Jean-Claude Juncker, Xi Jinping, and Donald Tusk, at the 18th EU-China Summit in Beijing. July, 2016. (Credit: European External Action Service/Flickr)
Jean-Claude Juncker, Xi Jinping, and Donald Tusk, at the 18th EU-China Summit in Beijing. July, 2016. (Credit: European External Action Service, 'EU-China Summit'/Flickr licensed under ) (via: bit.ly)

Since the end of the Soviet Union, different initiatives have been proposed to revitalise the ancient Silk Road and to reactivate transcontinental trade.

However, plans like the Kazakh president’s original idea of a post-Soviet Eurasian integration (Weitz 2008), Russia’s Eurasianist rhetoric, the European Union-backed TRACECA initiative for the creation of energy transportation corridors to the Caucasus and Central Asian Countries, or the more recent “New Silk Road Plan” announced by former US Secretary of State Clinton in India in 2011 for the reconnection of  Afghanistan with Central Asia and the Indian Ocean (Clinton 2011), have all had a fairly low impact on continental trade.

It was, hence, not until China’s President Xi Jinping’s announcement of a Chinese version of a “New Silk Road” that rhetorical announcements for the first time seemed to have the potential to be turned into reality, given China’s geographical and economic advantage in Eurasia compared to other countries.

In 2013, in a speech at the Nazarbayev University in Kazakhstan, the Chinese president launched the idea of reconnecting Eurasia via new overland transport and trade routes in what he defined as the “New Silk Road Economic Belt” (Xi Jinping, 2013a).  In October 2013, he then gave a similar speech in Indonesia, laying out the vision of a “Maritime Silk Road” across the Indian Ocean (Xi Jinping, 2013b). Since this time, both components, the continental and the maritime, are commonly referred to as the One Belt One Road initiative (OBOR). This was officially released by China in 2015 (State Council of the People’s Republic of China, 2015).

By sea and by land, the initiative aims – via an integrated intermodal network of ports, gateways, dry ports, railways, highways and industrial parks – connect not only China and Europe, but all the countries and regions on route from South-East Asia to the Middle East, East Africa, Central Asia, Russia and – particularly relevant for the EU – Central and Eastern Europe.

Although rail connections and logistics products have been established between China’s central and western cities (Chonqing, Chengdu, Yiwu, Wuhan) and German ports and dry ports (Duisburg and Hamburg) since 2008, with more than 800 trains running yearly as of 2014 (Think Railways 2016), the Chinese initiative is not simply an ambitious transcontinental infrastructure project, but a trans-regional initiative for the economic and industrial co-development of the vast space between China and the developing economies of the Afro-Eurasian belt. It is supposedly non-hegemonic in scope and open to all interested countries.

Four years on from its initial announcement, the ambitious initiative has indeed retained its appeal as seemingly the only great vision which could prove able to re-energise and reshape the global economy and the global order, in a time of increasing economic nationalism, protectionist trends, slower growth, and potential fragmentation of the global economy. So far, China has committed up to 100 billion US dollars to OBOR, split between national institutions like the New Silk Road Fund and the China Import-Export Bank, and new multilateral regional institutions like the Asian Infrastructure Investment Bank (AIIB).

However, with the financial need for infrastructure development in Asia calculated at 1.7 trillion US dollars yearly until 2030 (much of this in transportation and power generation networks) (Asian Development Bank, 2017), OBOR can only be considered an initial attempt to catalyse different financial resources for closing the infrastructure gap.

In economic terms, the re-connection of Eurasia is a process which goes well beyond China’s capabilities and which poses big challenges for Beijing. In fact, the economic rationale behind this process is rooted in long-term structural changes, both domestically and externally, which pre-date the OBOR strategy and which have impacted both China and other Eurasian countries, including Europe, at least since the middle of the 2000s. The effects of these changes have only been augmented by the 2008 economic and financial crisis.

Geopolitically, the OBOR initiative might only prove successful if it is able to act as a catalyst, gathering financial resources and political support from other complementary initiatives like the Russian-led Eurasian Economic Union, Kazakhstan’s New Path Plan, as well as from multinational institutions.

Indeed, China’s indispensable role in the Eurasian reconnection does not translate automatically into hegemony, as the country faces rising challenges the more it gets entangled in different and diverse regions that Beijing is barely familiar with. Nevertheless, China’s rising presence across Eurasia might be perceived more as a neo-colonial attempt than an open platform for fostering cooperation among equal partners. In order to overcome scepticism about its true intentions, Beijing will need less rhetoric and more concrete and coordinated cooperation with other crucial countries.

