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Romania and the Belt and Road Initiative

Romania and the Belt and Road Initiative

No. 3, Jan.-Feb. 2017 » DiploMATTERS

Historically, Romanian territories have been frequently a key to the geopolitical ambitions of the rising players on the international arena due to their strategic geographic position, Romania being located at a crossroads between the East and West, between the CIS, Middle East and Western spheres of influence, on the Danube and the Black Sea’s shores, rich in natural resources and with one of the highest degrees of energy independence in Europe. Nowadays, an additional advantage comes from its human resources, its educated class standing out in essential niches like various branches of the IT sector.

Today, Romania is an independent country still recovering after the transition from communism with a proven thirst to build its reputation as a regional leader, its profile ensuring a natural influence in the key energy sector. An important incentive for Romania’s interest in improving its relations with neighboring countries and taking part in international development projects that would ensure its economic prosperity is its desire to increase its impact on EU policy making. And the surest way to achieve that is by becoming a pivotal hub in the frontline of the new global trade initiatives and infrastructures.

In 2014 in Bucharest, George Friedman pictured Romania as the only anchor of stability on the Black Sea’s coast in the context of the rise of Russia’s influence in the Balkans and other Eastern states and Turkey’s political turmoil.

In his 2014 intervention at the Bucharest Forum, George Friedman, President and founder of Stratfor Global Intelligence, pictured Romania as the only anchor of stability on the Black Sea’s coast in the context of the rise of Russia’s influence in the Balkans and other Eastern states and Turkey’s political turmoil. Thus, its strategic position will be a key in shaping Romania’s potential as a gateway to the EU for the various branches of China’s Belt and Road Initiative. 

The Dancing Dragon’s European bid 

As China’s ambitions grow on the international arena to support its doctrine of a “peaceful rise”, the methods used to ensure that the global trade decline slows down will have to become more and more sophisticated to counter the current wave of skepticism and fence-building. The globalized dream, though not forgotten, is not attainable so long as the world’s battle with non-state actors employing terrorism is intensifying daily and the rise of artificial intelligence is threatening the jobs of millions of people worldwide. While we could definitely assert that all nations will need to maintain a healthy level of trade to sustain their prosperity, we must also take into account that the circumstances we are facing today both in the developed countries, as well as the emerging ones, make open borders impossible. Moreover, in the face of the refugee crisis, terrorist attacks, rise of inflation and general political instability caused by citizen’s unrest and demands for change, China, as well as other powers aiming to promote their interests on new markets, will need to find safe paths that can be negotiated diplomatically without costing politicians the popular vote, thus ensuring the long term viability of favorable policies by averting the prospect of losing power to populist Nationalist leaders.

China’s wisest move, strategically, has been to brand its complex revival of the legendary Silk Road route as a strictly commercial plan that does not impose any structure on its participants and leaves significant space for political maneuvers.

Perhaps China’s wisest move, strategically, has been to brand its complex revival of the legendary Silk Road route as a strictly commercial plan that does not impose any structure on its participants and leaves significant space for political maneuvers. China, of course, would have no interest in playing any morality cards that could open the doors for political pressures on its own government. Regardless of the occasional demands of realpolitik, China’s leadership subscribes to a historically motivated vision of sovereignty and non-interference in internal affairs. Instead, it has all the interest to replace the gaps left by the retreat of President Trump’s United States from the networks engineered by previous American administrations in South-East Asia, for instance.

China’s most ambitious development plan could expand its global influence into areas traditionally dominated by the Americans. However, the costs and risks inherent in building up an interconnected web of railways, sea ports, highways will take their toll on the Chinese economy, as banks (including international financial constructions like the AIIB) have warned of the risk posed by lending billions of dollars to emerging markets without adequate prudential standards and monitoring capacities that entities like the World Bank possess. As proven by Venezuela recently, the vagaries of economic life are enhanced by sustained bad policies and a failure of safety nets, making waves in the national economy.

China needs the New Silk Road, as well as its Maritime Belt and their various planned branches, to ensure the sustainability of its continuous growth, as well as the structural reform of its economy.

Furthermore, China needs the New Silk Road, as well as its Maritime Belt and their various planned branches, to ensure the sustainability of its continuous growth, as well as the structural reform of its economy. Of course, not all cards are trump cards, as the Chinese have realized long ago. In gambling on a project like the Belt and Road Initiative, the most important aspect to keep in mind is ensuring that the routes built up through emerging and sometimes opaque territories, such as Central Asia, to lower transport time and capitalize on the natural resources of these regions, are balanced by safer bets. The most prosperous and stable region to which China could hitch its future growth is Europe, more specifically, the European Union, which is already China’s largest trade partner. Creating the infrastructure to support a high volume trade might look threatening to the EU’s own market players, so the best way of materializing the project is to play the increase of efficiency and competitiveness card and enter the market through its Eastern flank, where the members are still developing and are eager for investments. Unlike the more saturated markets in the West, with high deficits and their growing reluctance towards Chinese investment, or Germany’s single handed domination of European trade to China, the East has received comparatively little attention from Chinese investors and traders.

