The transport and infrastructure initiatives of China and the European Union show signs of unfolding strategic competition in the Eurasian region. With Russia’s full-scale invasion of Ukraine, Europe and China have lost their shortest land trade route, while the importance of the Middle Corridor has increased. Currently, the parties are interested in establishing sustainable trade routes through Central Asia and the South Caucasus, but the tone of recent statements points to the need for constructive dialogue.
Ursula von der Leyen, President of the European Commission, during a speech at the Global Gateway Forum held on 25 and 26 October in Brussels, noted that the EU prioritises giving recipient countries better choices, as often the proposed investments carry a high price for them, sometimes even limiting their national sovereignty. Thus, many commentators felt that U. von der Leyen was making a veiled reference to the threats of cheap Chinese loans spreading under the Belt and Road Initiative, which requires recipient countries to hand over strategic facilities and sites to Chinese corporations.
In a strategic sequencing of events, the Global Gateway Forum’s timing, nestled between the One Belt, One Road forum (17-18 October) and the forthcoming EU-PRC summit (7-8 December), suggests a heightened backdrop of geopolitical competition. This alignment of forums could potentially color the upcoming summit with confrontational undertones. Wang Yi, China’s Foreign Minister, has expressed a willingness to explore synergistic opportunities between the competing infrastructure projects, while simultaneously affirming China’s resolve to lead in this domain. This situation places Central Asia at a crossroads of geopolitical significance, offering a fertile ground for emerging prospects and opportunities. However, it’s crucial to acknowledge that such market competitions, while potentially beneficial, also carry the risk of adverse impacts.
Pivot to Central Asia
China’s Belt and Road initiative has been underway since 2013 and has committed $1 trillion by 2022, while Europe’s Global Gateway strategy only launched in 2021 and will only mobilise up to $300 billion by 2027.
The Chinese and European initiatives are comprehensive strategic development plans in which infrastructure and logistics projects are part of the programme areas of regional integration.
Central Asia was not an important priority for either programme until the outbreak of the war in Ukraine and the escalation of the Taiwan crisis. Thus, almost simultaneously, the threat of using land routes through Russia with a reorientation towards the Middle Corridor increased and the security of sea routes in the Asia-Pacific region decreased.
At the opening ceremony of the 3rd “One Belt, One Road” International Cooperation Forum, Chinese President Xi Jinping indirectly emphasised the importance of Central Asia by prioritising the development of China-Europe transport routes and the construction of the Trans-Caspian International Transport Route as part of 8 steps to support the initiative.
At the China-Central Asia summit, Xi Jinping said China will provide $4 billion in financial support and grant aid to countries in the region.
In a strategic pivot towards Central Asia, the European Union is increasingly asserting its interests in the region. This was evident during the second European Union-Central Asia Economic Forum, where Valdis Dombrovskis, the European Commission’s Executive Vice-President, highlighted the EU’s intention to explore new trade routes and opportunities connecting Central Asia and the EU. Dombrovskis emphasized the need for investment in addressing transportation bottlenecks and infrastructure development, signaling a clear EU commitment to enhancing regional connectivity.
This focus on transport corridors has been further cemented through the 2020-2030 economic roadmap between Uzbekistan and France and is echoed in a joint statement with German leadership and Central Asian counterparts. The declaration underscores a mutual interest in advancing the Middle Corridor, aligning it with the Global Gateway initiative, and securing financing for these infrastructural endeavors.
Central Asian leaders are reciprocating this interest, actively seeking European investment to bolster their connectivity and infrastructure. A notable instance is Kazakh President Kassym-Jomart Tokayev’s engagement with German Chancellor Olaf Scholz. Tokayev expressed Kazakhstan’s readiness to collaborate on enhancing the Trans-Caspian transport route, ensuring its integration with the Trans-European Transport Network (TEN-T) and the Global Gateway initiative. This highlights a growing alignment in interests between Central Asia and the EU, focused on creating a robust, interconnected transport network that could reshape regional trade dynamics.
Assessing the Global Gateway: A Viable Contender to China’s Belt and Road Initiative?
