Is the UK prepared for a Super China and its global New Silk Road?

China's industrial strategy poses new challenges for the UK, writes Dorothy Guerrero

April 17, 2019 · 8 min read

For the first time since the European Union (EU) and China forged the EU-China Comprehensive Strategic Partnership in 2003, Brussels adopted a shift in its approach towards what is currently the world’s second-biggest economy. In the new EU Commission document EU-China: A strategic outlook, which came out in March, China is mentioned as a “systemic rival” of Europe. The departure from EU’s China Policy that views Beijing as a “strategic partner”, which was followed for more than 15 years, towards a new policy that sees China as a “systemic rival” is a very meaningful change. It symbolises the EU’s recognition of China as an economic and technological rival and at the same time as a fellow global power that is following a different development and governance model.

China’s model of state-led and planned growth under the Chinese Communist Party (CPP) and led by state-owned enterprises (SOEs), both of which are longstanding and unnegotiable cornerstones of China defining itself as a socialist country, is indeed a very different approach to political and economic governance to that followed by the North. It is important to appreciate how this way of managing the economy contributed to China’s exponential rise. The way China managed to carve its place under the current world capitalist system and succeeded to lift more than 800 million people out of poverty by NOT following the Washington Consensus inspired many Southern countries.

The Chinese model is beyond “developmental state” and catch-up followed by other developing countries. It has deliberately built up, and benefited from, its large domestic market, which attracted foreign direct investments (FDIs) that included technology-transfer through joint-ventures. It is noteworthy to see the role of China Development Bank and China EximBank in Beijing’s development strategy. Now that model is exported through the Belt and Road Initiative (BRI) with the Asia Infrastructure Investment Bank (AIIB) and BRICS’ New Development Bank.

China has been influencing the global economy in the last two decades by reshaping the global value chain, which now covers 2/3 of global trade. Chinese transnational corporations (TNCs) have increased their size, power and competitiveness in the last 15 years. This includes both state owned enterprises and private enterprises. This rise also increased geopolitical trade and investment competition, especially around strategic sectors.

China’s Belt and Road Initiative (BRI)

If one would look at China’s Five-Year Plans from 2001 to 2015, one of the key features that threads its growth-oriented structural reforms was the globalisation of Chinese TNCs. The current 13th Five Year Development Plan (2016 to 2020) carries a more ambitious focus on industrial transformation, raising outward investment and raising the quality and character of Chinese brands. What is also significant is that at the end of the plan, which is 2020, coincides with the 100th anniversary of the founding of the Chinese Communist Party.

The Bridge and Road Initiative or BRI (formerly called One Belt and One Road by Chinese policy makers or New Silk Road project) is the biggest channel for outward investments initiated by Xi Jinping. It is an ambitious programme to connect Asia with Africa and Europe via land and maritime networks along six economic corridors with the objective of improving regional integration, increasing trade and stimulating economic growth. Recently, Latin American countries Chile and Panama also joined. Now elevated to a constitutional rank as a part of Xi Jinping’s “China’s Dream,” the BRI is Beijing’s instrument for global leadership and a way to reshape the international system with China at its centre.

This ambitious project, with a total signatory of 152 countries and international organisations that have signed to the cooperation documents with China so far is now the biggest economic partnership in the world, far bigger than all current free trade agreements and trade blocs. With initial investments worth more than $1 trillion, it invests on infrastructure projects that also involves trade agreements.

Europe’s increasing participation in BRI

While the EU grappled for an effective strategy to deal with China, Beijing has carefully made inroads in South and Central Europe. Italy is the most recent signatory to it in March. It is so far one of the most important strategic players for China in Europe, as it is the biggest EU country to join so far and the first Group of 7 (G7) member to do so. The Chinese flagship project is the “Five Ports” initiative involving the Italian ports of Venice, Trieste, and Ravenna, plus Capodistria (Slovenia) and Fiume (Croatia), linked together by the North Adriatic Port Association (NAPA).

Before Italy, 13 other EU member states, had signed bilateral agreements with China to become members of the BRI. Beijing started involving Europe in 2012 with the “16+1” platform, which gathered 11 EU member states and five candidate countries. Since then, Greece and Portugal also joined in 2018 and 2019 respectively.

The BRI is China’s key economic, political, diplomatic, commercial and developmental strategies all rolled into one. As economic strategy, it enables Beijing to channel huge foreign reserves, including low-interest US Treasury Bills overseas in a more profitable way and at the same time promotes internationalisation of the yuan and reinforces China’s industrial and energy strategies abroad. As a foreign policy strategy, it is a way to achieve diplomatic parity with the US in Asia and Europe, which ensures the security environment and political clout for China’s continued rise as a superpower. It also helps China avoid encirclement by US allies around its borders. Through BRI, China is also winning back its pre-colonial historical and superpower status.

China’s new and rapidly evolving status as economic superpower, changed the nature of its international economic relationships due to its new ability to offer investments, aid, and various forms of financial support to partners. Earlier it invested heavily to gain access to natural resources in developing countries, now it is focusing on technology, industrial and luxury brands, real estate and other assets in advanced economies in Europe and the United States. Chinese firms are buying out European companies to secure a European market for Chinese companies in these sectors and gain know-how in these sectors.

What will be UK’s Post-Brexit China Strategy?

The top three EU economies that received the lion’s share of investment are the United Kingdom (EUR 4.2 billion), Germany (EUR 2.1 billion) and France (EUR 1.6 billion). However, their share in total Chinese FDI declined from 71 percent in 2017 to 45 percent in 2018. Generally, China’s global outbound FDI has been dropping recently. This trend can be attributed to continued capital controls and tightening of liquidity in China as well as growing regulatory scrutiny in host economies.

Social movements in the destination countries are often critical about the impacts of investments to labour, social and environmental standards. However, this is not directed at Chinese investments alone. There had been organisations in European countries that criticise, monitor and bloc projects funded by the World Bank and other development banks. In the global South, problematic EU and UK investments had been the concerns of many social movement mobilisation for a long time now.

While Beijing is deepening its connection with the EU, the UK is in the threshold of severing its relationship with the EU. What will make the UK attractive to China given this reality? Would a UK-China free trade agreement rescue the UK out of possible isolation after its departure from the EU?

Dorothy Guerrero is Head of Policy and Advocacy of Global Justice Now.

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