Thursday 25 April 2019 (Beijing) – It was announced today that 27 global institutions have signed up to a set of voluntary principles – the Green Investment Principles (GIP) for the Belt and Road -- to promote green investment in the Belt &Road region.

 

The announcement was made at the GIP signing ceremony as part of the Financial Connectivity Forum organized by the People’s Bank of China (the Central Bank) and the Ministry of Finance in Beijing during the second Belt and Road High-level Forum. Deputy Governor Chen Yulu from the People’s Bank of China attended the GIP signing ceremony.

 

 

Chen Yulu, Deputy Governor of the People’s Bank of China

 

As a mandate from the China-UK Economic and Financial Dialogue in 2017, the Green Finance Committee of China Society for Finance and Banking and the City of London Corporation’s Green Finance Initiative led the initiative to develop the GIP, which was first published in London in November 2018. The World Economic Forum, UNPRI, Belt & Road Bankers Roundtable, the Green Belt and Road Investor Alliance and the Paulson Institute are also part of the drafting group. A full list of the principles is provided at the bottom of this release.

 

Building on existing responsible and ESG investment initiatives, the GIP aims to incorporate low-carbon and sustainable development practices into investment projects in Belt and Road countries, which will host the majority of the world’s infrastructure investments in coming decades.

 

Since its launch five months ago, the GIP has received strong backing from the global financial industry, including commercial banks, development banks, institutional investors, stock exchanges and other stakeholders that invest or help mobilize investment in the Belt and Road. As of April 25, 2019, twenty-seven institutions have signed up to the GIP. These institutions include (in alphabetical order):

 

Agricultural Bank of China, Agricultural Development Bank of China, Al Hilal Bank, Astana International Exchange, Bank of China, Bank of East Asia, China Construction Bank, China Development Bank, China International Contractors Association, China International Capital Corporation, Crédit Agricole-CIB, DBS Bank, Deutsche Bank, Export-Import Bank of China, First Abu Dhabi Bank, Habib Bank of Pakistan, Hong Kong Exchanges and Clearing, Industrial and Commercial Bank of China, Industrial Bank, Khan Bank, Luxembourg Stock Exchange, Mizuho Bank, Natixis Bank, Silk Road Fund, Standard Chartered Bank, Trade and Development Bank of Mongolia and UBS Group.

 

These signatories include all major banks from China that invest in the Belt & Road region and some of the largest financial institutions from (in alphabetical order) France, Germany, Hong Kong, Japan, Kazakhstan, Luxembourg, Mongolia, Pakistan, Singapore, Switzerland, United Arab Emirates and the United Kingdom. Several service providers, including Deloitte, Ernst & Young, KPMG and PWC, have also expressed their support for the GIP.

 

Ma Jun, Chairman of China’s Green Finance Committee, announced at the GIP signing ceremony that a Secretariat would be established to support future work of the GIP. The GIP Secretariat will work on expanding the membership, the development of implementation tools and case studies, a green project database for the Belt & Road, as well as compiling the progress report.

 

Chen Yulu, Deputy Governor of the People’s Bank of China, said at the signing ceremony: “The financial institutions represented here today are the leading institutions of green investment for the Belt and Road. I hope that all signatories can seize the great opportunity of the BRI, and actively promote the GIP and enhance their capacity for green investment.”

 

Dr. Ma Jun said: “The majority of global infrastructure investment in the coming decades will be in the Belt and Road region and they will have a significant impact on the implementation of the Paris Agreement and UN Sustainable Development Goals. The aim of the GIP is to ensure that environmental friendliness, climate resilience, and social inclusiveness are built into new investment projects in the Belt and Road.”

 

Ma Jun, Chairman of China Green Finance Committee

 

Catherine McGuinness, Chair of Policy at City of London Corporation commented: “While there is some way to go to ensuring the Belt and Road is truly green, today’s announcement is another step in the right direction, and a powerful statement of intent from financial firms in China, the UK and across the world.”

 

Catherine McGuinness, Chair of Policy at City of London Corporation 

 

Family photo of major GIP Signatories

 

David Aikman, Chief Representative Officer of China and Member of the Executive Committee, World Economic Forum, addressed the importance of making GIP an opportunity for green transformation in the region and said: “It will be a shared opportunity for inter-connectivity, environmental friendliness and economic development through green investment in many countries around the world.”

 

Signatories also expressed their commitment to greening their investment practices with the implementation of GIP. “Business and economic ties between China, Europe, and BRI countries continue to strengthen”, said Werner Steinmueller, Deutsche Bank Management Board Member and Chief Executive Officer for Asia Pacific. “We are one of the most active foreign banks participating in BRI with full corporate and investment banking offerings along the route. By committing to the GIP, we are pledging that we will not only help steer BRI’s open collaboration across countries from China to Europe, but also strive to ensure these projects are as sustainable as possible.”

 

Gu Shu, President of Industrial and Commercial Bank of China, commented: “Green investments play a critical role in addressing environmental and climate challenges along the Belt and Road. ICBC has participated actively in the drafting of the GIP. We have also invited BRBR members to sign up to the GIP and integrate environmental factors into the BRI-related financing decisions, operations, product development and risk management.”

