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The Risks of the Belt and Road Initiative in the Construction of the Eurasian Economic Corridor

The Risks of the Belt and Road Initiative in the Construction of the Eurasian Economic Corridor

No. 4, Mar.-Apr. 2017 » UNCOVERstory

The EU/European market has always been fundamental to the development of economy and trade of China. The EU is the No. 1 trading partner of China. With regards to GDP, the EU is the largest economy in the world with the US and China ranking as the second and third largest economies respectively. Needless to say, the cooperation between the EU and China is of great significance to the economic development of China. For this reason, China has committed to pushing forward the construction of the Eurasian Economic Corridor, so as to facilitate the bilateral trade between the two sides.

In the past years, through hard work, China’s risk management on the security of the Corridor has been improved to some extent. Despite that, the “soft” risks are constantly emerging, requiring timely assessment and response. The security risks of the Corridor do not only refer to a series of hard security challenges, but also include some “soft” risks with the focus of operating efficiency, quality and the general environment of global trade, etc. 

Risk One: the potential break-up of the EU 

China has committed to pushing forward the construction of the Eurasian Economic Corridor, so as to facilitate the bilateral trade between the two sides.

Based on the current situation, the European integration and convergence suffers from a lack of momentum and faces increasing risks of regressing. As a significant united market, the EU has been playing a huge role in promoting the connectivity and trade cooperation between China and Europe, and is one of the major engines for the development of European and Asian markets. If the EU, as a united market, splits or disintegrates, the cost of the cooperation between Chinese and European market will rise dramatically, which will be unfavorable to the implementation of the “Belt and Road” Initiative. 

Risk Twopopulism and trade protectionism on the rise in Europe and the US 

In recent years, European populism has rapidly spread, which not only stands for the duel between the European Pro-Establishment Camp and the Anti-Establishment, but also reflects an unprecedented crisis of confidence in European integration and connected areas. Issues such as the European debt crisis, refugee crisis and the Brexit have fueled people’s doubts regarding the Pro-Establishment elites. Common people increasingly do not see the benefits of European integration. Instead, they are subjected to unfair treatment from policies which they perceive as not being in their best interest. As a result, they grow increasingly suspicious of the mainstream parties.

The increasing appeal of populism has made the EU more conservative with less time and power to synergize the cooperation with China, including the “Belt and Road” Initiative. With the change of the US and the EU’s attitude toward globalization, as a phenomenon, as well as the further spread of anti-globalization rhetoric and ideology, trade protectionism is likely to become the biggest risk to the global economy in the near future.

China has been the biggest target of anti-dumping and anti-subsidy investigations from Europe and America in recent years. In the mid-term of 2016, the Ministry of Commerce of China reports that, globally, China had received the most anti-dumping investigations for 21 consecutive years and the most anti-subsidy investigations for a decade. Based on the situation at the beginning of 2017, China remains the main target of the “Double Antis” launched mainly by the US and the EU. This definitely goes against the “Belt and Road” Initiative which advocates openness, inclusiveness, free trade and more efficient globalization. 

Risk Three: the mutual sanctions between Europe and Russia impedes Eurasian inter-connectivity

The “soft” risks are constantly emerging, requiring timely assessment and response.

Russia and CEECs (Central and Eastern European countries) are two critical hinges of Eurasian continent; therefore, the mutual sanctions between Europe and Russia have severely affected the inter-connectivity of trade in Eurasia, and hindered the realization of unimpeded trade through the construction of the “Belt and Road”. For instance, due to the Russia’s sanctions on the EU, the agricultural products imported from Poland cannot be delivered to China by the CHINA RAILWAY Express through the Eurasian Land Bridge. At the macro level, whether the tension between Europe and Russia can be alleviated could have profound impact on the further connectivity of Eurasia and the progress of the construction of the Eurasian Economic Corridor. The newly-elected President of the US, Donald Trump, has repeatedly expressed his intent to alleviate tensions in relations with Russia. In addition, some CEECs also wish the EU to lift the sanctions on Russia as soon as possible. However, the opinions within the EU are divided on this matter. If the mutual sanctions between Russia and the EU remain unresolved in short term, the construction of the “Belt and Road” will have to face the risk of proclaiming that “there are links between Eurasian continent but poor connectivity”.

Risk Four: the Ukraine crisis triggered the geopolitical conflicts of Eurasia 

If the EU, as a united market, splits or disintegrates, the cost of the cooperation between Chinese and European market will rise dramatically.

The influence of the geopolitical confrontation on the connectivity of Eurasia is quite evident as the constant conflicts in the region aggravate the investment environment. Some CEECs including Poland call for China to resolve the geopolitical conflict by exerting policy pressure upon Russia based on its need to promite the “Belt and Road” Initiative[1]. It can be stated as fact that China will not interfere with Russia’s domestic and foreign policies. Apart from that, the Ukraine crisis is by no means accidental, and it would be unfair to point the finger wholly at Russia. After all, the US and the EU’s continuous expansion eastwards and strategic pressure on Russia also gave rise to the crisis. 

Risk Five: the problems of immigration and refugees haunt Europe and the Balkans 

Issues such as the European debt crisis, refugee crisis and the Brexit have fueled people’s doubts regarding the Pro-Establishment elites.

