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Belt and Road Forum: “Chinese companies are clearly the main beneficiaries of BRI projects”

Beijing will be hosting around 40 heads of state and government for its second “Belt and Road” (BRI) Forum from April 25 to 27, including from Italy, Switzerland, Austria and Hungary. While many European countries are skeptical about the initiative and Brussels is arguing for a unified China policy, several EU governments have embraced the BRI - the one in Rome most prominent among them.

Questions to Thomas S. Eder, research associate at the Mercator Institute for China Studies (MERICS).

What does the Chinese government want to achieve with this BRI forum?

The overall purpose of the BRI is to strengthen the legitimacy of the Chinese leadership and the CCP more broadly. This has gained increased importance given the slowing growth of China’s economy. BRI projects keep Chinese companies’ order books full, helping them gain international market share and develop into global champions. The BRI also helps the Chinese leadership increase its influence and improve its standing abroad.

Interest in China’s flagship foreign policy project is growing: The number of heads of state and government attending the upcoming summit is somewhat higher than at the first forum in 2017, which attracted 28 international leaders. Several new Memorandums of Understanding (MoUs) are to be signed at this summit, including one with Switzerland – a fact that the Chinese government believes will increase the prestige of the event. Italy signed an agreement in March, the most significant EU nation so far to have done so.

Where does the BRI currently stand in terms of its development?

Given the general restrictions on capital outflows, annual BRI-related investments have not increased since 2016. However, Beijing continues to invest large amounts of money in BRI projects and the number of countries that China has labeled as part of the BRI has grown from more than 60 to more than 100. In 2018, several countries in Latin America and the Caribbean signed BRI MoUs. More than 70 billion USD in Chinese FDI and loans are connected to BRI-related infrastructure projects that have already been completed. The investment volume of projects still under construction or in the planning phase stands at over 100 billion USD. 

Will Beijing address criticism of the BRI at this forum?

Beijing will use the meeting to highlight the achievements of the initiative. However, China has started to respond to growing concerns expressed both abroad and at home. Worries are being expressed ever more loudly within China about the investment risk and possible defaults on loans. Meanwhile, the criticism in target countries is that BRI projects are more expensive than their potential economic value. Beijing has already restricted capital outflows in ”non-strategic sectors” and Chinese banks and other institutions are taking risk evaluation more seriously. In some cases, Beijing has been willing to renegotiate contracts. Most prominently in Malaysia with the 10 billion USD East Coast Rail project, China has accepted a lower price in order to avoid the project being derailed by the new government. At the summit, Beijing is likely to emphasize its willingness to be flexible and renegotiate more favorable project terms. It remains to be seen if talk about more transparency and third state cooperation will be followed by action.

Does the BRI represent opportunity or more of a risk for Europe?

Chinese companies are clearly the main beneficiaries of BRI projects and European construction companies have lost out on several major infrastructure projects, for example the Peljesac Bridge in Croatia. At the same time, European supply firms and service companies have benefited from the initiative and will continue to do so, for example in the fields of wind turbines and hydroelectric plants, services, project design and logistics. However, Chinese companies will become more competitive in these fields as well.

Among the most promising opportunities are joint projects backed by multilateral financial institutions, including the European Investment Bank and the European Bank for Reconstruction and Development (EBRD) along with the Asian Infrastructure and Investment Bank. The Trans-Anatolian Natural Gas Pipeline (TANAP) is a case in point.

The Chinese leadership is using the BRI to increase its political influence in Europe. How should Germany and the EU respond?

At this week’s summit and in general, Germany and other EU member states should stick to the principles of the EU-Asia connectivity strategy, launched by the European Commission last fall. If China and Europe do not find common ground on issues such as transparent procurement processes and a thorough assessment of the financial, social and environmental sustainability of projects, cooperation will remain difficult. The fact that the EU-China connectivity platform established in 2015 has not made progress shows that so far, this has not been possible.

The EU should strengthen its own infrastructure initiatives such as the Trans-European Networks-Transport (TEN-T). It also needs to offer alternatives to weaker economies in the neighborhood to avoid them becoming dependent on Chinese loans and investments – and susceptible to Chinese political influence.

Berlin and Brussels should not underestimate how compelling the narrative of the BRI is in many countries. The BRI is dominating debates, even though EU programs provide more funding at better terms. In addition to putting real money behind the EU's connectivity strategy, the EU needs to develop a coherent counter-narrative to the BRI.

This interview or excerpts may be quoted with proper attribution. 

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