 

Gu Shu, President of Industrial and Commercial Bank of China

 

Bill Winters, Group Chief Executive of Standard Chartered PLC, stated: “We have been supporting our clients in managing their environmental and social risks for decades and are committed to working with all parties to implement the Green Investment Principles and contribute to commerce and prosperity across the Belt and Road markets.”

 

Benjamin Hung Pi Cheng, Regional CEO of Greater China & North Asia, Standard Chartered

 

Philippe Brassac, CEO of Crédit Agricole S.A and the Chairman of Crédit Agricole CIB, said: “Today, we reaffirm our ambition to be your long-term banking partner for your energy transition projects. A partner that is both realistic and demanding concerning the climate.”

 

 “As China’s development finance institution and its major bank for the Belt and Road, the China Development Bank will stay committed to green finance, implement green investment principles, increase the provision of green finance, and grow the capacity for green development, to contribute to sustainable economic and social development along the Belt and Road”, said Hu Zhirong, Director of International Finance Bureau of China Development Bank.

 

Huang Liangbo, Vice President of Export-Import Bank of China, said: “To cater to the needs of the BRI participating parties to conserve resources, protect the environment and cope with climate change, the Export-Import Bank of China has been diversifying its financial products and services related to green projects, and played a major role in investing and financing green infrastructures.”

 

Lin Jingzhen, Vice President of Bank of China, said: “By signing up to the GIPs, it marks a milestone for Bank of China to integrate green development strategy into our efforts of supporting the construction of the Belt and Road ‘financial artery’. We look forward to working with international counterparts to foster the green and sustainable development along the Belt and Road.”

 

Qian Wenhui, President of Agricultural Development Bank of China, said: “Agricultural Development Bank of China will gather forces from all sides and assist domestic agriculture-related enterprise and projects to participate in the Belt and Road green investments.”

 

Tao Yiping, President of Industrial Bank, commented: “By proactively supporting the low-carbon, green and sustainable development of countries along the Belt and Road, GIP will support global financial institutions to establish more extensive and intensive corporations within multilateral frameworks and to increase environmental and social risk management ability.”

 

Xie Duo, Chairman of the Silk Road Fund, commented: “The Silk Road Fund, being a medium to long-term development and investment fund to support the BRI, is committed to implementing and promoting green investment philosophy, and dedicated to building a green Silk Road.”

 

Muhammad Aurangzeb, President and CEO of Habib Bank of Pakistan, said: “It is a great initiative taken by China Green Finance Committee and City of London for this GIP signing. As Pakistan’s largest Bank, and the largest executor of CPEC related financing in Pakistan, HBL is positioned to play an integral role towards a greener CPEC, with the ultimate goal of a greener BRI.”

 

Tim Bennett, CEO of Astana International Exchange, said: “The sign up to the GIP emphasizes the regional perspective of AIX to support infrastructure and economic development in Kazakhstan and in the region in accordance with environmentally and socially friendly international practices.”

 

Abdulhamid Saeed, Group Chief Executive Officer of First Abu Dhabi Bank, stated: “By becoming one of the first signatories to the GIP, we intend to take a more active role in the Belt and Road Initiative and in supporting global efforts to promote green investments within the UAE and beyond.”

 

For more information, please contact:

 

CHENG Lin

China Coordinator of the GIP, China Green Finance Committee

Tel: +86 (10) 8302 1702

Email: lin.cheng@greenfinance.org.cn

 

Simon Horner

Head of Policy and Innovation, City of London

Tel: +44 (0) 7721 977119

Email: simon.horner@cityoflondon.gov.uk

 

 

ANNEX: GREEN INVESTMENT PRINCIPLES FOR THE BELT AND ROAD

 

Principle 1: Embedding sustainability into corporate governance

 

We will embed sustainability into our corporate strategy and organisational culture. Our boards and senior management will exercise oversight of sustainability-related risks and opportunities, set up robust systems, designate competent personnel, and maintain acute awareness of potential impacts of our investments and operations on climate, environment and society in the B&R region.

 

Principle 2: Understanding Environmental, Social and Governance Risks

 

We will strive to better understand the environmental laws, regulations, and standards of the business sectors in which we operate as well as the cultural and social norms of our host countries. We will incorporate environmental, social and governance (ESG) risk factors into our decision-making processes, conduct in-depth environmental and social due diligence, and develop risk mitigation and management plans, with the help of independent third-party service providers, when appropriate.

 

Principle 3: Disclosing environmental information

 

We will conduct analysis of the environmental impact of our investments and operations, which should cover energy consumption, greenhouse gas (GHG) emissions, pollutants discharge, water use and deforestation, and explore ways to conduct environmental stress test of investment decisions. We will continually improve our environmental/ climate information disclosure and do our best to practice the recommendations of the Task Force on climate-related Financial Disclosure.

 

Principle 4: Enhancing communication with stakeholders

 

We will institute stakeholder information sharing mechanism to improve communication with stakeholders, such as government departments, environmental protection organizations, the media, affected communities and civil society organizations, and set up conflict resolution mechanism to resolve disputes with communities, suppliers and clients in a timely and appropriate manner.

 

Principle 5: Utilizing green financial instruments

 

We will more actively utilize green financial instruments, such as green bonds, green asset backed securities (ABS), Yield Co, emission rights based financing, and green investment funds, in financing green projects. We will also actively explore the utilisation of green insurance, such as environmental liability insurance and catastrophe insurance, to mitigate environmental risks in our operations.

