One Belt One Road Initiative The New Development

One Belt One Road Initiative The New Development for China’s International Economic Cooperation and it’s impact on China EU Relations BRICs International Seminar Fudan University, Shanghai 1 April 20 -21, 2016 Xavier RICHET University Sorbonne Nouvelle, Paris E-mail: xrichet@gmail. com Wei WANG IWEP, Chinese Academy of Social Sciences (CASS) E-mail: ww@cass. org. cn

2 Main Points of the Presentation Presenting the OBOR Iniitative Interpreting the initiative, assessing the risks OBOR and Europe The Balkans: A Southern Entry?

3 One Belt One Road

4 OBOR : From Past to the Future Origins: Two eyes of China toward the outside World Ancient Silk Road: The ancient transcontinental trade from Han Dynasty (200 BC) and named by German geographer Ferdinand von Richthofen, 1833— 1905. 1. Route: (see the chart P 2) 2. Comedies: Output: silk, jades, tea, china, traditional medicines…… Input: perfumes, medicines, fruits, vegetables…… 3. Exchanges of culture, religion and politics

5 OBOR : From Past to the Future Ancient Maritime Silk Road: The ancient shipping route also from Han Dynasty (200 BC) with significant seven trips in Ming dynasty, the fifteenth century. 1. Route: (see the chart P 2) 2. Task: mainly to show the prestige and ambition of China. Many gifts, few returns. Shipping trade was forbidden at that time. 3. Exchanges of culture, religion and politics

6 OBOR : From Past to the Future The new perspective of One Belt One Road (OBOR) Launched by the Chinese government as the development strategy in 2013. The conception refers to the New Silk Road Economic Belt, which will link China with Europe through Central and Western Asia, and the 21 st Century Maritime Silk Road, which will connect China with Southeast Asian countries, Africa and Europe, known shortly as the "One Belt and One Road (OBOR)“.

7 OBOR Economic Dimension 1. Aspects of cooperation: Transportation Infrastructure development Trade and investment Energy and natural resources Financial security

8 OBOR Economic Dimension 2. Principles of cooperation: Mutual trust Mutual benefits Mutual learning Inclusiveness Equality

9 Acting Plan of OBOR runs through Asia, Europe, and Africa, connecting the East Asian economic sphere at one end with the European economies at the other. The Silk Road Economic Belt—a series of land-based infrastructure projects including roads, railways, and pipelines—focuses on strengthening links between China, Central Asia, Russia, and Europe (particularly the Baltic). China will gain improved access to the Persian Gulf and the Mediterranean Sea through Central Asia and West Asia, and to the Indian Ocean through Southeast Asia and South Asia. The 21 st-Century Maritime Silk Road is designed as two paths: one from China's coast to Europe through the South China Sea and the Indian Ocean, and the other from

10 Keys Points to Understand OBOR 1. Preconditions for China to carry out OBOR: A) B) Comparative advantage of infrastructure construction a) Experiences; b) Materials supply; c) Building capacity…… Fund for investment: China’s foreign exchange reserves reached US$ 3. 8 trillion in December 2014 a) AIID b) RMB internationalization

11 Keys Points to Understand OBOR 2. The new pattern of China outward investment and the changes for the industrial structure: A) Infrastructure output: high-speed rail, high-way, telecommunication and related products; B) Industrial transferring ----moving of “make in China”: low cost manufacturing products; C) Energy cooperation: China is a huge energy consumer.

12 Milestones of OBOR 1. China has made headway via the ASEAN Ten Plus One arrangement, the Shanghai Cooperation Organization, the BRICS countries, and solidified bilateral ties with Russia and countries in Central Europe, Central Asia the Middle East and South Asia. A bilateral, regional, and multilateral cooperation mechanism between China and the countries along the proposed routes has been established preliminarily in either a fixed or non-fixed manner.

13 Milestones of OBOR 2. The vision for a 'One Belt and One Road‘ allows the countries involved to create a three-dimensional and multi-layer transport network that connects them via land, sea and air. That includes the New Eurasian Continental Bridge, which is regarded as the 'modern Silk Road', the China-Singapore Economic Corridor that runs through the Indo-China Peninsula and the Bangladesh-China -India-Myammar Economic Corridor that connects China to South Asia. The prototype of a backbone passage for the One Belt and One Road vision has emerged.

14 Milestones of OBOR 3. Several financing platforms such as an Asian interconnection and mutual communication investment bank, the Shanghai Cooperation Organization development fund and the Shanghai Cooperation Organization development bank are being planned to finance these ambitious infrastructure development projects.

15 Milestones of OBOR 4. Different logistics hubs are being built across the region to support the 'One Belt and One Road' initiatives. Several free-trade industrial parks have also sprung up that would help to connect the production, circulation and marketing of goods in the region. The eventual economic dividends of the 'One Belt and One Road' vision are expected to bring about shared economic prosperity that will help promote social progress, political stability and overall security in the region.

16 Challenges and Risks 1. Chinese companies lack experience in investing overseas and sustainability for later enterprise development. Professor Huang Yiping from Peking University warned last year that "China has become third-largest direct investing country, but more than half of its deals do not provide financial returns. " 2. Attitudes of the other two giant body: US and Russia. 3. Coordinating with more than 50 countries with different culture, social system, or even conflicts.

