The Chinese “Silk Road” – where does it lead?

MEP Laima Andrikienė at the European Parliament in Strasbourg

The Prime Minister’s foreign policy adviser Deidas Matulionis said that the Prime Ministers will discuss the export of Lithuanian food products to China, cooperation in the fields of logistics and transport. The most important message was, that Lithuania and China are planning to sign a memorandum called the Silk Road Agreement. Beijing hopes that the OBOR or Silk Road – Economic Belt Strategy presented in 2013, “will help to revitalize ancient trade routes from Asia to Europe and Africa. This initiative brings together 65 countries with 60 percent of the world’s population and about one third of global gross domestic product (GDP) is created”, according to BNS reports. Relations with China will also be discussed at the Regional Forum of Central and Eastern European Prime Ministers.

It was later announced that Lithuania and China signed a Memorandum of Understanding in Budapest on the cooperation in the framework of the Silk Road strategy.

These are the reports on the facade of the meeting and the goals of the strategy that were addressed to the Lithuanian consumers. But what is really behind this beautiful, even romantic, Silk Road strategy? What are the implications of China‘s policies for Europe and, in particular, for Lithuania? What perspectives does the meeting of Lithuania’s Prime Minister S. Skvernelis with the Chinese Prime Minister in Budapest and the signed bilateral Lithuania-China Memorandum on Cooperation in the context of the Silk Road – Economic Belt and the 21st Century Marine Silk Road Initiative unfold?

2013: The launch of the Silk Road Strategy

Just a couple of years ago, in 2013 already, I indicated that China’s top priority is the Silk Road – Economic Belt or OBOR strategy (One Belt, One Road; Silk Road – Economic Belt). One of the goals of the strategy is to ‘deatlantisize’ the world. Simply put, to undermine the influence of the United States in the world, to curtail the EU–US economic and trade relations.

The timing to launch this strategy was not chosen by chance: the United States and the EU, two of the world’s largest economic powers, have not yet recovered after the enormous damage caused by the economic and financial crisis. Secondly, the EU and US were at the beginning of talks on an unprecedented free trade agreement, the Transatlantic Trade and Investment Partnership (TTIP). The United States and the EU are already the most integrated trading zone in the world and the new agreement should have eliminated almost all existing trade and investment barriers, quotas, customs, and so on. In the event of the entry into force of the Free Trade Agreement (TTIP), rules for EU-US business would become even looser and the safeguards of this market would become more stringent for third countries. The 510 million consumers in the EU market and the 323 million consumers in the US market, whose purchasing power is incomparably higher than most countries or regions in the world, and which, in addition to eliminated trade restrictions has a facilitated investment environment, would undoubtedly be the kind of force that anyone would be hard to compete with.

As a result, both the Chinese and the Russians made every effort to prevent such a EU-US Free Trade Agreement. In the global world, it is far more easier for them to compete with the EU and the US separately. Anti-globalists, who are often fed with Russian and Chinese money, were also opposing this trade agreement. And this year, Russia and China are celebrating a victory: after President D. Trumps election, the negotiations between the EU and the US have been suspended, although there were only small matters left to conclude the negotiations – to put the strawberry on the cake.

The essence of the Silk Road Strategy and Lithuania’s place in it

Although China’s OBOR strategy is presented as a strategy for economic cooperation, its origins are in China’s national security and military headquarters; its true content is the economic expansion into Europe, Asia and Africa, in line with China’s growing political ambitions. This strategy is a combination of conservative militarism and advanced economic globalism.

For the implementation of the strategy in 2013-2014 a number of banks have been founded, including AIIB – Asian Infrastructure Investment Bank with 100 billion USD initial capital, as well as the Silk Road Fund with a capital of 46 billion USD. A considerable part of the AIIB’s “cash register” was deposited by the old European countries, including Germany, the United Kingdom, France and others. Between the founders and shareholders of this bank, apparently we will not find the United States, Japan and Taiwan, all US allies in the region.

Although it seems to somebody in Lithuania that the huge and far-off China doesn’t even have the relatively small Lithuania on their radar – but it is not the case. China has outlined six economic/transport corridors on their map, required to implement the OBOR strategy. It is planned that this “silk belt” will encircle over 60 countries on 3 continents. One of the six corridors, the so-called Eurasian bridge, ends exactly in Klaipėda. Via China’s railways through the countries of Central Asia – Kazakhstan, Kyrgyzstan, Uzbekistan – to Europe, and through Russia – to Klaipėda.

By the way, China’s first Vice Prime Minister, Mr Zhang, who was visiting Lithuania in June 2015, was the highest ranking officer responsible for implementing the OBOR strategy. Not the import of Lithuanian dairy and meat products into China or investment in these industries in Lithuania is of interest to the Chinese authorities. The Klaipėda seaport is of the utmost interest for China, as well as innovative industries and high technologies. Dairy products can only be an addition to the more important goals, although dairy products, especially for nutritional use of infants, are needed in particular in China.

Another Chinese “economic corridor” has been implemented through the port of Piraeus in Greece. In June 2016, the port of Piraeus “fell”: 63 percent of its shares have been acquired by China’s state-owned company Cosco. To put it mildly, it was purchased for the “affordable” price dictated by the critical economic and financial situation in Greece.

There is also an increased Chinese interest in the United Kingdom, where the prices have decreased after the Brexit referendum and it is now relatively cheap to buy what was previously unaffordable. After the UK’s de facto withdrawal from the EU, there may be even more friendship and cooperation between China and the United Kingdom, dictated not by love but out of need.

