatant (as it does not include out-of-area military interventions), more hegemony-oriented, as well as ‘politically correct’, through the rhetoric of a ‘win-win cooperation’. As highlighted by the Spanish Lieutenant de Santallana, it is the first time in recent history that a non-Western country is effectively aiming to globalise its model (Cervera, 2019, 12). BRI is PRCs main instrument and aims to accomplish this through three dimensions related to the economic, political, and diplomatic fields of PRCs relationships with foreign countries.                                                           

 As far as the first is concerned, energy provides a good example: the slow but inevitable phase-out of fossil fuels, strongly backed by the EU, will make the supply of critical raw materials and rare earth increasingly important. BRI claims to be a sustainable project (XinhuaNet, 2017). Consequently, PRCs global vision is raising stakes over access to critical minerals in its attempt to lead and dominate innovation, digitalisation, and green economy. Lighting, magnets, electronics, defence systems, wind turbines, hybrid and electric vehicles all contain rare earth. Although they exist in other countries outside the PRC (mostly in developing countries in Africa and South America), in most places, it is too capital-intensive to extract and process them. Therefore, 97% of these materials come from China (Kalantzakos, 2019, 3), boosting Beijing’s de-facto monopoly in such a strategic global competition paramount for the future.

Regarding the political dimension, the Chinese foreign posture is built upon three main aspects: parallel institutions, unconditional representation, and ad hoc bilateralism. Following the US post-World War II model, the developing countries were feeling underrepresented in Western-led Bretton Woods institutions such as the World Bank and the International Monetary Fund. Since the 2001 Zedillo Report, which was highly critical of multilateral development banks (MDBs) arrangements due to their slowness of projects preparation and excessive burdens on borrowing countries (Dollar, 2015), the PRC has shown an increasing commitment in creating parallel multilateral institutions such as the Asian Infrastructure Investment Bank (AIIB). China’s 2013 initiative to create the AIIB was first and foremost a response to a vast infrastructure investment gap in Asia, estimated at $8 trillion from 2010 to 2020. Since established, MDBs with large bureaucracies struggled to narrow this gap, PRC set out to do a better job based on a lean business model and a ‘developing countries first’ agenda (Grieger, 2021, 2). By linking the AIIB’s creation to the launch of BRI, the PRC has developed a much broader geostrategic agenda, both in terms of tasks and narrative.

On the one hand, AIIB’s foundation was a response to the reluctance of advanced economies, notably the US and EU, to increase China’s voting rights in Western-dominated multilateral financial institutions; the AIIB has been framed as a paradigm of Beijing’s strategy to shape global norms and values in line with its national interests. On the other hand, by championing AIIB, the PRC has sought to portray itself as a responsible great power capable of providing development in its region and beyond with innovative approaches in line with the needs of developing countries. For instance, by rejecting political conditionality, the PRC has shown no concern involving undemocratic countries in BRI, or offering loans that Western countries would only grant if specific standards are respected. Finally, the bilateral nature of the Memoranda of Understandings between China and other countries to join BRI is a cunning move from Beijing as, particularly when dealing with EU member states, it reduces negotiation power as compared with that of the EU countries jointly negotiating under a common framework, contributing, therefore, to undermine a shared EU approach towards China. 

The diplomatic dimension is perhaps the most comprehensive, as it encompasses political and economic issues. According to an IMF study, from 2013 to 2016, China’s contribution to the public debt of heavily indebted poor countries nearly doubled from 6.2 to 11.6% (Green, 2019), raising concerns that BRI is partly motivated by PRCs aim to stimulate its economy and turn its economic access into political and strategic influence in recipient nations. Numerous examples from all over the globe have prompted these concerns. Firstly, in 2017, Sri Lanka was unable to repay a loan used to build a new port in Hambantota. It was forced to sign control of the port over to Beijing in a 99-year lease. The PRC could potentially use the port as a strategic base for China’s navy. In Djibouti, the People’s Liberation Army’s first-ever permanent military base outside PRC territory has been established. The country, strategically located in the Horn of Africa, owes the PRC a debt equalling 80% of its GDP. In Turkmenistan, China has institutionalised a monopoly as the only buyer of Turkmen gas. Turkmen gas is paramount for PRC industrial development, but Beijing does not pay for it in cash. Instead, it is a deduction for loans granted to Turkmenistan for the projects to extract and transport the resource (Frappi, 2021, 90).