On 18 November 2022, the joint declaration of the EU-Central Asia Global Gateway Interconnectedness Conference noted the need to diversify transport corridors to strengthen the Europe-Central Asia-Asia axis.
The EU has funded a study on sustainable transport connectivity between the EU and Central Asia, according to which the project will require €18.5 billion.
The European Bank for Reconstruction and Development (EBRD) has adopted a strategy for Kazakhstan for 2022-2027, which prioritises stimulating private sector competitiveness and transport connectivity, financing transport and logistics infrastructure, including roads, warehouses and dry ports, including through the Global Gateway initiative.
Two projects in Central Asia are also announced, namely the digital connectivity of Central Asia (without Turkmenistan) and changing water, energy and climate conditions in the region. Both projects will receive funding of €20 million each. The partners in the digital connectivity project are the European Investment Bank (EIB), Estonia, Latvia and Finland.
Earlier, EU High Representative for Foreign Affairs and Security Policy Josep Borrell noted that the EU accounts for more than 42 per cent of total foreign direct investment (FDI) in Central Asia, while the US accounts for 14.2 per cent, Russia for 6 per cent and China for 3.7 per cent.
However, a more in-depth analysis shows that European investment has so far concentrated on projects in mining and other sectors. For example, FDI from the EU in Kazakhstan from 2007 to 2019 was 40 per cent, which confirms what J. Borrell says, but the bulk of investment (more than 50 per cent) is in the mining sector, particularly oil and gas extraction. At the same time, transport and storage accounted for only 5%.
Chinese companies also invest in Kazakhstan’s mining industry through their own and subsidiaries in the Netherlands, so the share of Chinese investments in other areas may also be higher than officially stated.
Data on the number and cost of transport projects in Central Asian countries financed by China and Europe are compared below.
Information on Chinese projects under the Belt and Road has been prepared by the Central Asia Data Collection and Analysis Team (hereinafter CADGAT) and covers the period from 2013 to 2018. In total, China has allocated about $23.5 billion for 51 railway and road infrastructure projects.
According to the National Bank of Kazakhstan, the amount of foreign direct investment ("FDI") inflows in transport and warehousing from China between 2008 and 2022 totalled $16.9 billion, while CADGAT counted only $14.5 billion. CADGAT has not been monitored since January 2019, so does not count new investment from China.
Similar information on transport infrastructure investments in the Global Gateway Initiative is not available. In addition, the EU and its member organisations, the EIB, GIZ and AFD, do not officially implement transport and logistics projects in Central Asia.
At the moment, the only European organisation from the sources found that is actively investing in transport and logistics infrastructure in Central Asia is the EBRD. The EBRD's investment data for 2018 to 2023 shows 17 projects with investments of more than $656.1 million, which is significantly inferior to the Belt and Road.
Thus, despite Europe's stated interest in expanding corridors for Central Asian integration, there is a low level of investment in infrastructure projects in the region.
China remains the main investor in transport and logistics infrastructure in Central Asia.
The Old World and the Eastern Dragon in Central Asia
The above arguments point to certain signs of unfolding competition between Europe and China for trade and transport markets in Central Asia.
The choice of Central Asia is a natural process, as overheated European and Chinese markets need emerging economies to rebalance themselves.
The seemingly competitive environment also indicates that China and the EU have common interests that could lead to the institutionalisation of cooperation in Central Asia in the future. Going back to the lessons of history, the Silk Road required the co-operation of all trade participants despite intense market competition.
In this respect, the Global Gateway and the Belt and Road can either oppose or complement each other. The only area of real open competition may be the attractiveness of the proposed projects, with the increased role of the Central Asian countries, which automatically become the jury in this competition.
The EU has a certain advantage to become a "partner of choice", being a relatively new player in infrastructure projects in Central Asia and taking into account the experience of China, which allows to achieve objectives at the expense of lower investment and operational costs.
This is underlined by a recent study by Alicia Garcia-Herrero and Robin Shindowski analysing the tone of media coverage of the Belt and Road project in more than 148 countries, where the initiative is only covered positively in Sub-Saharan Africa and Central Asia in 2022.