An interesting side effect of this trend has been the silent competition between the Eastern members to attract more of the inbound Chinese foreign direct investments and place themselves at an advantageous position for the new development gamble.

Thus, the 16+1 initiative was born. The initiative, aimed at increasing cooperation between China and Central and Eastern European countries, could also prove to be another path to the EU market, bypassing the skepticism of the more powerful players such as Germany or France. Such investments are justified by the expressed interest of CEE countries to take part in the Belt and Road Initiative and ensure their own stepping stones towards a greater voice in the region and in the EU. An interesting side effect of this trend has been the silent competition between the Eastern members to attract more of the inbound Chinese foreign direct investment and place themselves in an advantageous position for the new development gamble. Though less developed than its western counterparts, the Eastern side is exhibiting the ideal premises for the potential expansion of the Chinese sphere of economic influence, as new markets that could benefit the BRI in a critical way.

Romania is one of the countries competing for such attention, its main selling points being its strategic position, its natural resources and energy potential, the largest Black Sea container port, Constanţa, the potential of the Danube, which is the current focus of the European Commission’s Danube Macro-region Strategy and the easy access for the transport of Chinese goods to the rest of Europe. Of course, Romania eyes the potential of having Chinese companies pick it to produce goods that bear the “made in Europe” brand, bypassing EU protectionism. 

A Romanian-Chinese friendship

68 years after the establishment of the first official diplomatic tie between Romania and China, we note the clear tendency of the two countries to increase collaboration both on a diplomatic level, through a series of official visits of high ranking diplomats and government figures, as well as on an economic level, through increased bilateral trade and welcoming greenfield and brownfield investments in the country.

As for the 16+1, the initiative and the Danube Strategy have 12 countries in common (7 EU Member States), which is indicative of the potential synergies.

The two countries have set in place a bilateral agreement to enhance mutual cooperation in a series of areas, mainly in trade. Romania sees in China its largest commercial partner in Asia and the key to becoming a significant force on the Eastern geopolitical arena by positioning itself as a strategic point on the New Silk Road and attracting funds to develop its infrastructure in order to increase its competitiveness, while forging closer ties with other countries that would link the trade routes from Beijing, through Central Asia and all the way to the European Union. Moreover, Romanian officials have expressed an interest in linking the Belt and Road Initiative to the EU Strategy for the Danube region, which also focuses on regional mobility and infrastructure, thus developing a trade corridor from the Black Sea into the heart of Europe, shortening the maritime route for transporting Chinese goods to Western Europe. As for the 16+1, the initiative and the Danube Strategy have 12 countries in common (7 EU Member States), which is indicative of the potential synergies. At the same time, China sees in Romania a convenient and likely successful bid to enter the EU markets on more favorable conditions. Also, China has expressed interest in acquiring high quality products made in Romania, from agricultural products to the machinery that currently dominates exports.

In addition, Romania further signaled its commitment to participating in China’s global trade development strategies with the official declaration made by Dacian Cioloş in 2016, officially affirming the country’s desire to become a member of the Asian Infrastructure Investment Bank (AIIB). The episode also showed the fits and starts of enhancing Romania’s cooperation with China, since the government had previously declined to be a founding member of the AIIB. In Eastern Europe, only Poland became a founding member, to be quickly followed by a stampede of CEE interest, when it was seen that Western injunctions against AIIB membership carried no further consequences. Romania’s hosting of the 16+1 Summit of Heads of Government in 2013 also underscored national interest in further cooperation, with the Bucharest Guidelines serving as an important document of reference for an initiative that has very few such documents or coordinating institutions in order to avoid political complications. During that period, under the Ponta Government, a flurry of official contacts and activities started, contrasting with the previous period, and continues to this day. For instance, there were three Prime Ministerial visits over a course of just two years, surpassing the previous 20 years.

According to Romania’s former Ambassador to China, H.E. Doru Costea, currently there is a significant interest from the Chinese side to invest in key sectors of Romania, interest consolidated by the cooperation protocol adopted by the Department for Infrastructure and Foreign Investment and China Development Bank in 2013, in order to provide the support and infrastructure necessary to further increase the commercial links between the two countries. The main projects being promoted focus on energy and infrastructure, such as the investments in the Rovinari power plant and construction by China Huadian Engineering Company of the Craiova-Piteşti highway, but also building new factories for high quality auto parts. Furthermore, China General Nuclear Power expressed direct interest in investing in the nuclear power plant from Cernavodă by pledging over 7 billion dollars in its expansion, which would be a beachhead for Chinese nuclear technology exports into EU and NATO countries, where Western companies dominate and Russia itself is attempting inroads. 

