Connectivity is to be the centre focus at not only the G20 held in September this year in Hangzhou, but also in the upcoming summit of Asian and European leaders (ASEM) in July in Mongolia’s capital Ulaan Baatar. In both cases, it is the Chinese government that is actively pushing connectivity into the agenda, particularly as China holds the G20 presidency in 2016 and is therefore very vocal about reaching a Free Trade Agreement (FTA) amongst the groups’ members.
Regarding ASEM, Beijing wishes to enhance the connectivity between Asia and Europe through an expansion of infrastructure projects between the two continents, while also supporting the creation of an open trade and investment regime. The construction of Eurasian transport infrastructure lies at the heart of the ‘One Belt, One Road’ (OBOR) initiative, also known as the New Silk Road, which is the boldest and most ambitious foreign policy strategy of China’s history, as it aims at the economic integration of Eurasia. Europe’s aim should be to play a decisive role in the G20, ASEM and OBOR, as the implementation of policy and the fluidity in the decision-making process depend on Europe’s willingness to collaborate. A newly developing Eurasian dimension in their relationship thus increasingly links the EU and China.
These developments are driven by factors that cannot be reduced to the political or economic sphere alone, but are influenced by politics and economics interacting with one another as the evolution of the international political economy of Eurasia plays out. One important factor in this is the establishment of investment and trade regimes between China and the EU. In this ongoing process, negotiations for an EU-China Bilateral Investment Agreement (BIA), which have started in 2012, are of pivotal significance. The inclusion of substantial market access for European companies in China is most important for the European side. The existing openness of EU member states to Chinese investments benefits China greatly, as does access to an EU-wide uniform level playing field. Therefore, successful negotiations on a BIA would have a crucial effect on Eurasia’s international political economy, as it is likely to open the door for negotiations on a future China-EU FTA.
In the past, Brussels pushed for the BIA to be a pre-condition for potential discussions on a bilateral FTA with Beijing. The EU and China are seeking to develop a common interest in connecting their regional and domestic plans for economic growth, triggered in large by the OBOR initiative, the formation of the Silk Road Fund and the establishment of the Asian Investment and Infrastructure Bank (AIIB) by China in 2015. As a result, the European Investment Bank (EIB) is providing technical support to the AIIB while also allowing for future co-funding of AIIB projects. In addition, a joint working group consisting of the European Fund for Strategic Investments (EFSI) and China’s Silk Road Fund was set up in September 2015 and an EU-China Connectivity Platform established.
These very recent developments need to be contextualised regarding the global proliferation of regional and bilateral FTAs at a point of time when the future of negotiations within the World Trade Organization (WTO) remain uncertain. As long as the Doha development round is stalled, trade-expanding regional and bilateral solutions are considered an alternative. The EU has already established a FTA with the Republic of Korea in 2011 and negotiations with Japan and India as well as individual members of the Association of Southeast Asian Nations (ASEAN) are at different stages, with the EU-Singapore and EU-Vietnam FTAs waiting for ratification.
However, the EU is not entirely interested or involved in all regional FTAs in Asia. The EU is neither participating in the Transpacific Partnership (TPP), an ambitious FTA signed in February 2016, which aims at setting the standards for regional economic integration in the Asia-Pacific. At the other end, as a non-member of TPP discussions, pushed forward under US leadership, Beijing suspects a hidden agenda and perceives the TPP as an American move to counter the further development of China. Such thinking is also reflected in the Chinese government’s suspicion of the ongoing negotiations between the US and the EU on the Transatlantic Trade and Investment Partnership (TTIP).
Seen from Beijing’s perspective, the EU thus treats China as a secondary actor when it comes to the establishment of trade regimes – even though China is the EU’s second largest trading partner behind the US, while the EU is China’s biggest trading partner.
From this geo-economic and geo-political perspective, the OBOR initiative opens up China to make it more accessible, as it enlarges the stage for EU-China economic integration by facilitating functional cooperation with the EU, China and other Eurasian economies. As EU-China economic and financial cooperation deepens, the interests of the countries and peoples located between the EU and China need to be increasingly taken into account. Otherwise projects facilitating Eurasian connectivity will be perceived as a threat to national security. One practical way for the EU and China to counter such a scenario is utilising the ASEM process, which as of now includes 51 countries. At the next summit, ASEM leaders could ask their foreign ministers to draw up a report on the topic to be considered in 2018.
An ASEM plan on Eurasian Connectivity could lay the foundation for a political project and roadmap for Eurasian connectivity that would address the interests of a vast majority of European and Asian actors. Multilateral institutions are increasingly in demand to shape and manage the international economy of Eurasian connectivity. Therefore, for this to be successful, the EU and China should be striving to make this become the norm.
This article is part of Friends of Europe’s Policy Paper ‘EU-China: New Directions, New Priorities‘ which brings together the views of Friends of Europe’s large network of scholars, policymakers and business representatives on the future of EU-China relations. These articles will provide immediate input for the EU-China Summit on 12-13 July 2016, but their value and relevance goes well beyond this year. They set the tone for EU-China relations over the next decade.
IMAGE CREDIT: Brian K./Bigstock.com