One Belt-One Road. Geopolitical threat or Chance?

By Elisabeth Hellenbroich

On July 9^th, 2018 German Chancellor Angela Merkel received Chinese Prime Minister Li Keqiang who arrived with a large delegation to Berlin for the fifth German-Chinese government consultations. Almost half of Merkel’s Cabinet was present and several agreements were signed – including special efforts to cooperate in the agrarian sector, education and university sector, as well as in innovation and climate research. Both Li Keqiang and German Chancellor Merkel rejected President Trump’s punitive tariffs policy and emphasized the need for a “rule based, multilateral trade system”. Only in “harmony business can flourish”, Li said while Merkel warned that if punitive tariffs were raised between America and China, this also would hit German business. Therefore the multilateral system was so important. “We are interested in a non-problematic trade.” She pointed to the opening of the Chinese financial market and the loosening of restraints concerning the investment of foreign firms in China. As an example she mentioned the planned engagement of the German chemical Company BASF in China. The Chemical Giant BASF wants to profit from the more relaxed Chinese “economic specifications.” BASF chairman Martin Brudermüller signed a declaration of intent with the Governor of the Province Guangdong Li Shaochhun, which aims at the construction of a second BASF production facility that would involve 10 Billion US Dollars till 2030. For the first time BASF, which employs all in all 20.000 employees in China, would invest without a Chinese joint venture partner.

Furthermore in the federal state of Thuringia the Chinese company CATL (Contemporary Amperex Technology) is going to produce electro batteries for automobiles. It’s the German automobile company BMW that wants to get cells from the Chinese battery cell company CATL. The Chinese will invest 240 Million Euro and the facility will involve 600 more working places. Production will start 2021 and could involve 280.000 cars per annum. The German company Siemens in a partnership with Alibaba Cloud is getting access to the industrial Internet of Things (IoT). With Alibaba Cloud, Cloud Computing –a domain of the Chinese online trader -they signed a declaration of intent to bring the “Mindsphere Platform” to China. They also want cooperation with the Chinese Energy supplier SPIC (State Power Investment Corporation), in order to produce gas turbines. The Germans give the technology so that the SPIC can produce Turbines (F- Turbine).

EU – China Summit

Following the 5^th German- Chinese Economic consultations, on July 16th the 20^th EU- China summit took place in Beijing chaired by Li Keqiang of the State Council of the Peoples’ Republic of China, Donald Tusk from the European Council and Jean Claude Juncker President from the European Commission. Paragraph (1) of the fairly long joint declaration stated that: “On the occasion of this 20^th EU China summit, the two sides celebrated the 15^th anniversary of the EU- China Comprehensive Strategic Partnership. This has greatly enhanced the level of EU- China relations, with fruitful outcomes achieved in politics, economic, trade, culture, people to people exchanges and other fields. The leaders reaffirmed their commitment to deepening their partnership for peace, growth, reform and civilization, based on the principles of mutual respect, truth, equality and mutual benefit, by comprehensively implementing the EU China 2020 Strategic Agenda for Cooperation.” Both sides supported efforts to find peaceful solution concerning the question of the Korean Peninsula and recalled that the Joint Comprehensive Plan of Action (JCPOA) in respect to Iran as well as efforts for building peace in Syria were important for the future. They furthermore announced cooperation in the fields of security and defence policy and expressed their commitment for international peacekeeping and promote High level Economic and Trade dialogue. “The EU took note”, it says in paragraph (9) “of China’s recent commitments to improving market access and the investment environment, strengthening intellectual property rights and expanding imports and looks forward to their full implementation as well as further measures.” In paragraph (10) it was underlined that “the two sides will continue to forge synergies between China’s Belt- and- Road initiative and the EU initiatives, including the EU Investment Plan and extend the European Transport Networks, and to promote cooperation in hardware and software connectivity through interoperable maritime, land and air transport, energy and digital networks. The two sides stressed that this cooperation should improve the economic, social, fiscal financial and environmental sustainability of Europe-Asia connectivity. Such cooperation should abide by the shared principles of market rules, transparency, open procurement and a level playing field for all investors, and comply with established international norms and standards, respective international obligations, as well as the law of the countries benefitting from the projects, while taking into account their policies and individual situations.”

The critical bottleneck in cooperation

Yet despite this outstanding declaration of intent there was some reaction- formation during the last two weeks coming in particular from the German Economics Ministry under Minister Peter Altmaier. It is still unclear what prompted the harsh reaction from the side of the German Government that has blocked for the time being the purchase of the Ahlen (North Rhine Westphalia) based medium size machine tool company “Leifeld Metal Spinning” by the Chinese Investor Group Yantai Taihai. For the first time, as the Frankfurter Allgemeine Zeitung (FAZ) noted end of July, the German Government intervened to stop a technology transfer to China, since its regarded as sensitive sector. The government also blocked the sale of a 20% share of the German electricity grid operator “50 Hertz” to a Chinese investor – selling it instead to the German state banking company KFW. The “50 Hertz” company belongs with 50% to the Belgian company “Elia”, 20% belong to an Australian fund that wanted to sell its shares. The German KFW Banking Group ,after it was announced that the Chinese Company SGCC (State Grid Corporation of China) had offered one Billion Euro for the purchase of 20% share of “50 Hertz” which supplies 198 Mio citizens with electricity, purchased 20% of the shares.