 

Principle 6: Adopting green supply chain management

 

We will integrate ESG factors into supply chain management and utilize international best practices such as life cycle accounting on GHG emissions and water use, supplier whitelists, performance indices, information disclosure and data sharing, in our investment, procurement and operations.

 

Principle 7: Building capacity through collective action

 

We will allocate funds and designate personnel to proactively work with multilateral organizations, research institutions, and think tanks to develop our organizational capacity in policy implementation, system design, instruments development and other areas covered in these principles.

 

AliExpress logistics centre set to be built close to country's border with Germany as overall e-commerce levels soar.

Poland is set to be the site of major new AliExpress logistics centre, serving its host country as well as online shoppers in neighbouring Germany and the Czech Republic. The new centre is to be a joint venture between the Alibaba-owned online marketplace, the Shanghai-headquartered Worldwide Logistics Group (WWL) and ATC Cargo, a multi-modal Polish freight delivery company.

The move is seen as recognition of AliExpress' success in building its customer base in eastern and central Europe. Although Allegro – Poland's take on eBay – remains the most popular e-commece site in the new centre's host country, the Chinese online platform has made huge strides in terms of building market share and consumer awareness. As a sign of this, in an October 2017 survey conducted by PayU, the Dutch fintech company, AliExpress was namechecked by 62% of Poland's online shoppers when they were asked to identify e-commerce market leaders.

Another factor in the choice of Poland as the site of the new centre is its strategic geographical advantage with regard to the aims of the Belt and Road Initiative (BRI), China's ambitious international infrastructure development and trade facilitation programme. This would see Poland function as the primary land conduit between China and the mega-markets of Europe, particularly Germany's 81-million strong consumer base. As a wider acknowledgement of the country's geographical advantages, Amazon has already begun work on its own US$876 million logistics facility in Szczecin, a city in northwest Poland set close to the German border.

One of the advantages of the new AliExpress facility is that, for the first time, it will allow businesses in the region to buy goods in small batches rather than by the container-load, as has been the previous practice. It will also help to manage the increased traffic between China and Poland, with some 500,000 parcels handled in 2017, a 200% increase on the previous year.

One negative aspect of this increased throughput, however, is that the huge surge in the volume of trade has spurred moves by the Polish government to clamp down on VAT avoidance on the part of the country's e-shoppers. Poland, unlike most other European countries (with the exception of France), does not waive the duty on imported e-commerce items valued at up to $55. To date, though, the Polish treasury has taken no action to enforce payment on such items.

In light of the increasingly large sums involved, however, actions are now being taken to ensure that such payments are processed. The most likely solution will see buyers permitted to specify the value of each delivery online, with the government's own system verifying this with the relevant e-commerce platform.

● In other moves, the Polish Financial Supervision Authority (KNF) has now signed a fintech cooperation agreement with the Hong Kong Monetary Authority (HKMA). This will see the two bodies working together on a range of fintech-related research projects, while also facilitating a wider exchange of information, mutual consultation and a greater overall level of knowledge and expertise interchange.

Anna Dowgiallo, Warsaw Consultant

By European Think-tank Network on China (ETNC)

Sizing Up Chinese Investments in Europe

Chinese investments in Europe have surged in recent years, and have become a critical feature of Europe-China relations. Foreign direct investment (FDI) in the European Union traced back to mainland China hit a record EUR 35 billion in 2016, compared with only EUR 1.6 billion in 2010, according to data gathered by the Rhodium Group. In a historic shift, the flow of Chinese direct investment into Europe has surpassed the declining flows of annual European direct investments into China. As China continues to grow, develop, and integrate into the global economy, its overseas investments expand in quantity and quality, reflecting both the growing sophistication of the Chinese economy and broader Chinese commercial and policy goals. Going beyond FDI, Chinese investment is creating new realities for Europe-China relations.

This report by the European Think-tank Network on China (ETNC) brings together original analysis from 19 European countries to better understand these trends and their consequences for policy making and Europe-China relations, including at the bilateral, subregional and EU levels. As in all ETNC reports, it seeks to do so using a country-level approach. Through these case studies, including an introductory explanation and analysis of EU-wide data, the report aims to identify and contextualize the motives for Chinese investment in Europe and the vehicles used. However, the originality of the report also lies in the analysis of national-level debates on China, Chinese investment, and openness to foreign investment more generally. This is not just a story about FDI strictly defined, but about the (geo)political implications that emanate from deeper economic interaction with China. Ultimately, Europe is far from speaking with a single voice on these matters, and identifying where the divergences and convergences lie, will be crucial in formulating solid and complementary policy positions at the EU and national level moving forward.

China’s growing investment interests in Europe

Until recently, it was not uncommon to depict China as a minor source of investment in Europe and elsewhere in relative terms. Indeed, of total FDI stock held in the European Union by the end of 2015, China only accounted for 2 percent according to Eurostat figures, and its investment stock in many European countries remains low when compared with older investors. However, the facts on the ground are evolving rapidly, and China still has plenty of room to grow: The total stock of Chinese outbound direct investment worldwide still only represents 10 percent of its national GDP. Compare this to France or the UK (50+ percent), Germany (39 percent), the United States (34 percent) and Japan (28 percent). If China continues on its path towards more advanced levels of economic development, we must expect a massive further increase in its outbound FDI. Europe has already become a favored destination for Chinese investment, and policymakers need to adapt to a new force shaping the economic and political landscape in Europe.

