A brief comparative analysis of the EU’s Global Gateway scheme and China’s Belt and Road initiative
On 1st December 2021, the EU launched its Global Gateway scheme, a €300 billion investment initiative viewed as an attempt to combat China’s expansive economic diplomacy, expressed through the Belt and Road Initiative (BRI). The EU project encompasses a wide geographic sphere in a range of key areas, from laying fibre-optic cables to Latin America and supporting renewable energy projects in Sub-Saharan Africa, to reinforcing transport infrastructure in Central Asia. Although Zhang Ming, China’s ambassador to the EU, gladly received the strategy, he warned that ‘any attempt to turn infrastructure projects into a geopolitical tool would fail the expectation of the international community and harm one’s own interests’. While this revitalised European project promises a transparent and democratic alternative to China’s alleged predatory loans, will it really produce the intended effects?
On the one hand, the EU’s scheme has the potential to reform global investment funding into a more sustainable and equitable process. As Andrew Small, Senior Transatlantic Fellow at the German Marshall Fund has asserted, the Global Gateway represents the ‘first serious effort from the European side to put packages together and figure out financing mechanisms, so countries considering taking loans from China have an alternative option.’ Although rejecting its direct challenge to China’s BRI, the focus on Africa and comments by EU officials clearly exhibits the scheme’s ambitious intentions. For example, Jutta Urpilainen, the Commissioner for International Partnerships, placed great emphasis on the aim of fashioning ‘strong and sustainable links’ rather than ‘dependencies’,
implicitly criticising China’s ulterior motives. This sentiment was echoed by President of the European Commission, Ursula Von der Leyen: ‘When it comes to investment choices, the few options that exist too often come with a lot of small print which includes big consequences’. Additionally, the Global Gateway scheme points towards a more explicitly expansionist policy of promoting European private enterprise in the developing world. Among redeveloped financial instruments, the proposed European Export Credit Facility is to be geared towards establishing a ‘greater level playing field for EU businesses in the third country markets where they increasingly have to compete with foreign competitors who receive large support from their governments and thus facilitate their participation infrastructure projects’. With a ‘Team Europe’ approach consisting of the European Commission, Member States, the European Central Bank, the European Bank for Reconstruction and Development and private enterprise, this project points towards a strong democratic substitute for Chinese loans.
However, there are various arguments as to why this EU initiative will not be as successful as promised. Primarily, although the numbers may seem impressive, the investment will have a miserly effect on an investment deficit that is set to amount to €13 trillion by 2040 according to G20 estimates. Comparatively, the $340 billion over the next six years, is only a fraction of China’s current $1.5 trillion overseas investment holdings. This has led David Dollar, a senior fellow at the Brookings Institution and the former US Treasury representative in China to conclude that the West will not ‘make much of a dent in the Chinese programme’. Secondly, the question of whether intended recipients will even want to accept this tied aid must be posed. After all, the EU’s goals of environmental sustainability, market liberalisation, democracy and transparency among others are not priorities for many of the potential recipients. Moreover, the investment will predominantly take the form of loans rather than grants, further diminishing the incentives for potential recipients. Furthermore, the initiative is likely to be undermined by the EU’s encumbering bureaucratic apparatus and procedures, a long-standing criticism of its institutions and a further motivation for the developing world to opt for Chinese investment. Overall, the various financial, political and institutional weaknesses imply that the Global Gateway project will not really create that desirable alternative that the EU is seeking to provide.
In contrast, China’s One Belt One Road (OBOR) strategy, launched in 2013 as the mainstay of XI Jinping's ‘Major Country Diplomacy’, has already been very successful in the area, fulfilling investment needs that the West was unable to. Chinese loans are regarded as simpler, quicker and more flexible than those from Western counterparts such as the IMF, World Bank and Paris Club. In turn, this has permitted countries such as Cambodia to censor media, obstruct Western NGOs, and rig elections. Even when Western institutions have successfully negotiated loans, the Chinese competition has forced them to soften demands for transparency and democratic reform. According to economist Diego Hernandez, for every 1% increase in Chinese aid, the World Bank has softened its approach by 15%. Strategically, the initiative has also provided China with a foothold for military expansion abroad. This has been already realised to a limited extent, most significantly through a Chinese military base in Djibouti, located on the strategic Bab el-Mandeb Strait and guarding the passage for the Suez Canal. Much of the commercial infrastructure can also easily be repurposed for military application. Geographically, China has been able to make staggering inroads into traditional Western spheres of influence. For example, China’s Cosco company is the proprietor of two-thirds of the freight harbour at Piraeus, while China’s Road and Bridge Corporation started construction on the Pelješac Bridge in Croatia in 2018. Compared to the EU’s Global Gateway Scheme, therefore, China’s OBOR is fulfilling its geostrategic and political desires.
The OBOR also has devastating long-term financial consequences for recipient states due to the nature and conditions of the loans while reinforcing China’s economic influence across Europe, Asia and Africa. Primarily, China has gained a deep level of economic control over various countries due to the debts accrued to it. For example, the Jubilee Debt Campaign estimates that around 20% of African government external debt is Chinese. As of 2017, out of Zambia’s debt of $8.7 billion, $6.4 billion was owed to China. Additionally, the collateral demanded by China often involves natural resource revenue, such as Laos’ potash mines and Venezuelan oil. Moreover, the use of non-state vehicles and institutions for almost 70% of overseas lending has created debt management problems for developing countries with underreported debt amounting to approximately $385 billion. Overall, this argument has been effectively summarised by ex-US Secretary of State, Rex Tillerson, who has asserted that China has ‘encouraged dependency, utilised corrupt deals and endangered [Africa’s] natural resources’.
However, even China’s scheme has faced difficulties, undermining its immediate success and long-term vitality. For instance, 35% of OBOR projects have faced public scandals and protests, compared to 21% of non-OBOR undertakings. These issues are likely to be exacerbated as recipient countries and their publics learn of and from China’s exploitation. Finally, of course, the competition for China in this market is dependent on the success of the Global Gateway initiative and its US counterpart, the Build Back Better World Initiative, launched in June 2021. This is potentially worrying for China as a standard Chinese loan carries an interest rate of 4.2% and a 10-year repayment period compared to the concessionary 1.1% interest and 28-year repayment period traditionally offered by the West. Hence, it can be argued that China’s position in the global infrastructure finance market is perhaps not as strong as commonly perceived.
However, currently, as per Jonathan Holslag of the University of Brussels, the Global Gateway project represents ‘a rather naïve view of the geo-economy’. Only in close coalition with the United States’ Build Back Better World fund and further financial firepower, would the Global Gateway be able to offer a viable alternative to China’s OROB funding.