Conclusion The 'One Belt and One Road' vision is not only a strategic conception for the great rejuvenation of the Chinese nation, but also a beneficial path for the common prosperity of countries along the proposed route and an organic combination of the Chinese dream with the global dream. There is no clear line geographically refers to OBOR. they serve more as a roadmap for how China wants to further integrate itself into the world economy and strengthen its influence in these regions. 17

18 Interpreting the Initiative: Political and Geopolitical Dimensions The end of the unipolar world? Reshaping international relations A Growing Regional Power Playing different cards? Promoting and investing in the BRICS Building new institutions, the New Development Bank But strong assymetries: Brazil & Russia Going Alone? : OBOR: Asia -> Europe Rest of the world: Latin America, Africa…

19 Interpreting the Initiative: Political and Geopolitical Dimensions (2) 2 nd world trading power Means of perpetuating the growth model Export expertise in fields of infrastrcutures, steel, cement: research opportunities outside China, modernizing West parts of China, Xinjiang (highest oil and gas reserves, lowest developement level in China) Lenin and the Theory of Imperialism: low profitabily, overcapacities at home. . : managing vast overcapacity, necessity to finf new markets

20 Interpreting the initiative: Economic Dimension Accumulation of financial reserves 2 nd world trading power. Means of perpetuating the growth model Export expertise in fields of infrastrcutures, steel, cement: research opportunities outside China, modernizing West parts of China, Xinjiang (highest oil and gas reserves, lowest developement level in China) Lenin and the Theory of Imperialism: low profitabily, overcapacities at home managing vast overcapacity, necessity to find new markets. find markets outside China: build infrastrcutures, relocate low value added indsutries (textile)

21 A difficult trade off between external and domestic-led growth End of the growth model founded on investment in infrastrcutures and exports Future growth based on domestic consumption, on development of services Towards the green economy: less energy dependant in the future Restrcuturing, swtiching: could cause economic dislocation, threaten political stability Looking for external markets

22 Financing: who controls?

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24 A set of risks Too Ambitious? Time horizon, Implementation, Resources Financing, Returns, Sunk costs Optimizing infrastrcutures: not from A to D but between A and B, B and C, C and D…. Creating numerous hubs. Which (international, regional) governance? Partnerships: Weak and risky States…(Pakistan), Strong States Reluctants (Vietnam, India). . Emerging Powers (Iran) Entering the Russia back-yard: Eurasian Economic Union and OBOR Convergence between different aims?

25 Risks… (1)

26 Risks…(2)

Risks…(3) 27

28 OBOR & the EU: the red carpet?

29 The EU: at the end of the road. . EU: 1 st China trade partner China: 2 nd trade partner after the US End of land (Duisbourg) and sea (Pearus) roads Question : enough goods in Europe to fill up train and boats back to China?

30 China-EU Trade EU leading trade partners, 2013 EU-China total trade

31 EU-China Relations Asymetric (volumes, contents, Exp, Imp) China: not yet recognized as a market economy No Global Treaty on Investments For China one Europe, 28 states Core EU New Members States (and others: 16+1. . ) Accession countries (Western Balkans) Lowest bidder strategies by some countries Differentiated attractiveness: EU-15, CEES, Balkans & SEE Individualistic strategies followed by member states: UK, France…Red carpet policies. . .

32 China Commitment in Europe Chinese investments in the EU: from O, mid-2000 to € 14/y in 2014. Stock: € 46 billions EU Members joining the Asia Infrastructure Investment Bank , China joining the EBRD EU-China Summit in Brussels (June 2016): Looking for synergies between the Juncker Plan and OBOR Initiative AIIB adding $100 billion + Silk Road Fund investing $40 billion along the road EU Commission, European Investment Bk, Silk road dund to identify how china and the Junker Plan could co-operate

33 Threats? UK: from a ‘special relationship’ with the US to a ‘golden era’ with China? But up to now only 1% of total outflow of chinese FDI. . Germany the main target? Most attractive to FDI, many « hidden Champions » OBOR as a reply to Free Trade Agreemment supported by the US? TPP: 12 countries, 800 million people TTIP: the EU and the US, 820 million people OBOR: 65 countries, 4, 4 billions people…. Trying to play one country against another Human rights issues: some countries still punished (Norway) other aligned (Serbia. . France) Other interest for Europe in Asia (South Korea, Vietnam, Japan. . ASEAN)

34 The Balkans: A Southern Entry? Geopolitical interests Southern Europe: One end of the sea road (Pireas) Investing in accessing countries? Not a big deal Sensible issues and political instability Economic opportunities Access to northern markets (train, infrastrcutures) Paving the way for other markets (power plant in Bosnia, Serbia, Romania) Buiding regional value chains? Car industry in Bulgaria, electronics in Romania) Beyond OBOR SME, family-run business in the region

35 Conclusion (2) Real capacity of the Chinese government to implement this program? Disconnection between growth rate, growth model change, financial stability What priority over other international issues Reaction of other players A step by step building up, « path dependency » to go forward? High risk: what will be the nature, content of trade in one, two decades?