Among China’s most important partners, Europe and Germany both play a crucial role and they are also indispensable partners for the full realisation of the Russia-led Eurasian Economic Union, notwithstanding the deep crisis in relations between Moscow and Europe.

The EU and its biggest economic powerhouse, Germany, have for a long time only slowly reacted to these broader continental changes. Today, the need to formulate a strategically coherent approach towards broader Eurasia, and particularly towards both Russia and China, is more urgent than ever.

Europe and Germany both face risks and challenges which arise from at least three crises: a transatlantic crisis following the increasingly protectionist and isolationist stance of the new US administration; a trans-European crisis, emerging as a consequence of strained relations with the traditional Russian partner after the Ukraine crisis; and an intra-European crisis as a consequence of both external pressures (the migration crisis) and internal political-economic divisions.

This paper will answer four main questions. What are the main drivers behind Eurasia’s reconnection? Why has the reconnection accelerated in the past decade? What is the scope and rationale of China’s One Belt One Road initiative, and other similar initiatives? How are Europe and Germany reacting to this process?

Accordingly, the paper will firstly discuss how structural changes in global and continental trade flows since the early 2000s have affected the strengthening of intra-Eurasian trade ties pre-dating Xi’s OBOR initiative. It will show how, for at least a decade, emerging transport connectivity and trade exchange between different Eurasian regions have increasingly been blurring the idea of separated regions and creating a continent of interconnected macro-regions that are re-organising the Eurasian space along new lines.

Secondly, against the backdrop of this structural transformation, it will briefly discuss the origin and scope of China’s One Belt One Road initiative along with similar initiatives in countries like Russia and Kazakhstan. By doing so, this will show both the common interests and the strategic divergences among these latter two players in their interaction with China’s OBOR and will stress the need for a less Sino-centric view of the remerging Eurasia reconnection. While largely unleashed by China’s domestic transformation, this process is less an exclusive result of China’s grand visions, and more a response of different Eurasian countries to long-term changes.

Finally, the paper will focus on how the European Union – particularly Germany – is being affected by increasing Eurasian interactions, which strategies and tools the EU is adopting, and which challenges and risks it is facing, particularly in the crucial Central, Eastern, and South-Eastern European space, where the unexpected Chinese variable might change the region’s strategic equation.

1. Before OBOR: Shifts in the global economy and Eurasia’s re-connection

In the time between the break-up of the Soviet Union and the economic and financial crisis, the world economy changed dramatically, growing even more integrated and interconnected. Particularly in the first long decade of the twenty-first century, global trade increased and accelerated, along with widespread and sustained economic growth. For instance, until 2012 – with exception of the crisis years – on average, global trade grew at around twice the rate of the broader economy (World Trade Organization, 2014).

In the past four years, sinking oil commodity prices and major political-economic tensions in the US, Europe, and China have caused an unprecedented slowdown in both global growth and trade. Indeed, the world economy is still struggling to recover back to its pre-crisis level (Figure 1). Against this backdrop, while general trends point to a more “normal” or “slow” growth in both advanced and developing economies, and the IMF considers this proof of a synchronised “slowdown” (IMF, 2016a, 65), developing economies have still kept growing more rapidly than advanced Western economies (Figure 1; WB, 2016).

Among developing countries, China, India, and South-East Asia have all retained sustained growth and will remain the world’s economic engine for the decades to come, with the Middle East and the former Soviet space being increasingly dependent on and linked to the economic dynamics in the Asian region (IMF, 2016b).

In fact, while protectionist trends spread rapidly in both the US and Europe, in a reaction to the perceived negative effects of free trade on their manufacturing and industrial bases, Asian and Eurasian countries seem keen to keep their economies open and still see cross-border trade as an instrument of development.

President Xi’s latest Davos speech has shown the paradox of a formally communist and non-Western country emerging as the champion of free trade amid an increasingly inward-looking West. (Xi Jinping, 2017). While doubts must be expressed about Xi’s intentions, there is no doubt about the far-reaching geopolitical and geo-economic implications for the global order, should the One Belt One Road initiative, which China presents as an alternative model of economic development and prosperity based on open markets and free trade, be realised.

Figure 1: Eurasian, EU and World GDP growth, selected regions and countries, 2000-2012.

