More difficult is the position to be taken on infrastructure, in part because the issue spans investment and lending, and also because there are very different capital needs and interests across Europe. This Power Audit recommends that a distinction be made between genuine investment, where the capital risks rest on the investor, and lending, where most if not all of the risk rests on the borrower – ultimately, on the European taxpayer. Even in ‘core Europe’, infrastructure investment is a risky and long-term activity: the most useful tunnel ever built, the Eurotunnel linking continental Europe and the UK, was a black hole for capital even as it crawled towards achieving an operating profit. Nuclear energy plant construction rests on long-term price hypotheses, and France’s high-speed railway has created debt worth €35 billion for the country (which should be compared with $350 billion for China’s bullet train network). There is simply no interest for Europeans, even if they do not perceive it yet, in acquiring apparently cheap Chinese equipment and public works if this leads to unsustainable debt loads. But if Chinese investors are themselves willing to sustain that risk, as other sovereign investors might be, there is no reason to turn them down as a matter of principle. One could even imagine, since it is unlikely that China will fund projects with debatable profit,
53 In September 2017 the EU adopted a “cybersecurity package”, available at https://ec.europa.eu/digital-single-
the rules for public tenders being relaxed in some cases: this could be for EU candidate countries (like the Balkan states) or areas designated as priority investment zones. Having Chinese – or any other – companies fund and be responsible for infrastructure investment that otherwise would not be made by European companies under existing investment rules and price structure makes sense for Europe. But this is absolutely not the case when projects concern lending – because risks and responsibilities are then transferred to the European borrower, while Chinese company sales are made upfront. Making a distinction between infrastructure with capital investment and projects relying on loans will strengthen the hand of European member states in obtaining genuine investment rather than costly lending proposals. The other live issue is the strategic implications of owning or managing infrastructure. In principle, there is no connection between management/ ownership and the sovereign rights of states, which can constrain the operational freedom of operators in many areas. In practice, this is not so clear. First, because owning or leasing infrastructure is the first step to further influence and lobbying – the host states being themselves committed to continuing projects because of the implications of a failure or pullback. Second, because China has been bidding for infrastructure of the same type, through state-owned enterprises or hybrid companies ultimately controlled by China’s National Development and Reform Commission (NDRC) or even by military ‘godmothers’ guiding civilian firms. This, along with the polished Chinese practice of creating competition among suitors, gives China leverage because of the ability to develop or to restrict activities in any of the infrastructure projects. To use the example of ports – for which Europe already has overcapacity – this gives China leverage on intra-European logistical routes via financing. Here again, some compromise with member states may be needed, as part of the trend reflects a growing desire by Mediterranean and Baltic ports to end the supremacy that western Europe ports such as Rotterdam and Antwerp have had. But that is precisely the aim of the EU’s Trans-European Transport Networks in Europe (TEN-T) blueprint for new infrastructure.
This leads to a proposal that Europe could revisit with China. For more than seven years, China failed to make good on its initial proposal, dating from the time of the euro crisis, to participate in Europe’s investment fund, initially called the Juncker fund. As described previously, the only outcome has been a tiny and essentially commercial investment fund for SMEs – far from any €550 billion grand design. Because China has refused to accept the terms of European public tenders, it has instead directed BRI offers towards central
and eastern European states. Its €10-11 billion credit line can only be accessed by non-EU member states. The result with the EU is stalemate. Having failed with the 16+1 to break this deadlock, China may even be seeking to circumvent European rules by devising new rules for public-private partnerships at the UN’s Economic Commission for Europe (UNECE). The EU’s 28 states do not command a majority inside UNECE.
The EU and member states should point out to China that it is losing time by devising such methods of circumventing Brussels. Instead, talks about joining BRI with the EFSI, TEN-T, and EU neighbourhood projects should be restarted in earnest by both parties. The concerned European member states – mostly on the southern and eastern periphery – would in fact help themselves if they emphasise to potential Chinese partners the benefits of entering into a European scheme. This would save them from beggar-thy- neighbour competition and ultimately having to go for costly loan offers. It is when Chinese package offers and Chinese companies meet EU tender rules that they may become competitors. So far, that has not been the case, and it is telling that Chinese companies do not succeed in the open bidding processes they have entered into in the Balkans.
This necessary convergence is implied by the EU’s “connectivity platform” with China that has had two meetings so far – with the NDRC in charge on the Chinese side. While China has yet to present its goals for central Asia, EU member states came up with a list of 19 projects for 2016 and 2017 that coincided with the EU TEN-T scheme, even if they do not always reflect its priorities. In its own published outcomes, the EU emphasises “compliance with applicable EU rules and standards”.54 Yet in the joint agreed minutes of
these meetings, what is mentioned is “cooperation based on market rules and international norms”.55 Therein is contained all the difference. There is scope
to revive this existing instrument, to go beyond talking past each other, and to leverage the Chinese dream of BRI.
54 European Commission, “List of the TEN-T related projects presented in May 2017* in the framework of the
Expert Group on Investment and Financing of the EU-China Connectivity Platform”, May 2017 available at
https://ec.europa.eu/transport/sites/transport/files/ten-t-rel-projects-may-2017.pdf; and European Commission,
“List of TEN-T related projects presented in November 2016 in the framework of the Expert Group on Investment
and Financing of the EU-China Connectivity Platform”, available at https://ec.europa.eu/transport/sites/
transport/files/ten-t-rel-projects-nov-2016.pdf for 2016.
55 “Joint agreed minutes second chairs meeting EU-China Connectivity platform”, p. 4, available at https://
ec.europa.eu/transport/sites/transport/files/2017-06-01-joint-agreed-minutes-second-chairs-meeting-eu-china-