As the country analyses of this report show, European economies have a wide range of assets and features that Chinese investors seek. There should be no doubt that China needs Europe (maybe even more than vice-versa). Patterns of Chinese investment highlight sources of European attractiveness that need to be better appreciated and leveraged. Among the things that Chinese investors seek in Europe are:

• Technology, to include established high-tech assets, emerging technologies and know-how;

• Access to the European market, for Chinese goods and services;

• Access to third markets via European corporate networks, especially in Latin America and Africa;

• Brand names to improve the marketability of Chinese products both abroad and for the Chinese market;

• Integrated regional and global value chains in production, knowledge and transport;

• A stable legal, regulatory and political environment, particularly in a context of global disruption and political uncertainty;

• Political/diplomatic influence in a region that in aggregate terms remains the second largest economy after the US.

Behind the growth in China’s outbound investments is the story of China’s economic transformation towards more consumption-based growth and higher value-added industries, including technology and services. The success of China’s economic transformation depends on an increased commercial presence abroad and deepening international linkages. This is not only true for all economic enterprises in China, including SOEs and private companies, but it also serves as a critical source of Party legitimacy and political stability.

In this context, many chapters in this report confirm the importance of Beijing’s policy initiatives in shaping investments overseas, and in Europe in particular. Beijing’s “going out” policy starting in 2001, and intensifying after the Global Financial crisis, has facilitated and encouraged the internationalization of Chinese firms for much of the last two decades as a means to develop the national economy. More recently, both China’s 12th and 13th five-year plans (2011-2015; 2016-2020) have encouraged overseas investments as a means to access supply chains, quality brand names and advanced technology – all reasons for investing in Europe. As China’s industrial strategy grows in sophistication, plans such as “Made in China 2025” will increasingly channel overseas investments as a means to achieve clear policy goals in the so-called “new strategic industries” defined in Beijing. In 2016, the largest share of Chinese global mergers and acquisitions targeted the high-tech sector (24 percent of total deal values), compared to 20 percent that targeted energy and material assets (Rhodium Group, 2017). The controls on outbound Chinese capital that the Chinese government deployed in 2016 and 2017 also highlight the crucial impact of Beijing’s interests and policies, i.e., the political nature of outbound capital flows. Finally, as China continues to press forward with its Belt and Road Initiative (BRI), an initiative now elevated to constitutional rank within the Chinese Communist Party in fall 2017, Europe can also expect to see an increasing number of related Chinese investments.

Please click to read the full report.

By Mikael Weissmann - Senior Research Fellow, Swedish Institute of International Affairs; and Elin Rappe - Analyst and Programme Manager, Swedish Institute of International Affairs

Sweden and the Belt and Road Initiative

China is Sweden’s largest trading partner in Asia and a priority country in Sweden’s export strategy. Sweden exported to China worth SEK 46 billion in 2016 and its imports from China were worth SEK 59 billion. Bilateral exchanges between China and Sweden are now more frequent than ever. Swedish ministers are regular visitors to China and there have been several visits to Sweden by Chinese leaders of varying importance in recent years. Today, 10,000 Swedish companies are trading with China and more than 500 are established there. An increasing number of Chinese companies now invest in Sweden. Scientific and technological cooperation between the two countries has expanded to new areas such as bio-medicine, energy saving and environmental protection.

Thus, given China’s economic importance to Sweden, a large-scale initiative such as the BRI being promoted by Xi Jinping — domestically, the most powerful Chinese leader since Mao Zedong—might be expected to engender great interest among Swedish policymakers and the business community alike. Thus far, however, responses have been quiet and often cautious. Swedish stakeholders have displayed a tendency to wait and see how developments unfold before making a decision on how to react. At first, the significance of the project was unclear. At the beginning of 2015, however, the initiative took a big step forward when China devoted US$ 50 billion to the new Asian Infrastructure Investment Bank (AIIB) and allocated US$ 40 billion for a Silk Road Fund to finance investment. Sweden became a founding non-regional member of the AIIB, although it is somewhat indicative of Sweden’s cautious approach that it decided to join the bank on the last day on which it was possible to register.

The Silk Road Economic Belt, that part of the initiative most relevant to Sweden, is still in its early stages. So far, the focus has been mainly on China’s closest neighbourhood, with a particular emphasis on Central Asia. While it is clear that Chinese funding has been targeted at Central Asia, in later stages the aim is that the initiative will be more focused on Europe. China claims that the initiative has received a positive response from the 60 countries along the route as well as international organizations such as European Union (EU), the Association of South East Asian Nations (ASEAN), the Shanghai Cooperation Organization (SCO) and the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).

