Why Europe can’t afford to ignore China’s New Silk Road

Officially first announced in 2013 by President Xi Jinping, China’s ambitious “one belt, one road” initiative aims to improve connectivity between China, Asia and Europe. This year marks a milestone for relations between China and the European Union, as they celebrate 40 years of diplomatic relations.

The initiative merges both the land-based Silk Road (from China via Central Asia to Turkey and the EU) with the Maritime Route (via the Indian Ocean and Africa to Europe). Both routes were created with the intention of developing transportation infrastructure, facilitating economic development and increasing trade. This 21st-century initiative is not merely for China to romanticize its historical legacies: it carries major strategic economic and geopolitical calculations.

China seems to pursue three key objectives

1. A new impetus for its economy. China’s 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, as well as the real estate bubble and increasing environmental pressures, China urgently needs to find new economic engines. One Belt, One Road focuses on infrastructure development and matches the appetite of Chinese state-owned enterprises with overcapacity.
2. The Silk Road will help to alleviate China’s thirst for energy, with new gas pipelines in Central Asia and new deepwater harbours in South Asia to be constructed. These massive infrastructure projects will also accelerate the renminbi’s internationalization and its emergence as an alternative reserve currency, a strategic economic objective.
3. Most importantly, the core of this initiative lies in its strategic and geopolitical importance. China seeks to build a cordon sanitaire of regional stability. Its 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 wartorn Afghanistan to the terror belt in the Middle East and North Africa. The Chinese government has resisted the idea of labelling the “belt and road” project as its own Marshall Plan, but the commonality of China’s economic interests with the corridor nations and a sound infrastructure bond will be the best way to prevent regional conflicts. It’s also a viable way to export China’s model of development: the right to develop irrespective of political systems.

Strategically, the belt and road concept – as well as 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 more of a role in regional and global governance. Over the past decades, China was an agenda-follower rather than agenda-setter. A key principle of its 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 proactive in protecting national interests.

A new type of power relations

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.

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, economic development and diversification of energy supply.

This region – with India, Pakistan, Iran and Kazakhstan in the middle – could offer major new markets to European firms, leveraging old European influence to both engage profitably with Chinese and local companies. 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.

Can the EU set the agenda?

As China’s largest trading partner (and a partner without geopolitical conflicts), Europe should not wait for the One Belt One Road concept to be further elaborated at this stage; 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, making it a true Europe-China initiative, at both ends of the road.

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Authors: André Loesekrug-Pietri is Chairman of the Paulina Foundation, Founder of A CAPITAL and a Young Global Leader. Michael Schaefer, is Chairman of the Board, BMW Foundation. Wei Shen is Professor of International Business at Lancaster University.

Image: European Commission President Jean-Claude Juncker (R) and European Council President Donald Tusk (C) meet with Chinese Premier Li Keqiang (L) at the European Council headquarters ahead of of a EU-China summit in Brussels June 29, 2015. REUTERS/Virginia Mayo/Pool