Romania’s energy initiatives

In trying to maximize Romania’s potential within the Belt and Road Initiative and shape its role as a regional player in the energy sector, the country is host to a number of initiatives that are aiming to create new communication and policymaking platforms by bringing government and private sector leaders at the same roundtable.

A notable initiative in this sense is the Aspen Institute Romania’s Energy, Security and Economy platform, which includes the Aspen Energy Lab project, a stepping stone towards forming a trans-regional energy platform whose purpose is to increase cooperation between Eastern and South-Eastern European countries and the other riparian countries on the Caspian, Adriatic and Black Sea in the energy sector. Using the EU’s energy strategy as a basis, this platform will accelerate the development of the energy market by seating together policy makers and business leaders in an effort to identify current issues with the existing infrastructure and find the best solutions to increase the efficiency of the trade routes that are not presently being exploited at full potential.

Romania Gateway focuses on capitalizing on the strengths that Romania’s position on several East-West and South-North trade routes brings to the EU in the context of the rising need for interconnection with the Eurasian landmass.

Furthermore, perhaps the most intriguing project developed in Romania is Romania Gateway, an Aspen venture with the support of the Romanian Government and the World Bank with the goal of tuning into the country’s leadership and influence potential in order to shape it as a new regional commercial, industrial and energy hub and stimulate economic growth and prosperity. Romania Gateway focuses on capitalizing on the strengths that Romania’s position on several East-West and South-North trade routes brings to the EU in the context of the rising need for interconnection with the Eurasian landmass, as well as the convenient access which increases the competitiveness of all the agents that will use the Belt and Road routes. 

Romania’s next steps in expanding its sphere of influence

The Bucharest Forum 2015, a flagship event jointly organized by the Aspen Institute Romania with the German Marshall Fund of the United States with government support, on the same model as GMF’s Brussels Forum, was focused on energy and brought together political leaders, prominent analysts and business leaders that identified the potential and issues to be solved with the proposed new trans-regional interconnections. Such proposals included the investments in infrastructure necessary for the development of the proposed projects, the methods of increasing energy efficiency, scenario analysis for the global energy and trade market. The conclusions of the event are still relevant today – the interventions of most business representatives of energy companies, such as Mrs. Mariana Gheorghe’s, the CEO of OMV Petrom, one of the main players on the Romanian market, focused on the essential need of building an adequate land infrastructure to support the development of the Constanţa port. The overarching objective is to reduce the transport time of the goods transiting through Romanian territory, which should be the number one priority for the country.

If Romania is truly committed to consolidating its influence in the region, it will need to shape itself in such a way that brings added value for investors which the neighbor states cannot bring. While it is a country already rich in natural resources, with a natural potential to lead Eastern Europe’s energy sector, Romania has fallen behind on its structural development, due to corruption and poor organization.

What the Romanian government ought to focus on urgently is speeding up the development of a complex highway system to attract new investors, interested by the sea access and rapid transit to the rest of Europe. Secondly, for the same reasons, including cost, it must support the modernization of the railway system. The Chinese have already identified some of these issues, as part of trying to match their excess infrastructure building capacity with needs in the region, and have expressed interest in financing and building projects such as a high-speed railway system between Bucharest-Iaşi-Chişinău. Currently, the main Chinese infrastructure project underway in the 16+1 space (to which Greece and its Piraeus port does not belong) is the Belgrade-Budapest railway. Thirdly, Romania must ensure political stability and a clearly defined and advantageous foreign investment, trade and fiscal legislation to minimize the unnecessary risks and uncertainties faced by the investors. Romania must also capitalize on the Danube’s potential for Romania’s trading capacities by developing its ports and making navigation possible throughout the entire year, while also building new connectors across the Danube, within the country and with Bulgaria. Described by the EU Commission coordinator for the Rhine-Danube Corridor, Karla Pejis, as Romania’s direct highway to Western Europe, the Danube and its easy access to the Black Sea port of Constanţa through the Black Sea-Danube Channel could be Romania’s greatest asset within the Belt and Road. Moreover, by improving the cooperation with Central Asia and the countries in the Balkans, the Romanians can ensure their participation in all the major development projects in the region and consolidate their regional position and their key role on the energy market. 

In conclusion 

Romania’s current status makes it an ideal candidate for foreign investment that could shape its infrastructure efficiently, according to the needs and demands of modern trade. Its openness and expressed interest in global development projects such as the Belt and Road Initiative show a commitment to a long-term strategic thinking and its role as an EU and NATO member bring the advantage of a stable and secure country. Furthermore, Romania’s natural resources, strategic position and good diplomatic ties with countries from key regions such as Central Asia highlight its potential on the regional energy and trade routes and markets and its distinct potential for assuming a greater regional profile. 

 

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OEconomica No. 1, 2016