The real impact of the BRI on Sweden has been very limited. While the BRI has received more attention in the past year or two, as of late May 2016 the Swedish Foreign Ministry was unable to identify any BRI projects in Sweden. However, the Chinese Embassy uses a broader definition of a BRI project and at the same point identified Chinese attempts to bid for the construction of a Swedish high-speed railway and two private wind power projects as BRI projects. China also emphasizes the importance of building a connection between China and Sweden—or, on a larger scale, between Asia and Europe—and that these kinds of infrastructure projects would give rise to a “win-win situation”.

There are still some uncertainties about the execution of the high-speed railway, as well as some scepticism in Sweden about the idea of Chinese companies building such a railway.  However, China sees this as its most important BRI project in Sweden. Chinese companies have already registered in Sweden and are just waiting for the decision to proceed to be taken by the Swedish Parliament. China has no experience of building high-speed railways in developed countries and Chinese companies would like to acquire this experience and a reputation for having these competences, which would open many new doors.

China’s approach in Sweden

When discussing China’s strategy for promoting the concept of the BRI in Sweden, it is important to remember that Sweden is at the very end of the Belt Road, which means that it is obviously not one of the most important countries in the BRI context. The Swedish Foreign Ministry believes that the BRI could lead to business opportunities for Swedish companies, but that these will come in China or Central Asia rather than for companies operating in Sweden.

Diplomacy and business contacts are the tools used by China to promote the BRI in Sweden. China promotes the concept by raising it in its diplomatic meetings with the Foreign Ministry, Swedish government officials and Swedish companies. The Foreign Ministry of Sweden shares this view of the strategy used to promote the BRI. The Chinese Embassy in Stockholm has supported events on the BRI in Stockholm and made presentations to Swedish companies that have shown an interest in the Silk Road Initiative.

China’s promotion of the BRI in Sweden is targeted mainly at politicians. However, most of the BRI-related contacts in Sweden have been taking place between Chinese companies and various government agencies, such as the Swedish Transport Agency on the subject of the highspeed railway. In addition to business, Ambassador Chen Yuming has also mentioned the importance of student exchanges and increased cultural exchange between China and Sweden as important aspects of the BRI. However, when asked directly what China has done to actively engage Sweden in the BRI, a representative from the Chinese Embassy responded: “Not much frankly”.

China welcomed Sweden’s decision to become a founding member of the AIIB—but the fact that Sweden announced the decision on the last day that it was possible to register did not signal strong support for the Bank. Within the AIIB, China has not prioritized Sweden because it is a small country and because of its perceived lack of serious commitment. This should be contrasted with countries such as the United Kingdom, which was eager to register to become a co-founder of the AIIB and realized early on the importance of President Xi’s initiative.

Even though Sweden is not one of the most important countries for China in the Silk Road Initiative, China still sees great potential for increased cooperation if Sweden were to decide to engage more actively in the BRI. From China’s perspective, Sweden needs to join the infrastructure projects within the AIIB. According the Embassy, Chinese companies in Sweden want to cooperate more with Swedish companies, but so far the Swedes have been overcautious. There is particular interest in deepening cooperation with Sweden on high-tech manufacturing and emerging industries.

The Swedish response to the BRI

The Swedish governmental actors working on the BRI are mainly in the Foreign Ministry, Growth Analysis and the public-private partnership Business Sweden. The Ministry for Enterprise and Innovation [Näringsdepartementet] has not been actively involved in these questions, but there are signs that this has been changing as the BRI has gained more attention in the past year or so. For instance, the former Minister for Infrastructure, Anna Johansson, participated in the “Belt and Road Forum for International Cooperation” in Beijing in May 2017. Nonetheless, besides the Swedish companies in China, the Swedish Embassy in Beijing, Growth Analysis and Business Sweden still seem to be the three musketeers working on the BRI on the ground in China. Business Sweden’s office in Istanbul monitors the Silk Road Initiative in Central Asia, as does the Eastern Europe department of the Foreign Ministry in Stockholm. Together with Growth Analysis and Business Sweden, the Swedish Embassy in Beijing has organized various seminars on the AIIB. The embassy also regularly organizes visits to Chinese infrastructure projects for Swedish companies, together with Growth Analysis.

There are no formal agreements on the BRI between the governments of Sweden and China and there is no national strategy on the BRI. In fact, as late as a year ago there was scepticism in the Foreign Ministry about whether such a strategy was needed. The BRI was seen as an issue mainly to be handled locally by the embassy in Beijing. While there have been some signs that this perception is changing, Sweden is still far behind other countries. Many other European countries have acted much more swiftly to monitor developments and investigate the possible business opportunities arising from the BRI. Poland, for example, is lobbying to change the route of the Silk Road Economic Belt to go through its territory.

Please click to read the full report.

By Philippe Le Corre, Visiting Fellow in the Center on the United States and Europe at Brookings

China’s Belt and Road summit is over but the Chinese narrative is only just getting started. In a video released by the state-owned media outlet China Daily, a Western father tells his daughter a BRI bedtime story: 'China’s idea does not only belong to China. It belongs to the world'. Yet the world - and Europe in particular - still has plenty of reservations about the concept.