Legally the government can impede the sales of a company to Chinese investors if they see a danger for “Security and public order”. There is obviously a lot of open questions including the question what has happened between Mid-July and End of July, the period in which President Trump attended the NATO summit and went to Helsinki to meet President Putin.

One Road, One Belt

What is at stake in geopolitical and economic terms is made clear by the study of the recently newly published book “China’s new Silk road. Cooperation instead of isolation. The change of roles in world trade”. (The book was published by Frankfurter Allgemeine Buch and its authors include Wolf Hartmann, Wolfgang Maennig and Run Wang.) Aside giving a detailed account about the size of those projects that have already been initiated by China, the book makes clear that indeed Chinas fast-paced growth will determine the prospects of the World Economy and that it would be better if the EU as well as other countries around the globe would cooperate in this future project and not remain impotent on the sidelines. China is not the country that dumps cheap products and labor on the markets but it is one of the fastest growing economies. The plans of the Chinese government and its five year plan till 2020 envisions the restructuration of 111 central state companies and 150.000 state enterprises on a regional and local level. Additionally China has developed with Russia a model of cooperation which is mutually beneficial. A central element in China’s new orientation, the book shows, is its “vision to revive the old Silk Road” which President Xi Jinping October 2013 in Kazakhstan presented as the “OBOR” One Belt, One Road Initiative, the history of which dates back to the 2^nd century B.C.

The idea of a new silk road in the tradition of the old “wants to connect the two continents Asia and Europe in a modern way”, the book states. This means “modern roads, rail networks, highways, shipping lines, harbors, airports, industrial corridors, energy networks and communications networks”, but it also promotes the peaceful competition among the participants as well as cultural cooperation. The book reports that the leadership in Beijing wants closer economic cooperation with its neighbors, stretching out also to Africa, the Middle East, which also goes together with the desire to secure important oil, gas and other raw materials. In Mid May 2017 China hosted a huge “Belt and Road Forum for International Cooperation” in Beijing. According to “The Diplomat” 29 heads of state participated with President Xi Jinping, President Putin as well as with UN General Secretary Antonio Guterres, the President of the World Bank, Jim Yong Kim and with IMF chairwoman Christine Lagarde. More than 1500 participants from 150 countries were there.

Development Corridors

The “One Belt – One Road” (OBOR) initiative according to the authors, is a strong part of China’s policy. A look at Chinas financial policy initiative is also impressive. China has not only chosen Frankfurt as international center for the “Renminbi” but it has in the meantime founded the AIIB (Asian Infrastructure Investment Bank”) which aside the Asia Development Bank as well as the BRICS Development Bank, is significant for the financing of future OBOR megaprojects. The “Asian Infrastructure Investment Bank” was founded on 29th June 2015 in Beijing, it involves 57 participants: Key European participants- to the total dismay of the US which rejected it- include France, Italy, Germany et al. Since its start 2016 the AIIB has prompted more than a dozen megaprojects. Among those projects which also give an idea about the dimension of OBOR, the book outlines 5 land corridors:

China-Mongolia-Russia; China-Central and West-Asia; China and the Indochina Peninsula; China- Pakistan; Bangladesh-China-India, Myanmar and the new Eurasian land bridge.

The “corridors” are based on the modernization and new investments in rail networks and highways as well as roads. An example is the China-Mongolia-Russia corridor – a 50 Billion US Dollar project involving 997 km Rapid Highway between China and Russia; a 1.100 km long electrified rail line; the pan- Mongolian rail network should be modernized and in addition new oil and gas pipelines should be constructed. Aside Russia and Mongolia the following countries should be integrated in the future:

*Five Central Asian states: Kazakhstan, Kirgizia, Tajikistan, Turkmenistan and Uzbekistan.

* Furthermore six countries from the Commonwealth of Independent States (CIS): Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine; 16 Eastern and Central European states (Albania, Bosnia and Hercegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Rumania, Serbia, Slovakia and Slovenia.

*Also 16 Middle East and North African States: Bahrein, Egypt, Iran, Israel, Lebanon, Jordanian, Kuwait, Oman, Palestine, Qatar, Saudi-Arabia, Syria, Turkey , United Arab Emirates and Yemen.

* Eight Asian states: Afghanistan, Bhutan, Bangladesh, India, Maldives, Nepal, Pakistan, Sri Lanka;

* Eleven South Asian States: Brunei, Cambodia, East Timor, Indonesia, Laos, Malaysia, Myanmar, Singapore, Philippines, Thailand, Vietnam, Laos Malaysia.

* China has a special focus on the 16 +1 Eastern European states.

Aside the fact that since 2012 there are trains regularly going from the Chinese Chongqing to Duisburg within 12 days (!) it is clear that an enormous amount of capital is needed to realize all these initiatives. One should keep in mind that China has invested in Latin America (in Venezuela 46 Billion Dollar paying their oil delivery debts); 45 Billion US dollars in Pakistan (deep sea water port Gwadar); it has taken over the majority of the Greek harbor Piraeus (trying to help Greece during the debt crisis); it has part of the Rotterdam Euromax terminal; all in all 46 container terminals are in Chinese hands. As impressive as these future projects are, the conclusion to draw is that it makes no sense economically to block for economic reasons such future perspective. Rather there should be – aside paying careful attention to China’s increasing problematic domestic developments (for instance the so-called “social credit system”) – more initiatives coming from the EU, from Asia, the Mideast, Latin America and Africa that in the future will contribute to a mindful cooperation in the One Belt, One Road initiative.