Recent moves by the EU and US suggest we could be seeing the seeds of alignment on China and the start of a unified attempt to compete with Beijing’s Belt and Road Initiative (BRI).
On June 21, the EU Foreign Affairs Council urged the European Commission and the European External Action Service to accelerate the implementation of an EU Global Connectivity Strategy (“Strategy”). The Strategy was initially proposed by the European Parliament in January but has since stalled. It is presented as a values-driven, sustainable initiative to foster global infrastructure development, and a counter to debt entrapment and poor social and environmental standards increasingly associated with the Belt and Road Initiative.
The Foreign Affairs Council’s call for action could dim the EU’s prospects for reaching an investment deal with China. It comes just weeks after the G7 leaders launched Biden’s Build Back Better World Initiative (3BW), which seeks to create a multilateral sustainable development initiative to rival the BRI and challenge China on its human rights and sustainability practices – an action which is likely to prompt retaliation from China.
Obstacles lie in wait
The Foreign Affairs Council’s call to accelerate progress on the Strategy shows how far EU-US relations have progressed since Biden came to power. However, a partnership on China and international development is not without challenges.
The EU’s visibility as part of the 3BW initiative is likely to be limited by calls from less wealthy member states for the Union to focus inwards. According to the EIB, the EU has faced a growing infrastructure gap since 2009, which remains unaddressed by the 2021-2026 EU budget and could weaken the EU’s economic competitiveness and post-pandemic recovery if overlooked.
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Furthermore, the EU and US approaches to dealing with China diverge significantly: the US takes an assertive, zero-sum approach while the EU seeks to continue to work with China on key infrastructure projects if they meet EU ESG standards. This is likely to complicate EU-US discussions on setting concrete investment targets and choosing projects to make up an action plan for the 3BW.
The EU’s ambivalent stance is a result of varying positions on China among EU member states. Despite having imposed sanctions on China earlier this year in response to human rights abuses, Italy has already called on Biden to avoid being too confrontational and Germany has eschewed committing to concrete investment targets for the Strategy for fear of damaging its ties with Beijing.
Despite these obstacles, the EU will likely leverage its Connectivity and Quality Partnerships with India and Japan to gain some clout in its collaboration with the US. These partnerships will facilitate the formation of a global infrastructure initiative with enough presence to offer a credible alternative to the state-backed loans and investments provided by China under the BRI.
3BW could shift balance in Asia, but China will retain its influence in Africa
A trade deal between the EU and China will likely become increasingly elusive in view of the EU’s growing collaboration with the US. Despite the EU’s more measured tone, we expect Beijing to interpret the 3BW as an aggressive move against China’s BRI on the part of the G7, and it is unlikely to soothe EU-China tensions over sanctions earlier this year.
The 3BW won’t significantly challenge China’s influence in Africa. However, in Eurasia where trust in Chinese loans are eroding, and in the Indo-Pacific where the US and EU have a significant security presence, there is space for the initiative to restore a values-driven, sustainability-focused development programme.
Currently, both the 3BW and the EU’s Global Connectivity Strategy are light on detail, numbers and timing, so movement is going to be slow in finding out the types of project and where they are to be based. What we can say is that the Biden administration is seeking to reassert the US as a global normative player and the EU is jumping on the bandwagon, undermining its own prospects of closer collaboration with China but increasing its opportunity to renew its influence in the Balkans, Central Asia, and the Indo-Pacific.