In China’s mind, most roads – and belts - lead to the 500 million-strong European Union consumer market, the world’s largest and richest (though the impact of Brexit and the departure of the UK's 65 million consumers remains to be seen). During last week's BRI summit, China insisted it wanted to share 'growth, development and connectivity' and 'collaborate more closely on concrete projects' with the EU, but the European Commission’s vice president Jyrki Katainen made some different points. In his speech at Beijing, he said that any scheme connecting Europe and Asia should adhere to a number of principles including market rules and international standards, and should complement existing networks and policies. The EU's reservations about China came to a head last year when EU lawmakers voted against China's application for 'market economy status' under WTO law, which, if granted, would reduce possible penalties in anti-dumping cases. The sore point is steel: China's huge production capacity has flooded world markets and threatened the robust industrial base the European Commission considers essential for jobs, growth and competitiveness.

But while the battle over market economy status continues, China has been steadily increasing its presence in Eastern and Central Europe. In 2012 it created the '16+1' mechanism, a platform where the Chinese prime minister meets – usually once a year- with the leaders of 16 countries including EU members such as Poland, Hungary, Bulgaria, Slovenia and the Baltic states, as well as non-EU members including Serbia, Albania and Montenegro. This framework has become a launch pad for the Belt and Road Initiative (at least half of the countries have signed BRI memorandums of understanding with China since 2015), and has helped China to build (or in some cases rebuild) close relations with Eastern European countries. After some complaints from Brussels, the European Commission was eventually admitted as an observer the 16 + 1 group.

Major BRI infrastructure projects are now starting to take shape in Europe - not without controversy. One of China’s top state-owned enterprises is building a high-speed railway line between Belgrade, the capital of Serbia and Budapest, the capital of Hungary. A member of the EU, Hungary is currently under investigation for possible violations of EU transparency requirements in public tenders in relation to the project.

Athens’s Piraeus Harbour is another major piece of infrastructure that has become representative of China’s offensive in Europe. Since 2016, the Greek harbour has been controlled by China Ocean Shipping Company (Cosco) which acquired 51% of the Port Authority and will be able to acquire a further 16% by 2021, following substantial investments. The idea is quite simple: through the 'Maritime Silk Road' and the extension of the Suez Canal, China will be able to reach the Mediterranean Sea and will use Piraeus as a platform for Chinese companies and goods. Cosco intends to turn Piraeus into one of the largest container transit ports in Europe.

In 2016, Chinese foreign direct investments in the EU reached €35 billion, a 77% increase over the previous year. While some Eastern and Southern European States - non EU members - often have little alternative to Chinese capital, Western Europe has a different, more nuanced perception of China, hence the determination to protect sensitive technologies that could affect Europe’s long-term strategic independence and/or security.

Brussels is also concerned about the issues of reciprocity and access to the Chinese market for European companies. Despite several years of negotiations, there is still no bilateral investment treaty, and European companies have found it increasingly difficult to do business in China. Year after year, the EU Chamber of Commerce in China has expressed its dissatisfaction about the difficulties foreign firms encounter, concerns shared by the American Chamber of Commerce.

Yet there has been no unified EU policy toward BRI. Several EU countries and cities have been particularly receptive to Chinese investors. Others have been more cautious, seeking guarantees from China that it will follow international standards and not pursue exclusively its geostrategic interests. Although the EU was represented by a European Commission VP last week in Beijing, neither the President of the European Council Donald Tusk nor the Commission’s Head Jean-Claude Juncker made the trip. Among member states, the prime ministers of Italy, Spain, Hungary, Greece and the Polish president were in attendance. Other countries – including Germany, the Netherlands and the UK - were represented by their finance or economy minister. France, which has just changed governments after the election of President Emmanuel Macron, sent a former prime minister.

It is fair to say that the BRI represents opportunities for Europe, but it is primarily a Chinese project that will help China to expand its influence in the vast Eurasia region in future decades. It is not clear what level of control China's 'partners' will have. For the past few years, China has demonstrated its ability to divide Europeans by creating new entities such as the 16+1 mechanism, and by encouraging EU members to join the Beijing-run Asian Infrastructure Investment Bank (AIIB). In 2015, the UK broke ranks with other EU members (and the United States) by announcing it was joining the AIIB, forcing others to follow without delay.

Although connectivity is both a Chinese and EU concept, it is easy to understand why certain European leaders are reluctant to give China carte blanche to invest in the continent’s infrastructure. At the end of the day, Europe and China have similar aims: preserving jobs; fuelling economic growth; and maintaining social stability. They may not achieve these goals in the same ways.

Please click to read the full report.

By Richard Ghiasy and Jiayi Zhou - Stockholm International Peace Research Institute (sipri)

Executive summary

This one-year desk and field study has examined the Silk Road Economic Belt (the ‘Belt’) component of China’s Belt and Road Initiative from a security perspective. The report has three components: (a) it has analysed what the Belt essentially is, what has driven China to initiate it, and how it relates to China’s own security interests; (b) it assesses what the Belt’s security implications are and might be in two selected regions of the Eurasian continent (in this report ‘Eurasia’ refers to the combined landmass of Europe and Asia), namely Central and South Asia; and (c) based on the sum of these findings, this study elaborates on whether the Belt is a platform for European Union (EU)–China cooperation on mitigating security threats throughout Eurasia, and provides policy recommendations to the EU on how to proceed. In the context of the report, ‘security’ is defined broadly in relation to intra- and interstate stability: it encompasses human security and developmental conditions.