Source: World Bank Data, *African Development Bank **Eurostat, various years, author’s graph

Doubtless, the effects of this tectonic shift towards a less Western-centred world economic system are becoming most visible in the vast Eurasian space, where energy producers, new Asian manufacturing powerhouses, and old European advanced economies converge and interact. It is in Eurasia that accelerated growth and trade in the decade before the 2008 financial and economic crisis and the more recent post-crisis slowdown have most clearly shown the increasing correlation and interdependence between affluent Asian markets (China and India) and various Eurasian energy-producing emerging countries (Calder, 2012).

However, while China might offer the world a more coherent vision of an interconnected continent, it is doubtful that China alone will have both the resources and the geopolitical leverage to energise and realise its vision alone. In fact, Eurasia itself has been undergoing a process of unprecedented geo-economic transformation, spatial re-structuring, and dynamic re-connection at least since the mid-2000s. Although largely influenced by ongoing transformation in China, these changes both pre-date China’s grand vision and transcend it. Three major long-term shifts form the basis of Eurasia’s reconnection.

Firstly, there has been a shift in the centre of economic gravity towards Asia, which is now increasingly centred on competing in increasingly interconnected geopolitical poles (Kaplan, 2012; Richman, 2016). Secondly, there has been a massive re-orientation of intra-Eurasian trade flows towards the Asia-Pacific space, matched by an increasingly self-sustaining dynamic in bilateral trade between Asian and Eurasian developing countries (Pepe, 2016, chapter 3).

The initial energy-driven trade interaction between the Persian Gulf and Northeast Asia has begun to catalyse a much larger, truly continental, process. This increasingly involves a rising number of regional and continental players, from Russia to Kazakhstan, and from Turkey and Iran to India. With many Eurasian energy producers – mostly Russia, Central Asia, and the Gulf – pivoting towards the affluent Asian energy markets, the re-emergence of long-dormant inner-Asian connections is now expanding well beyond energy flows and increasingly including trade in final and industrial/intra-industrial goods (Calder, 2012; Pepe, 2016).

Indeed, trade between developing Asia and the rest of Eurasia has grown disproportionately quickly compared to trade with Europe and the EU. As shown in Table 1, the EU is still the single biggest destination for developing Asia’s exports. However, manufacturing exports to the Middle East, Iran, Turkey, Central Asia, and Russia have increased dramatically.

With China taking the lion’s share of Asia’s manufacturing exports, Asia’s combined exports to the less-connected areas of former Soviet Eurasia, the Middle East, and Africa already accounted for about 15 percent of its total merchandising trade in 2012, the year before OBOR was launched. Notwithstanding the economic slowdown of the past two years, this trend continued during the period 2013-2015, as WTO export statistics confirm (WTO, 2015, 7).

Meanwhile, Russia has lost its pre-eminent economic role in the former Soviet space to China. These two effects, combined, might have a major impact on Eurasia’s geo-economic configuration, which is becoming less Euro and Russian-centric as its centre of gravity moves south and eastwards (Pepe, 2016, chapter 3; Table 1).

Table 1: Developing Asia (including China and India) manufacturing trade (total and export) with Eurasia, disaggregated by regions, in billion USD, 2000-2012.

Source: IMF, Direction of Trade Statistic, author’s table and calculation

Finally, a third shift has taken place in the economic geography of supply and value chains. The spread of global and regional value chains in developing countries has led these countries to participate more in complex manufacturing processes, moving from simply assembling to more advanced production processes (United Nations Conference on Trade and Development, 2015, p. 10-11). While this process has been particularly pronounced in Asia, specifically in China, and more marginal in Africa or in Central Asia, the geographic proximity of energy-rich countries, new manufacturing poles, and future final markets (Economist Intelligence Unit, 2016) concentrated in a contiguous geographic space that encompasses both continental and maritime Eurasia, points to a structural shift in trade paths.

Moreover, accelerated processes of industrial clustering and the urbanisation of rural areas in hinterland Eurasian regions like China’s central and western provinces have made this process more diffused and less dependent on coastal areas (Pepe, 2016, p. 305-340).

More recently, partially as a long-term consequence of the 2008 global economic and financial crisis, three further structural trends have added to and modified this general picture. Firstly, the structural level shows a trend towards a stronger re-regionalisation of power and trade dynamics, with free trade agreements and economic integration initiatives at bilateral, regional, and continental levels emerging as the main drivers of a world of macro-regional trade blocs (Regional Comprehensive Free Trade Agreements, the Eurasian Economic Union, OBOR, as well as the apparently failed Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership).