According to this study, the media tone in Central Asia is already less positive compared to 2017 figures. The declining attractiveness of the Belt and Road can be attributed to problems in the implementation of the initiative. China is taking appropriate actions to improve the situation, which is evident in the 8 steps of the initiative announced by Xi Jinping.
China is focused on developing several transport corridors through Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan to Europe. China's ambitious goals are largely linked to its export-oriented economy, which requires constant availability of markets and uninterrupted supplies of energy resources for the production of goods. Against the backdrop of the escalating situation around Taiwan, China faces the potential threat of losing 60 per cent of its exports and about 70 per cent of its energy supplies across the South China Sea. It is therefore important for it to diversify its transport routes to reduce its dependence on maritime supplies.
In turn, the EU intends to focus more on the "Middle Corridor" through Kazakhstan. However, the EBRD study also notes the importance of developing a corridor through South Kazakhstan to include other Central Asian countries.
Going forward, Europe and China will need to institutionalise cooperation in transport and logistics in order to create a favourable competitive environment for their own companies and to regularly assess corridor performance.
At the initial stage, such a mechanism could take the form of regular meetings that could evolve into interstate structures. Currently, there are China-Central Asia and EU-Central Asia formats, as well as EU-Central Asia economic forums and ministerial meetings between EU and Central Asian foreign policy leaders.
China expressed its willingness to establish a secretariat for the "One Belt, One Road" international cooperation forum. The work of such a secretariat could include managing resources and communication between participating countries on a permanent basis. The European Union may also establish a secretariat for the Global Gateway Forum, which would provide additional opportunities for Central Asian countries.
Some recommendations for Central Asia
Market competition among global players may enable the restart and diversification of stagnant Central Asian economies. In this regard, the countries of the region need to make maximum efforts to create favourable conditions for future investors.
1. Identify opportunities for co-operation between the Belt and Road and Global Gateway in Central Asia.
There are examples of co-operation between the EBRD and the Asian Infrastructure Investment Bank in Central Asia. In 2016, the two banks agreed to share the cost of reconstructing a 5-km stretch of road within Dushanbe, which is part of the road section connecting Dushanbe to the border with Uzbekistan.
2. Promote Central Asia as one of the regions of China-EU rapprochement
A study by the Mercator Institute for China Studies shows that it is difficult to identify a plan for the next EU-PRC summit (7-8 December), as it has recently become more difficult for the parties to reach any compromises.
Increased PRC and EU activity in Central Asia with joint projects could lay down mechanisms for rapprochement. The agenda can be promoted through official channels, major summits and soft power instruments.
The existence of common interests in developing transport routes through Central Asian countries to Europe and vice versa to China could reduce tensions between the two sides.
Many countries that participated in the China Initiative Forum later took part in the European Initiative Forum. Central Asian representatives were present at both forums, although the One Belt, One Road Forum was attended by the first leaders of Kazakhstan and Uzbekistan, while the Global Gateway Forum was attended only by line ministers.
Thus, the Global Gateway should be given greater visibility, thus attracting more investment to the region.
3. Coordinate projects to develop EU-CA-PRC connectivity.
Central Asian leaders at meetings with the PRC and the EU almost always emphasise the importance of developing trade and transport routes, but often the parties implement different projects, which creates more room for competition between the EU and the PRC.
In this regard, Central Asian countries should formulate requests for the development of transport links and coordinate their implementation with stakeholders. In this way, Central Asia will receive targeted assistance.
4. To form a working group for joint initiatives of Central Asian countries under the Commission to jointly monitor the implementation of the agreement on strengthening land transport interconnectivity in Central Asia.
The working group should include staff from the relevant transport ministries of the countries of the region, EU and PRC representatives to find compromises and agree on joint projects for further financial and technical support from the EU and PRC.
The focus of Europe and China on the development of different corridors can help Central Asian countries to diversify transport routes for exports and imports. Central Asian countries can benefit from institutionalising the mechanisms, as they will be able to promote complementary projects on both platforms.
If the Central Asian countries do not take the initiative to look for ways to integrate the Global Gateway and the Belt and Road, then these investments could be detrimental by favouring certain groups and countries while ignoring the needs of the region and individual countries.
Main photo: merics.org