The Belt is a still-evolving, long-term Chinese vision for Eurasian infrastructural development, connectivity and economic cooperation. There exists a vast vacuum of critical infrastructure in large parts of Eurasia, which many relevant states are not able to fill, even with the aid of existing multilateral development funds. The Belt intends to fill much of this vacuum, and while the political longevity of the initiative and efficacy of its implementation remains to be seen, it has been received with enthusiasm throughout many parts of Eurasia.

In official terms, the Belt is framed as a relatively altruistic offering, based on the principles of mutual benefit and win–win. It sets no a priori limitations on actors, methods or norms, and permits for a great deal of flexibility. In this regard, it has the potential to become a leading model of bilateral and multilateral economic cooperation in Eurasia. However, a number of stakeholders are sceptical of its feasibility, specifically in reference to security challenges throughout Eurasia. There are additional concerns about its geopolitical underpinnings, namely that the initiative is not in fact sufficiently multilateral, and serves to expand China’s strategic political and economic influence among participating states. There is little official Chinese discourse on its political drivers, which contributes to this speculation.

But what is clear is that the Belt is driven by a wide range of motivations, including enhancing China’s domestic economic security by increasing its global economic and, particularly, financial clout, mitigating security threats, and garnering strategic space. Indeed, it has evolved beyond any singular issue to become a convergence and clustering of multiple diplomatic, domestic socioeconomic, financial, geoeconomic and geopolitical interests and drivers, as well as pre-existing governmental overtures and proposals. Whether it is able to successfully further China’s interests in relation to these issues remains to be seen.

Regardless, China’s expanding overseas economic footprint through the Belt will, over the long term, serve as additional impetus for it to take leadership in global governance and regional and local state security affairs. Indeed, the Belt corresponds with China’s increasingly proactive security concepts, which stress common security through development and economic cooperation. The initiative may become one of the cornerstones of Asian economic growth and integration, and eventually of closer political and security cooperation among states, but the pathway to this scenario is long and fraught with obstacles. Without clearly defined targets it is difficult to assess the Belt in terms of success, or failure, over time.

Indeed, China may have overestimated local institutional and economic governance capacity and its own financial and diplomatic clout. It may also have underestimated the breadth of the geopolitical difficulties it may encounter. Political tensions and turmoil within Eurasian states may impact the Belt, but the Belt itself also interacts mutually with these dynamics. Some implications of the Belt on security dynamics in Central and South Asia are as follows.

1. In both Central Asia and South Asia (specifically Pakistan), the Belt could exacerbate governance problems, primarily economic accountability and corruption. It could also potentially help to keep regimes in place that have a poor democratic or developmental track record and exacerbate structural elements of instability. It may, however, stimulate greater stability if the local governments can utilize Belt capital to foster inclusive and sustainable socioeconomic growth.

2. In Central Asia, the Belt could potentially stimulate greater cooperative efforts and political will among states to effectively address underlying regional hazards in the interest of mutual economic benefit.

3. In South Asia, the Belt’s China–Pakistan Economic Corridor (CPEC), has raised political temperatures between India and Pakistan. India strictly opposes CPEC, and while the Belt is not a harbinger of new conflict, it has so far intensified historic competition over influence in South Asia. Furthermore, at this stage, the Belt has little potential to help thaw relations between Pakistan and Afghanistan, but there may be prospects for this over the medium to long term.

4. For now, the Belt does not structurally conflict with Russian security or Eurasian Economic Union (EEU) objectives, whether nationally or in Central Asia. More specific local sources of insecurity in Central and South Asia exist with or without Belt presence. They are not easily resolved on their own accord, and the Belt is, at the very least, an opportunity to begin to address these common challenges.

Indeed, the Belt can provide public goods that could potentially catalyse socioeconomic development in Central and South Asian countries. However, positive developmental spillovers of the Belt will also very much depend on the practical details of implementation: the distribution of spoils and benefits, both between Chinese stakeholders and local states, as well as between the ruling elite in those states and other sections of the population. It will require a more comprehensive commitment to policies that foster human security, rather than only regime- and state-centric security, both by China and, particularly, local actors.

Inevitably, the Belt impacts EU security interests in both Central and South Asia. Greater interconnectivity potentially facilitated by the Belt gives the EU impetus to think more strategically and contribute more proactively to stability outside of its immediate neighbourhood. This, however, requires the EU to develop its own strategic vision for stability and security in Eurasia as a whole, and the role it sees for itself and stakeholders within that picture. Such a vision would be an ideal starting point from which to assess the Belt. At present, bar the EU–China Connectivity Platform, Brussels does not have a common voice and strategic response to the Belt.

At an institutional level, the EU still requires a more comprehensive understanding of the Belt’s strategic implications in their totality before it engages in the Belt in greater measure. This includes understanding all of the Belt’s implications on the EU’s own stated foreign, security and economic interests.

The Belt, as a loose and non-institutionalized framework that proceeds largely through economic projects, is not itself an ideal platform for the EU and China to collaborate on topics of hard security. However, in relation to Belt implementation, this report concludes that there are potential cooperation opportunities within the realm of human security and development.

The EU, in coordination with other relevant stakeholders, could utilize the opportunity presented by the Belt to engage China and pull it closer towards the type of ‘rules-based global order’ most in line with its own interests and values. There is value in EU engagement with China on a range of associated non-traditional and soft security topics, from sustainable development and energy security to regional integration and governance.