BRI is finding its footing on European soil, too. Montenegro borrowed $944 million to fund a 41km stretch of highway from the coastal city of Bar to Boljare at the Serbian border (Baczynska, 2021). Podgorica’s debt with the Export-Import Bank of China must be repaid from July 2021 onwards. However, the Balkan state cannot pay off its loans, as its main source of income, tourism, was cut off by COVID-19. The total government debt now equals 103% of economic output, of which 18% can be attributed to the Chinese loan – without considering the 2% interest rate (CEIC Data, 2020). Last April, the Minister of Finance Spajic unsuccessfully turned to the EU for financial help, highlighting that such a dependency on Beijing represents a “dramatic scenario from a geopolitical point of view” (Hopkins, 2021). First of all, Montenegro is a long-time candidate to join the EU and the Monetary Union. However, the Maastricht criteria require that the government debt-GDP ratio must not exceed 60% or at least approach the reference value at a satisfactory pace (Article 126/2). Secondly, the construction of several stretches of highway has been contracted out to PRC state-owned companies. These companies use Chinese workers, ensuring that Beijing maintains a network of physical and financial representatives on the territory, thus increasing the pressure on an already highly indebted country. Finally, Montenegro joined NATO in 2017.

Leaving Podgorica behind by offering no support could alienate other potential EU partners and allies, hereby slowing down EU enlargement and pushing economically struggling states into Beijing’s squeezing arms. It would also mean having the PRC at the EU doorstep, representing a further extension of the strategic hub that Beijing is building and branching out along the Eastern Mediterranean and Western Balkans (Fruscione, 2021).

China’s relationships with vulnerable states seem to follow a predatory logic-driven and expressed by the BRI initiative, resulting in a loss of strategic assets and, ultimately, in a potential loss of sovereignty for the lending states. As shown by the Montenegro case, European and EU countries are directly or indirectly involved in these dynamics. Although the international weight and capacities of the above-mentioned countries are not comparable to those of most EU members, the enlargement of the BRI initiative entails some risks for the EU. From the EU standpoint, the main dangers are to be cut off from its backyard and witness some of its members increasingly leaning towards Beijing. Beijing aims to take advantage of its divide et impera strategy and a lack of unity shown by Brussels on the BRI-issue.

On the one hand, China “has been filling any opening it felt it could. Local capitals were hungry for cash, particularly on big development issues like infrastructure – and the Chinese were willing to go places where Western institutions were not” (Birnbaum, 2021). Politically, this means diminishing leadership and influence in the region for the EU. Strategically, it means paving the way for an economic giant and geopolitical competitor to create networks, for instance, in the Mediterranean Basin and thus increasing its commercial role in the European supply chain. Financially, it makes Chinese economic power more diversified and solid, since investing in foreign projects as well as the institution of a multilateral bank focused on infrastructure (such as AIIB) allows Beijing to make better use of its massive foreign exchange reserves than by holding low-interest yielding US treasury bonds (Grieger, 2021).

On the other hand, the reason why the EU countries have not achieved a common approach is the differing interests among member states. While most of the EU countries were sceptical and cautious about BRI, the Central Eastern European and some of the Southern European countries have shown a clear interest in BRI since its launch. Greece and the Netherlands represent a good example of this dichotomy: intensively affected by the 2008 financial crisis and, consequently, more open to privatisation, Athens received important foreign investments in strategic sectors such as transportation, energy, and infrastructure. In 2017, the Chinese state-owned COSCO bought a 51% holding in Piraeus port authority (PPA) for €280 million, deciding to potentiate the harbour as part of the BRI and committing to a mandatory investment worth €300 million over five years to acquire an additional 16% (Koutantou, 2021). Since COSCO took over PPA container operations in 2009, it has spent €600 million in infrastructure. Piraeus has grown into a major transhipment hub for goods destined for Mediterranean and Black Sea ports, making it the fourth-busiest port in Europe. Moreover, COSCO recently stated that it wants to invest €200 million into a new container terminal, boosting the capacity to 11 million TEUs (twenty-foot equivalent unit) from 8 million this year and 1 million in 2009. This increased presence of the PRC in the Mediterranean alarms the Netherlands, which fears that Southern Europe terminal ports could become the official trade gateway of BRI, taking away Rotterdam’s transportation volume shares – a pillar of Dutch economy – and thus putting two EU and NATO members in opposing positions due to diverse national interests.      

To conclude, by using Montenegro’s paradigm, although two US and a French bank have recently agreed to borrow the Balkan state $1 billion to pay off the Chinese loan (Reuters, 2021), the PRC debt trap is not fading away. To recover from the economic setbacks caused by the pandemic and stimulate growth, many countries, not just non-EU countries and those already vulnerable, will be tempted by BRI loans. Attracted by large, immediate, and low-interest Chinese investment flows, a BRI loan might seem like a convenient deal in the short term. However, its long-term consequences are potentially devastating, and could contribute to damaging the EU image, as well as its collective interests and security.

Written by Gabriele GHIO, Researcher at Finabel – European Army Interoperability Centre


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