Author : Manoj Joshi

Originally Published 2016-06-21 11:47:58 Published on Jun 21, 2016
China paves the road to Europe

Perhaps the most fascinating aspect of Chinese President Xi Jinping’s foreign visits relate to China’s enormously ambitious One Belt One Road or the Belt Road Initiative. There is a great deal of confusion as to what exactly OBOR means. It is a compound of two separate plans to develop connectivity — one over the land across Asia to Europe, and the other through sea routes. The OBOR is not simply a collection of highways, pipelines and sea routes, but a geopolitical destination. That endpoint in both the land and maritime versions is Eurasia and the aim of OBOR is to compact the vast region and make China its driving force in the coming two decades. So, even as the US pivots to Asia, China is rebalancing to Europe.

Europe is the largest economy in the world, if you count the 28 EU nations, Norway, Switzerland and Iceland. This grouping accounts for 25.4% of the world’s output in 2014 as compared to the US (22.5%) and China (13.4%). They also account for 28.5% of all consumer spending in 2014, above the 26.6% spent by US consumers and 15.6% by all BRICS nations combined. So the EU is both a potential market, as well as a source of high-tech and trade and commerce.

So, there is a class of foreign visits of Xi that are aimed at a Eurasian consolidation. It began with his first visit abroad as President, to Russia. Now it is clearer through his most recent tour to Poland, Serbia and then Uzbekistan, the last named also being the venue of the Shanghai Cooperation Organisation summit. Prior to this, in March, Xi was in the Czech Republic, and before that in October 2015, UK, and in May 2015 in Kazakhstan, Belarus and Russia.

The visits are tied to more complex regional diplomacy that is visible in the summits of China and Central and East European Countries (CEECs), also known as the 16+1 summit. In November 2015, China hosted the fourth summit in Suzhou. Countries like Poland, Czech Republic, Serbia, Albania, Bosnia, Bulgaria, Croatia, Estonia, Latvia, Hungary, Lithuania, Macedonia, Slovenia, Montenegro sent their Prime Ministers or heads of state to the event and a few others sent senior ministers. Not surprisingly, the major theme of the meeting was connectivity. CEECs want to join up with China, hoping to rub off its prosperity and gain investments through the OBOR schemes.

China has already built up an impressive set of pipelines, roads and railways to link up to Central Asia. For some years, trains have begun carrying cargo from China to European destinations — Suzhou is now connected to Warsaw, Lianyuang to Rotterdam, Chengdu to Lodz, Chongqing to Duisburg, Yiwu to Madrid, Zhengzhou to Hamburg. The time taken for freight to reach from China is two weeks, and currently they go north and join up with the Trans Siberian route, or they go through Central Asia, Iran and Turkey, which however, is not too well developed. The Chinese also have ambitions of building a third route south of Kunming to Yunan, Myanmar, Bangladesh, India, Pakistan, Iran and Turkey before reaching Europe.

The relatively lower labour costs in some of these European states are being viewed by China as intermediate bases to establish its logistics and manufacturing facilities to target the richer states of EU. The way the Chinese plan it, in the coming decades they plan to get out of low-end manufacturing and move to higher value, innovation-based products. These would obviously require better off markets, and Europe fits well into this, having markets that become progressively richer as you move from east to west.

China is also working at this problem from the other end, which was evident from Xi’s visit to UK in October 2015. He plonked down $8.7 billion in a one-third stake on a British nuclear power plant, a deal for British Petroleum to supply China with 1 million tonnes of LNG per annum, worth $10 billion, for 20 years, Rolls Royce got engine sales worth $3 billion. In addition, there were announcements of other joint ventures and investments in areas ranging from cruise ships, research and development in tissue engineering, hospitals, real estate, electric cars, education and training. London is of great interest to the Chinese as a finance centre and in the past two years, the trading volume of the RMB has doubled and recently, the London Metal Exchange announced its acceptance of RMB. Similar Chinese investments exist in the other two major European economies, Germany and France.

In this grand scheme of things, the message to countries like India is that either you participate, or risk being bypassed. The China-Pakistan Economic Corridor (CPEC) is a manifestation of this. However, India is riposting through the Chah Bahar project and the International North South Transport Corridor to link Bandar Abbas in Iran with Russian ports. The hurdles before India are many, scarce finance being the lesser one. The big challenge is to implement the projects on schedule, something New Delhi is simply not good at.

This commentary originally appeared in Mid Day.

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Manoj Joshi

Manoj Joshi

Manoj Joshi is a Distinguished Fellow at the ORF. He has been a journalist specialising on national and international politics and is a commentator and ...

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