However, cooperation in practical terms may be hampered by differences in approaches and political values. While the Belt is largely in line with the EU’s interests in Central and South Asia, implications for the EU’s normative and value-based agenda remain in question. As such, one feasible and relatively apolitical avenue for the EU and China to cooperatively engage with the Belt is through the common framework of the United Nations Sustainable Development Goals (SDGs). Indeed, the Belt is a potential accelerant to the achievement of the SDGs, and both China and the EU view socioeconomic development as being heavily linked to stability and security in the relevant states of Central and South Asia.

More concretely, this report recommends that the EU considers the following.

Over the short term

1. Allocating more human capital at the European External Action Service (EEAS) and other relevant agencies to map and monitor Belt security implications. Building on this, reach out to relevant Chinese authorities to discuss and map the Belt’s short-, medium- and long-term security implications, and how these affect EU foreign and security interests. This can serve as a framework through which unfolding implications can be monitored and assessed.

2. Establishing more robust and frequent in-country dialogues with China at the level of embassies and missions, as well as with other third-party actors such as nongovernmental organizations (NGOs) and organized business, with the minimal goal of greater Belt security information and risk evaluation sharing. This could also be utilized to explore synergies in developmental and soft security programming between the EU and China. Local states and third-party actors could share information, and case studies for best practices in engaging China could be developed.

3. Engaging with China, the UN and other Belt stakeholders through the Global Development Framework and UN Agenda 2030, to maximize benefits to human security, state-societal resilience, and social returns of Belt investment in infrastructure and associated sectors. Outside of UN channels, this could take place through the annual bilateral development dialogues at senior official levels, as established in the EU–China 2020 Agenda for Cooperation.

Over the short to medium term

4. Delineating an EU vision for a more stable and secure Eurasia. This would need to incorporate the EU’s own strategic role in Eurasia, its views on Asian security architecture and its vision for governance vis-à-vis other important stakeholders, including not only the United States and China, but also India and Russia, middle powers, and local actors. This vision would need to include policy suggestions for a more unified and strategic EU approach to security interests in Central Asia and South Asia. This vision could then act as the guideline for all EU endeavours in, and assessment of, other Eurasian security and connectivity proposals, including the Belt.

5. Providing technical and development-security policy assistance for Belt participating states to better utilize and align Belt funding for purposes of sustainable national economic development, human security provision, and local states’ own commitments to the SDGs. This could be done in coordination with Chinese actors. Many Belt-participating states lack the institutional capacity to pursue such agendas effectively, and the EU’s competitive advantages and soft power could translate into much-needed expertise.

6. Taking the lead with key continental Eurasian actors, China, India and Russia, and other relevant actors to set up a joint consultative Belt coordination mechanism. As the Belt’s footprint grows, so will security implications to all these and smaller actors. All interested Belt stakeholders should engage in closer joint analysis, planning and monitoring. This assessment should be comprehensive and include the Belt’s development and integration vision, including routes and trade flows. These are better coordinated in advance so that possible future post-implementation friction is avoided and EU economic security interests are promoted.

7. Tailoring EU developmental programming in relevant states in response to changing economic or business landscapes as shaped by the Belt, for instance, through (a) educational and vocational training programmes in associated technical industries to maximize local job creation and poverty reduction; (b) the use of existing environmental protection programmes to monitor and minimize the ecological footprint of Chinese large-scale investments; or (c) complementary projects in social infrastructure. This could be done in greater coordination with Chinese stakeholders, as well as in conjunction with local civil society, to ex ante minimize any socioeconomically disruptive aspects of Belt projects.

Over the medium term

8. Seeking a role in and/or dialogue mechanism with the Shanghai Cooperation Organization (SCO) and the Conference on Interaction and Confidence-Building Measures in Asia (CICA): it is likely that these bodies will play an increasingly important role with regard to discussions on the Belt’s security dynamics and, in the case of the SCO, of actual security policies and related activities. In addition, the EU could seek greater security dialogue with China through the Organization for Security and Co-operation in Europe (OSCE) or the Asia–Europe Meeting (ASEM).

9. Engaging with China, Afghanistan and other relevant stakeholders on assessing how the Belt, specifically the CPEC component, may be best utilized to contribute to Afghanistan’s fragile security situation. This could be spearheaded through Track 1.5 dialogues. The EU has invested substantially in Afghanistan since 2001 (by any measure): it is therefore only logical that it has a say in regional integration efforts. Chinese and Pakistani interest in developing, connecting and safeguarding CPEC cannot be underestimated and could be utilized strategically to improve Afghanistan’s stability.

10. Exploring longer-term joint investment projects in third countries, and deepening cooperation between relevant Chinese funding institutions, including the Asian Infrastructure Investment Bank (AIIB), and those such as the European Investment Bank (EIB) or European Bank for Reconstruction and Development (EBRD), as well as other relevant banks and developmental agencies, as a means of raising procurement, regulatory, environmental, labour and other investment standards. This could help to (a) mitigate risks that Belt investment could exacerbate poor economic governance in relevant states; (b) minimize any socio-politically disruptive investments; and (c) pave the way for increased EU private sector engagement in these regions.

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