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Europe and the US must compete with China

Europe and the US must compete with China

by host

Carisa Nietsche is an associate fellow with the Transatlantic Security Program at the Center for a New American Security (CNAS), where she focuses on Europe-China relations and transatlantic technology policy. Nicholas Lokker is a research assistant with the Transatlantic Security Program at CNAS, where he focuses on European political and security affairs.

As Europe’s assessment of China has evolved over the past few years, shifting from seeing Beijing as a partner to perceiving it as a competitor, and even a “systemic rival,” the development of the country’s Belt and Road Initiative (BRI) has commanded greater attention.

While Beijing has billed the BRI as an opportunity to accelerate economic development through increased connectivity, its attempt to secure diplomatic and security objectives through the initiative has cast doubt on the wisdom of participation.

The BRI’s future trajectory in Europe now depends upon a number of factors, including the respective European and Chinese economic environments, the degree to which Beijing links the initiative to its geopolitical objectives, and the perceived attractiveness of various BRI projects.

Perhaps the most crucial variable, however, is whether there are viable liberal, democratic alternatives.

So far, the BRI has an uneven track record in Europe. While 31 European countries — including 17 EU members — have signed Memoranda of Understanding with China, several have recently pushed back due to rising anxieties about Beijing’s coercive behavior and the potential risks associated with Chinese investment.

Lithuania, for instance, blocked Chinese investment in the port of Klaipėda amid a growing diplomatic spat with Beijing. The decision followed both Estonia’s withdrawal from a Chinese-backed Baltic tunnel project and Romania pulling out of an agreement with China to build new nuclear reactors at Cernavodă in 2020.

Yet, elsewhere in Europe, the picture looks substantially different.

Greece has been deepening financial ties with China, with the state-owned COSCO shipping company increasing its stake in the port of Piraeus to 67 percent. More recent investments in other European ports — such as Tarento in Italy, which hosts a key NATO base — suggest China seeks to replicate its success at Piraeus across the Continent. Meanwhile, the Hungarian and Serbian governments have doubled down on their financial and political support for China’s Budapest-Belgrade Railway, despite long delays and transparency concerns.

This mix of successes and failures suggests an uncertain future for the BRI in Europe, and what this future ultimately looks like may hinge, in large part, on the viability of alternative initiatives. If Western undertakings can truly offer many of the BRI’s benefits without associated security and other risks, Chinese financing might lose its appeal. On the other hand, the failure of these initiatives to get off the ground could rebound to China’s advantage.

Transatlantic and European approaches to China are already heavily fragmented — while numerous Southern and Central European countries continue to strengthen their ties with Beijing, the United States and other EU countries, such as the Baltic states, are hardening their stances. Meanwhile, in the absence of competing alternatives — and paired with an economic slowdown — increased Chinese investment could also push countries that are currently on the fence, like Germany and France, closer to Beijing.

This lack of workable alternatives, therefore, threatens to strain relations within Europe, as well as European relations with Washington, reducing the efficacy of potential measures designed to push back against malign Chinese influence. The result would be a net loss of U.S and European influence, ceding greater space for China to assert leadership both on the global stage and in organizations with key responsibilities for international standard-setting.

To avert this, the transatlantic partners have already put forward several initiatives to counter the BRI and advance affirmative alternatives to Chinese investment — namely, the Partnership for Global Infrastructure and Investment (PGII) and the Global Gateway.

Launched by U.S. President Joe Biden’s administration at the G7 summit in June, the PGII — initially named Build Back Better World — commits to raising $600 billion over the next five years to advance projects supporting gender equality, secure networks and digital infrastructure, and to assist with the green transition.

Likewise, the EU launched the Global Gateway as its flagship connectivity initiative in December 2021. It strives to mobilize €300 billion in private and public funding from 2021 to 2027, for investments around the globe focusing on health, climate and energy, digital, transport and education projects.

Although these nascent initiatives have enormous potential, however, their efficacy remains unproven. Furthermore, analysts have reason to be skeptical — the Global Gateway has already come under criticism for failing to dedicate new funding for connectivity initiatives and merely rebranding current projects instead. This increases the risk of the initiative becoming just a simple network of projects rather than a cohesive connectivity strategy that exploits additional funding.

So, to make sure the Western alternatives do succeed, the U.S. and Europe should take a few steps.

For one, the transatlantic partners must enhance coordination between the Global Gateway and the PGII to avoid the duplication of efforts. The U.S. Department of State and the European External Action Service should use the U.S.-EU Dialogue on China‘s resilience working group as a vehicle for the institutionalized coordination of these initiatives.

Similarly, the EU-U.S. Trade and Technology Council (TTC) is another venue for such transatlantic coordination, specifically on digital infrastructure initiatives. The TTC took a first step in this direction by establishing a task force on public financing for secure connectivity and information technology supply chains in May, but it still needs to ensure the task force has dedicated funding, and that it works in coordination with both the PGII and the Global Gateway.

Another useful measure would be to improve public-private collaboration. For example, a U.S firm’s purchase of the Hanjin shipyard in the Philippines earlier this year illustrates how such collaboration can help preserve America’s national security. Along similar lines, both the U.S. and Europe should aim to incentivize companies to enter risky markets using financial tools such as debt financing. Increasing government equity in such projects is another way to signal confidence in potential infrastructure investments as well.

Finally, when it comes to developing digital infrastructure, both the U.S. and the EU should be forward leaning. While ensuring 5G network security is important, for instance, the transatlantic partners should already be setting their sights on 6G. And though European countries proceeded with 5G rollouts in the absence of risk assessment, chancing the introduction of potential vulnerabilities, this time around, the transatlantic partners should ensure their risk assessments are aligned.

There are eerie parallels now between what’s taking place today and happened in the wake of the global financial crisis and eurozone debt crisis. Beijing had then offered the chance of cost-effective infrastructure both to Europe and the rest of the world, and it will undoubtedly try to do so again in these current straightened times.

This time, however, the EU and U.S. must make sure they offer better alternatives.

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