For several years there is no shortage of visiting delegations from China to Klaipėda. The delegations are mainly interested in the development opportunities and the infrastructure of the seaport, but there is also a particular interest in the Lithuanian railways. In the bigger picture of the OBOR strategy implementation, what has to be recorded is the meeting of Chinese and Lithuanian Prime Ministers, as well as the signing of the Memorandum of Cooperation on the implementation of the Silk Road Strategy.

The conclusion is clear – we need to monitor not only Russia’s moves in our region but also keep an eye on what China is doing in our country. We must realize that we are part of the Chinese strategy and must think about possible consequences, not only economic but also political.

Foreign investment screening in the EU and the China factor

This year, the European Parliament, has started to work on the report on a screening mechanism of foreign investments. Some may ask – foreign investments, what can be wrong with them? After all, foreign investments help to develop production, services and create new jobs.

Of course, people in our country understand it better than in other parts of Europe that foreign investments can also have negative consequences. Lithuania has certain safeguards in its laws to protect strategic objects and sectors from an unwanted intrusion, at the same time playing by the rules of the free market.

We know very well that we are protecting ourselves against unwanted Russian investments. But are those measures sufficient to protect against negative consequences of China’s hostile economic expansion? This should be discussed by the Seimas and the country’s government.

Just think about it – since the 2008 financial crisis China’s investment in the EU has increased by 10 times! It grew from 2 billion euros in 2009 to almost 20 billion euros in 2015. In 2016 only, China’s FDI (Foreign Direct Investment) in the European Union reached an amount of 35 billion euros. Compared with 2015, there was an increase of 77 percent and compared with 2010, the increase is about 1500 percent!!! At the same time, in 2016, EU business investment in China dropped by 25 percent. China is expected to keep this trend in the near future.

China’s growing influence in key European economic sectors, including the high-tech sector, annually increases the influence of Beijing in our continent. Taking advantage of the fact that the EU has focused on fighting Russian aggressive policy and the unprecedented level of Russia’s interference in political life of the EU member states and election campaigns, China may become a very important external force, which in the future will be one of the greatest challenges for Europe’s survival of economic power.

Southern European countries, such as Greece, Portugal, Spain and Italy, have received huge investments from China over the past few years. At present, the amount of the investments is at such a high level, that while discussing the need for a screening mechanism of foreign investment in the Council of the EU, these countries reflect China’s interests and oppose the implementation of such a mechanism.

The largest and most powerful EU Member States – Germany, France and the United Kingdom – are also targets of China’s economic expansion. Compared to 2015, China’s investment in Germany increased by 10 times and reached 11 billion euros per year in 2016. In these countries, China has focused on innovation and high-tech sectors.

Eastern and Central Europe are also China’s targets. On the initiative of Beijing, in 2011 the 16 + 1 format was created for the countries of our region. Lithuanian Prime Minister S. Skvernelis attended this format in Budapest, which was also attended by the Chinese Prime Minister. Until the last meeting, six of our region’s EU member states signed memoranda of cooperation with China – namely Bulgaria, Croatia, Czech Republic, Hungary, Poland and Slovakia. Now, Lithuania also joined this list. Should we be happy about it? Especially when China’s investments in our region have been relatively small so far, and the 16 + 1 format, in particular, has been exploited by China, not for promoting investment in the region, but for separating and confronting the EU Member States. At the beginning of the implementation of the OBOR strategy, China has targeted primarily the strong EU countries, but the turning point will come. The preparation for it is in the pipeline.

How will the European Union react?

The European Union tried to fight back. One of its instruments is the legitimation of the screening mechanism for foreign investments. If due to the contradictions of countries that are already in China’s pockets, we fail to do so at EU level, we need to implement necessary safeguards on the national level, in our case, on the Lithuanian level.

The initiator of the screening mechanism is Germany. It has already experienced persistent Chinese penetration into the high-tech sector, often into the companies that are involved in the state’s defense and security sector, as well as into the innovation sector, which is particularly important for the state’s progress and competitiveness. By the way, some Lithuanian entrepreneurs, who work in the field of innovation and high technologies, have told me about their experiences a few years ago and their unexpected encounters with Chinese “visitors” who somehow got inside a company and can’t (?) even explain what they are doing at the factory.

Another defense tool is to push down China at international level as a country violating the rules of international treaties. China is a member of the World Trade Organization (WTO), but has not yet been granted the status of a market economy. In other words, China is often playing according to different rules or completely without rules, and we Europeans are forced to obey the rules, if not – we are punished.

The third instrument of defense is the EU-U.S. Free Trade Agreement (TTIP), which was already mentioned. It has been suspended by U.S. President, D. Trump, to the joy of China and Russia. However, the EU must try to renew and conclude the negotiations.

Dr. Laima Andrikienė is a Member of the European Parliament (2004-2009, 2009-2014 and since 2016), Member of the Committees on International Trade Committee (INTA), Foreign Affairs (AFET) and Subcommittee on Security and Defence (SEDE); 1st Vice Chair of the European Parliament Delegation for relations with the countries of Central Asia (Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan and Mongolia). In the European Parliament she is a Member of the European People’s Party (EPP) Group, Member of the Bureau of the EPP Group, Head of the Lithuanian delegation in the Group. Ms Andrikienė is a former member of the Lithuanian Parliament (1990-2000), Signatory of the Act of the Restoration of the Statehood of Lithuania (1990).

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