How the U.S. and EU compete with China’s “One Belt One Road”

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Hello, from Brussels.We have nothing to say Football last night In the European Championships, except YESSSSSSS! And will avoid any painful analogies of trade or Brexit. Sometimes football is just football. Now we have to wait until the final on Sunday, and these three days are all painful.Today’s main content is the latest idea of ​​the European Union’s opposition to China’s “One Belt One Road” initiative. Concession waters Look at how the EU and the UK are actually balanced or interdependent in other ways.

We hope to hear from you.Send any ideas to [email protected] Or email me [email protected]

Rich countries need to divert their attention outward

Another year, another month in fact, another developed country’s movement challenged China’s infrastructure, loans, trade, and technology. “One Belt One Road” Initiative (One Belt One Road). At stake: the hearts and minds of emerging markets-and the more relevant value chains and technical standards.The recent respite, our Financial Times colleague Already written This week, from the European Union. The draft statement has many abstract terms, but not many numbers. It involves an unknown amount of loans to support a series of projects that have not yet been determined to allocate soft power that many EU officials seem to think can be opened like a tap. There seems to be some disagreement as to whether the project should have its own brand.

Cynicism in this area is easy to emerge, but there is a certain truth. We have heard of such things before.The initiative came after a similar obscure plan aimed at countering China G7 June, An early EU connectivity agreement With India Various ideas from May and before, including EU-Japan Agreement In 2019.

Perhaps the more fundamental question is why rich countries have to challenge the “Belt and Road” loan model in the first place. Their long-standing problem is that, especially when it comes to building infrastructure, they are always more susceptible to boring things like transparency and loan standards than Beijing. A recent question is, as China itself withdraws from overseas loans by a large margin, what exactly do countries like the EU and the US want to compete with?

China’s informality and lack of transparency in the “Belt and Road” project has always been one of its strengths: it can make a lot of money soon.As a few interesting recent Academic papers Zeng argued (our description, not the author’s description) that China’s overseas business is not to create a new business order based on hard law rules, but based on a flexible soft law framework designed to promote investment. But the informality and politicization of loans also means that interactions can quickly deteriorate, with few remedies.

However, China has Drastically reduced Its crude policy is to spray around loans in developing countries.Even if you’re not sure about the numbers in the research widely discussed by Boston University scholars Plummet Since 2016, China’s foreign loans have No doubt In the past few years, it has been falling rapidly. The pandemic will almost certainly get worse, especially because the deteriorating debt sustainability of existing borrowers shows the risks involved. Of course, China can shift more to actual foreign direct investment, but this involves cash.

China’s “double-cycle” strategy of paying more attention to the domestic market does not mean isolationism, but a narrower focus on building a global value chain, based on technical standards such as 5G and artificial intelligence, to benefit the Chinese economy. It’s not just about building ports and railways.

It is in this context that a Major project The Committee on Foreign Relations of the United States has drawn some interesting conclusions on the impact of the “Belt and Road” initiative on the United States. It stated that instead of trying to respond to China with “one dollar for one dollar or project for project”, it should focus on the areas where it has technological advantages and the company’s location, and strive to achieve transparent legal standards supported by a large amount of private capital. There are advantages.

Sounds wise in principle. But in some areas (5G) it is too late: the United States does not have a strong market position. In other cases, we believe that the introverted attention and rent-seeking behavior of American companies and governments often hinder this.

The report specifically mentioned that medical devices and medicines are areas of strength in the United States. The Covid-19 pandemic was originally an excellent opportunity for the United States to build alliances in the emerging world, first by providing protective equipment and then by providing vaccines. In practice, it first pays more attention to domestic aspects. Its exports and a more general international dimension are coming soon, except for the main surface behavior that we believe to support the abandonment of World Trade Organization vaccine patents in principle. The United States has not yet managed to use its technological superiority to realize its global superiority.The protection level of Chinese vaccines against Covid infection may be lower than that of U.S. products, but they have Publish millions of.

It is certainly true that rich countries should seek to export ideas and institutions to the emerging world rather than cheap (or at least unconditional) loans. But their economic and political system has not yet been properly established. We will discuss this issue in more detail in a future newsletter: at this time we are just noticing that what we are seeing so far does not solve the problem in our opinion.

Concession waters

Earlier this week, Martin Wolf, the chief economic commentator of the Financial Times, explained why a sovereign country cannot be independent of the European Union. The reality of relative strength means that Britain and the European Union are now — and will continue to be — far from equal. If your economy and population are much larger, then it turns out that you can make more rules than your smaller neighbors. Who would think of it?

In any case, one aspect of the EU’s power to force the UK to comply with its own rules lies in trade imbalances. As shown in the figure below, almost half of the UK’s exports go to the European Union. For the EU, this proportion is about 15%-and their share of EU GDP is much smaller. Claire Jones

Trade ties

At the core German export machinery Is the automotive industry, but as the Frankfurt team of the Financial Times report, Supply chain deadlock Is dragging down industrial production. FT has one Great work in The rise of COMAC, Rivals Boeing and Airbus supported by the Chinese government.

Nikkei report ($, subscription required) in Compensation agreement between the Suez Canal and Ever Given The Japanese shipowner, this means that Egypt has allowed the container ship to resume sailing three months later.Low price Electric cars of Chinese automakers Yes Lopsided Japan’s Mitsubishi Motors has a key Southeast Asian market.

Marsh McLennan’s Brink platform has one Interesting podcast Worked with Erik Jones, Director of European and Eurasian Studies at Johns Hopkins University, to study reality and potential transformations Leadership of the three major economies in the Eurozone Will affect policy. Claire Jones

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