The EU Silk Road - Making Sense Of Mixed Political Signals Between London, Rotterdam, Duisburg & Berlin

Op/Ed by Chris Devonshire-Ellis

The initial portion of the route our New Silk Road Project members are taking sees us effectively cross from Western to Eastern Europe, scraping Russian influence from the Soviet Union days as they finish this leg in Berlin. 

Yet China's commercial interests run deep and not without controversy along this part of the journey. Barking, in appropriately enough east London, was the end point for last years initial Yiwu Express trainbringing, according to the somewhat hapless, yet admirably exuberant Barking and Dagenham Council, "A sign of Barking and Dagenham being at the epicenter of the capital’s eastward shift. You could say it’s the rising east meets the Far East.”  Chinese officials in Yiwu must have been sure to place Dagenham on their tourist maps after that accolade. 

Britain though has a curious, warm/cold relationship with China. "Yes!  We'd love London to be a Beijing recognised RMB settlement and clearing centre!" but no, we're not going to sign an MoU supporting China's Belt & Road ambitions. It's a policy of mixed signals, and having seen a draft MoU there's nothing that seems untoward or scary about agreeing to "areas, modes and mechanics" of cooperation.  But then again, as London is so good at doing, and as the latest hand-wringing at Russian investment into the UK has adequately demonstrated "We'll take the money first and get outraged about it later".  

Moving further into the EU also demonstrates these mixed signals. As our team will establish when arriving in Rotterdam, the Chengdu-Tilburg-Rotterdam-Express is in full operation with five trains a week scheduled to be operational from now two years ago. Yet the EU generally has been rather cool on the Belt Road idea as wellTrains ok, but endorsing it? Meh. 

China has upset some of the mandarins in nearby Brussels by co-opting both the Balkans States and several of the Eastern EU members into quasi trade cooperation partnerships,  such as the Co-Operation Between China and Central and Eastern European Countries (CEEC)   and - shock, horror - getting involved in providing finance and infrastructure development on EU territory. There has been muttering of dark thoughts, suspicions of improper tender processes and complaints that Chinese contractors are winning contracts because of Chinese state subsidies. 

Thus far, two, rather distinct projects have come under scrutiny, the Budapest-Belgrade rail link, to be financed and built by China, yet involving a non-EU nation in Serbia,and the EU funded, Peljesac Bridge in Croatia, recently awarded to a Chinese contractor. 

Brussels insisted, and rightly so albeit somewhat heavy handedly, that bid protocols followed EU guidelines for the Budapest project, even though half of the tender was outside the EU borders. This delayed the bidding and upset the main EU beneficiary, being Hungary. It is part of the source of friction between Budapest, Brussels and Beijing even now, especially as the project is not EU, yet Chinese  funded. For the Croatia bid, which is EU funded, sulky murmurings emanated from EU contractors from Austria and an Italian-Turkish bid who cried foul when a Chinese contractor won the contest. Accusing the winning bid, by the China Road & Bridge Corporation, of beating them off by being a Chinese SOE and therefore subsidized unfairly by the state (in contravention of EU regulations), the losing bids failed to mention that the Chinese contractors are a listed company in Hong Kong, audited by Ernst & Young and are part of a parent whose annual profits amount to US$400 million a year. There is an apparent opinion within corporate EU that EU taxpayers money, regardless of cost, should be spent only on EU contractors. But what EU taxpayers really want - is a damn good bridge at the best price. Another EU disconnect our travellers will do well to explore.    

In fact it should not go unnoticed that all of the EU's member nations Ambassadors to China - with the sole exception of the previously mentioned Hungarians - apparently recently signed a letter dismissing the Belt & Road and warning of its shortcomings. The EU, for all of its wonderful infrastructure, roads, rail and ports, may yet prove the most difficult leg of this journey, in the political sense, for acceptance of the new silk road routes.    

Heading for Duisburg, our team should note that 25 China trains now pass through the city every week, just slightly more than Berlin, their next stop. Duisburg has become almost revitalised as a city of the new silk road. "Chinese transit has helped Duisport make the switch from an inland dispatch center for local trade to a “continental consolidation and distribution hub for Central and Eastern Europe,” says Jacopo Maria Pepe of the German Council on Foreign Relations." And again: “Since China’s President Xi Jinping visited Duisburg [in 2014], we have seen an increase in the number of Chinese companies settling here,” Ralf Meurer, managing director at consultancy GFW Duisburg, said at an October 2017 conference on Chinese investment in the Ruhr region.

Again, these are mixed signals. Germany is the largest member of the EU, which complains about China's Belt & Road intentions. Yet talking to the people on the ground, a different story emerges.  

It remains to be seen if the EU's lack of enthusiasm will cost it trade dollars in the longer term. China has been negotiating a free trade agreement with the EU,with little sign of any breakthrough, since 2012. Meanwhile, China has agreed a free trade agreement with the Russian backed Eurasian Economic Union. That effectively brings Chinese products, duty free, to the borders of the EU at both Poland, the Baltic States, and later possibly via Moldova. As a result of this, and the EU sanctions upon Russia, the China-Russia trade space is now growing faster than China's trade with EU nations. Russia is a major transshipment route for China, and competes with the European routes for traffic. Moscow meanwhile is rather more pro Belt & Road than the EU is and is, along with India and China, the top three largest shareholder in Beijing's Asian Infrastructure Investment Bank. 

Yet while Brussels worries about rules and regulations, and its corporates worry about cheaper and more competitive Chinese contractors, it is possible the EU may be missing a couple of points. Firstly, that the Chinese trains go both ways. China has 600 million online consumers today and intends to increase that to 1.2 billion by 2020. Yet there appears little knowledge about how EU companies can establish online trading platforms to sell to the Chinese and use those returning trains to do so. There is an opportunity for Europe that is largely being ignored.

Secondly, there is an EU preoccupation with building the infrastructure, and not enough on us on exploiting it. While EU contractors want to see EU public funds go into their pockets, and are lobbying hard and squealing - the real opportunity lies not in the project value but in how new infrastructure can be exploited. Entire new, sustainable industries can be built up using new roads, bridges, rail and ports. No-one cares who builds them, as long as they are useful. More concentration on exploiting the infrastructure builds and working out how best to maximise their potential would be a good place for the EU to recalibrate its New Silk Road attitudes. 

Meanwhile, our intrepid adventurers have many kilometers to cover. Yet making sense of the differing opinions coming out of their initial European leg maybe, upfront, their single most difficult challenge along the entire route.   

Chris Devonshire-Ellis is an advisor to the New Silk Road Project and will be providing commentary on the political and trade aspects of China's Belt & Road Initiative as the team members move along their journey. Contact him at silkroad@dezshira.com or visit www.silkroadbriefing.com