European Chamber report identifies profound lack of European involvement in China’s Belt and Road Initiative, and the scheme’s dampening effects on global competition Go back »

2020-01-16 | All chapters

European Chamber report identifies profound lack of European involvement in China’s Belt and Road Initiative, and the scheme’s dampening effects on global competition

The European Union Chamber of Commerce in China (European Chamber) today released The Road Less Travelled: European Involvement in China’s Belt and Road Initiative (BRI). Based on a member survey and extensive interviews, the report highlights the peripheral role currently played by European business in the BRI, as well as the competition-blunting effects that the Beijing-led scheme is having on business worldwide.

Only 20 of 132 survey respondents report having bid on a BRI-related project. Most cite the lack of transparent bidding and procurement processes as a major barrier to participation, with only two having found projects through publicly available information. Of those that have participated, most have done so after being pulled in by business partners or local governments. All but a scant few have  played niche roles, like providing certain technology or experience in the recipient country, which, given the scale of the BRI, saw most respondents refer to their level of involvement as “crumbs from the table”.

This reflects the reality that the BRI is largely business as usual for European companies operating in China, which have grown accustomed to pursuing opportunities that are limited and selective.

Some new opportunities have emerged as a result of new infrastructure that has been completed along the BRI, but this does not compensate for the fact that global competition is being seriously blunted by China’s vertically-integrated state-owned enterprises (SOEs), which are able to provide everything from financing to materials and construction services and beyond. It is largely these SOEs that are being awarded BRI contracts, many of which are national champions that emerged in China’s heavily protected market, which has allowed them to achieve extraordinary economies of scale.

Previously, contending with such entities was chiefly a concern for international companies operating in China, but as China Inc. expands along the BRI, the issue is being magnified, making competition in third country markets extremely challenging. These difficulties are further exacerbated by the additional layer of state-aid extended to Chinese companies in the form of dirt-cheap financing and political support attached to the initiative.

The EU and China should examine ways to reform the BRI into a truly multilateral development initiative that is open and transparent, as it holds promise for global development, increased connectivity and good business. However, the EU cannot afford to continue waiting for China to unilaterally improve the BRI, and should carefully examine the creation of mechanisms that can control distortions emanating from the initiative while protecting normal business activities.

“China’s colossal national champions—boosted by state-aid and cheap financing—are securing an unusually large proportion of contracts when compared to multilateral development schemes,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “Europe needs to determine how to respond to this export of the China model to shield itself from market distortions and stay competitive in third-country markets.”

Please click here to download the report.

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Yichi Zhang

Yichi Zhang