China’s New Silk Road: What Are the Economic Impacts on Europe?

China’s New Silk Road: What Are the Economic Impacts on Europe?

(Map:China's old silk road)

source:NASA

Dating back to the Han dynasty in 130 B.C., a network of trade routes began to be used between China and the other regions of the ancient world in commerce. This network was later named the “Silk Road” by historians on account of the popularity of Chinese silk in the West at the time. Starting from China and finally reaching Britain, the “Silk Road” had been established not only for developing a commercial relationship with other regions, but also for bringing about more exchanges concerning civilization, technology, architecture. Nevertheless, in 1453 A.D., the “Silk Road” was cut off due to the trade boycott with the West in Turkey. Nowadays, more precisely in 2013, during Chinese President Xi’s visit to Kazakhstan, he introduced the concept of the “Silk Road Economic Belt”. Since then, the historic Silk Road has been revived. The idea lies in building two new trade corridors—one land-based “Silk Road Economic Belt” (SREB) and the other oceangoing “Maritime Silk Road” (MSR), also known as the “One Belt, One Road” policy, which aims to connect China with its western neighbours: Central Asia, the Middle East, and Europe; as well as to help China play a dominant role in the world affairs.

Europe, as China’s largest trading partner, has been continuing to struggle with its economic crisis. However, since the announcement of the “One Belt, One Road” policy, the Chinese government has been implementing measures in different domains such as infrastructure, education, and finance in order to stimulate trade and the economy. Will these measures have an impact on the economic situation of Europe? Should Europe take China’s “New Silk Road” policy as an opportunity, or a threat?

(Map:China's new silk road)

• ·       The major measures of “One Belt, One Road” give rise to new potential markets

It is necessary to take a closer look at two main elements of this policy. Firstly, by building infrastructure, the “One Belt, One Road” policy focuses on forging direct physical connections to Europe so as to broaden trade and increase cultural exchanges. Secondly, in order to ensure infrastructure construction and business investments, financial institutions like the Asian Infrastructure Investment Bank (AIIB) and Silk Road Fund were established by the Chinese government in 2013 and 2014 respectively. By 2016, 57 countries throughout the world had already ratified the AIIB, including several European countries such as France, Germany, Spain, the UK, etc.

Along with a growing number of European countries which are choosing to cooperate with China in several policies concerning the “One Belt, One Road” program, a new chapter of the relationship between China and Europe is being written. As far as infrastructure is concerned, having cooperated with China to build long- distance transport connections, Europe is exposed to more potential markets resulting from a quicker delivery of Europeans goods to China and to other emerging countries along those trade routes. For instance, compared to the delivery of cars from Europe to China by sea, which is expensive, time- consuming, and sometimes insecure; a delivery can be made within 25 days rather than 2 to 3 months in the past if cars are transported by train from Europe to Chongqing, China. With the present trend of increasing consumption of European goods in China, European companies can, as a result, get easier access to Chinese markets and benefit from them in the short-term.

• ·       A possible inter- European change due to “One Belt, One Road”

Taking the creation of the AIIB into consideration, Europe is benefiting from its economic activities. Nonetheless, there exist some warning signs that European countries should heed, for the evolution of the AIIB is, to a certain degree, considered to be an important financial vehicle for China to reinforce its geopolitical power worldwide. One of the main objectives of the AIIB is to “foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors”. Therefore, the reason why some European countries participate in the AIIB can be attributed to their willingness to attract more foreign investments from emerging economies, particularly from China so as to spur economic development in Europe. Additionally, European countries have been continuously benefiting from Chinese investments in infrastructure such as roads, bridges, railways etc. on account of the fact that those countries are given better access to overseas markets with growing exportation and decreasing trade costs. However, Chinese investments are so attractive that a possible change in inter-European relations can be on the cards in the coming years since many European countries want to be the main destination for Chinese investments, which may lead to a more competitive environment among European countries for Chinese capital. In this sense, Chinese geopolitical power will also be strengthened through a gradual process of European financial and economic dependence on China.

China’s Silk Road, as a part of the “One Belt, One Road” policy, has exerted crucial economic pressure on Europe. In terms of the current commercial and economic relationship between China and Europe, European countries tend to take this Chinese development strategy as a brilliant opportunity as they are in return benefiting from new potential markets, growing demand, upgraded infrastructure, etc. by cooperating with China. However, according to some economists, European countries should also be vigilant that a new world order is appearing with the emergence of China on the world stage.

LIU  Liu