The Balkans play an essential role in the construction of the sea route between China and Europe, but the region is geopolitically sensitive and extremely vulnerable to geopolitical unrest. The relationship between some Balkan countries is problematic and has been exacerbated by the refugee crisis. In addition, some Balkan states lack of economic and social stability. Meanwhile, the Balkan region is a prime target for refugee flows towards Central Europe. Turkey has constantly suffered from violent terrorist attacks, which makes it hard for the EU to rely on Turkey for refugee resistance. The sea route under construction passes many Balkan and CEEC countries including Greece, Serbia, Hungary and Macedonia, and will most probably involve Turkey, which is struggling with terrorism, refugee crises, ethnic group contradictions and domestic political instability. Due to the external threats, the security and stability of the Balkans are in great peril, which will in turn affect the layout and the progress of the “Belt and Road” construction in Eurasia. 

Risk Six: the competition between road transport and sea transport 

The China-Europe Land-Sea Express Passage carries 98% of the total Sino-EU trade and consists of two ocean routes: the first route starts from Asian ports and reaches European ports via South China Sea, the Strait of Malacca, the Indian Ocean, the Red Sea, the Suez Canal, the Mediterranean Sea, the Strait of Gibraltar, the Atlantic Ocean; another route connects Asian ports with European ports through South China Sea, the Indian Ocean, the Cape of Good Hope, the Gulf of Guinea and the Atlantic Ocean. The sea transport has several merits including convenient customs clearance that only requires two transport documents, high loading of containers and low transport cost. The disadvantages of the sea transport are relatively long distances and high transfer times.[2]The road transport including the CHINA RAILWAY Express is more time-efficient than the sea transport, but the price is much higher with a more complicated process of customs clearance, which has made it difficult to scale up and establish economically sustainable two-way trade. 

Risk Seven: the competition between China and Russia on the Eurasian Corridors 

Trade protectionism is likely to become the biggest risk to the global economy in the near future.

Russia is committed to developing the Siberian corridor, which is also called the First Eurasian Land Bridge. China is concentrating on exploiting the Second Eurasian Land Bridge.

The mutual sanctions between Europe and Russia have severely affected the inter-connectivity of trade in Eurasia.

The strength of the First Eurasian Land Bridge are as follows: the freight time is predictable due to the fact that the railway gauge of CIS countries is the same as that of Finland with no need of replacement. Russia, Kazakhstan and Belarus have also formed a customs union to simplify the process of customs clearance. The Second Eurasian Land Bridge, on the other hand, is also advantageous and well-received due to the relatively shorter distances to Central Asian markets, for instance, and the low cost of railway transport.

As a matter of fact, China will not interfere with Russia’s domestic and foreign policies.

Russia has always regarded the exploitation of the First Eurasian Land Bridge as the basic national policy aimed at driving the economic development of the Russian Far East. It not only targets the Second Eurasian Land Bridge as the main competitor, but also adopts various measures to expand the influence of Russian railways in the development of Asia-Europe logistics. Firstly, by making full use of multilateral platforms such as the CIS Railway Transport Commission, Russia actively pushed the CIS countries to use unified railway standards based on Russian gauges in order to monopolize the market of railway equipment in Central Asia. Secondly, Russia established the “Wide Rail Gauge Alliance”. Based on this, Russia joined hands with Kazakhstan and Belarus to set up the united transportation company while taking charge of the Asian part of the Eurasian Railways. Thirdly, Russia proposed to establish a joint venture rail company (Trans-Eurasia Logistics) with China, Germany and Kazakhstan, so as to build the Russia-oriented Eurasian logistic chain of railway container transport. All these actions of Russia have added competitive pressures to the promotion of connectivity of the Second Eurasian Land Bridge by China[3]

Policy Suggestions

Russia has always regarded the exploitation of the First Eurasian Land Bridge as the basic national policy.

To alleviate some of these issues, we must suggest principled solutions to some fundamental and pressing issues, and seriously explore effective countermeasures:

  • The macro issues and micro issues should be wisely handled and properly balanced;
  • Neither plans nor market should be neglected;
  • There should be reasonable competition and effective cooperation between the sea transport and the land transport.
  • China’s competition and collaboration with Russia is the prerequisite for consolidating the China-Russia strategic cooperation;
  • We should embrace risks and challenges with confidence and preparations.

Conclusion

Russia employed various measures to expand the influence of Russian railways in the development of Asia-Europe logistics.

The implementation of the “Belt and Road” in perilous Eurasia is in itself an effective way to spread the core values, the development path and the system of China. Under the circumstance of the global turmoil and the sluggish economic growth, the neo-liberalism is gradually losing to the populism and trade protectionism which are prevailing in the Western world, suggesting that Western countries’ prior appeals to the world by advocating openness and freedom have reversed. In contrast, China is exploring new opportunities for development. With this in mind, we should manage the outside expectations towards the “Belt and Road” Initiative, make China’s ideas and voice heard, and endeavor to gain the upper hand in the competition of two regimes and two ideologies.

 

[1] The speech from the Polish Foreign Minister Witold Waszczykowski at the Chinese Academy of Social Sciences on 25 April, 2016.

[2] Xiao Yang, China Europe Land and Sea Express Passage and the Balkan Nexus of the “Belt and Road” Logistic Network, Journal of Contemporary International Relations, no.8, 2015.

[3] Xiao Yang, China Europe Land and Sea Express Passage and the Balkan Nexus of the “Belt and Road” Logistic Network, Journal of Contemporary International Relations, no.8, 2015.

 
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