The powerful forces unleashed by the first stage of accelerated globalisation and the consequences of the 2008 financial and economic crisis are, paradoxically, leading to a geo-economic fragmentation of the world economy into macro-regions (Charrel, 2015). With the global economy still unevenly dependent on Asia’s growth, in the light of intra-regional integration and interconnection, a process of re-aggregation of economic and commercial dynamics is taking place at a continental and regional level. Hence, sub-regional, intra-regional, and continental trade ties are gaining relevance above more global trade paths.

Secondly, at the trans-national/trans-regional level, a trend towards the digitalisation of production processes and logistics (the Internet of Things), embraced in Eurasia by both Germany and China, will radically transform global value chains and intensify the process of re-regionalisation of industrial and manufacturing production processes and of access to final markets. This will directly affect the way less connected regions like Central Asia or Central-Eastern Europe integrate into regional and global value and supply chains.

Thirdly, at the domestic level, following low oil prices, the transformation crisis in China, and slowing economic dynamics across Eurasia, a trend towards economic modernisation and diversification of major Eurasian economies – both in manufacturing Asia (China) and in energy-producing countries – is forcing developing Eurasian economies to re-think the future of their economic models.

Certainly, both advanced and developing economies are still suffering from the consequences of the 2008 financial and economic crisis, and future challenges and risks to emerging Eurasian and energy-producing countries will still arise from global financial and economic developments. Conversely, the advanced Western economies, both in Europe and in the US, still show high levels of technological, financial, and economic development and crucial political-military assets.

However, with the West stuck in anaemic growth and unable to act as new propeller for global growth (OECD, 2016, 1),[1] the future of emerging Eurasian countries like those in Central Asia, like Iran, or even Russia, and the modernisation and diversification of their economies, might very well depend increasingly on their strengthening ties at a continental and regional level with the dynamic economies of developing Asia, China, India, and South-East Asia (OECD, 2015).

2. China’s OBOR; Russia’s Eurasian Economic Union; Kazakhstan’s New Silk Way

The logic behind the OBOR initiative is complex and multi-layered. It can indeed be essentially defined as a proactive response of the Chinese leaders to both long and short-term, domestic, and external changes.

Accordingly, it encompasses at least three dimensions: domestic macro-economics, geo-economics, and geopolitics. In terms of domestic macroeconomic changes, when Xi launched the initiative, China’s growth was already slowing down in comparison with the two years which followed the 2008 crisis (World Bank, 2017). Thanks to the heavy 600 billion US dollar stimulus package which the government approved a few months after the Lehmann shock (The Economist, 2008), the country proved able to recover rapidly compared to the West (Kroeber, 2016).

However, the overcapacities generated by the stimulus packages in the heavy industries, particularly in the steel and concrete industry, the huge liquidity accumulated in the banking sector, and the plan to adjust to changing global economic conditions by switching from an investment-led to a consumer-led economic model are considered the “hidden” reason for OBOR (Lin, 2015).

Hence, the perceived symbol of China’s increasingly self-conscious global role is seen by many as a functional instrument to soak up production, liquidity, and investment overcapacity, by exporting it abroad.

While all these reasons may be true, the largest amount of investment from the stimulus package targeted much-needed expansions in the transportation sector, which was already receiving consistent amounts of money before 2008. With the aim of closing the infrastructural and industrial gap between coastal and inland regions, transport infrastructure connection had become paramount for China’s model of growth in the previous decade.

Rising labour costs on the coast, the need for the urbanising of rural areas, and for keeping land prices high, was matched by business-friendly politics and the attraction of FDI in high-tech manufacturing in internal areas. This has led to the rapid development of central city-regions like Chengdu Chongqing, which is now spreading into remote western cities like Urumqi and Kashgar. (Deutsche Bank Research, 2016).

The development of a vast high-speed and conventional rail network has been, hence, not simply driven by macroeconomic cyclical needs, but by the changing economic geography of the country. The emergence of new growth poles inside China has increased the rationale for cross-border trans-regional connections.

This domestic transformation has had, in exchange, unintended geo-economic and geopolitical implications. For the first time, China has been able to plan the creation of alternative continental routes to lessen its dependence on the sea-lines crossing through the Malacca Strait, one of the most crowded and vital choke-points for international energy and manufacturing trade.

Meanwhile, the streamlining of logistics services along already existing corridors across the entire continent has become crucial to both increase ties with Europe and further accelerate diversification from Europe to new final markets “on route” (National Development and Reform Commission, 2016).  The continental dimension of this initiative, even though quite vague in its formulation and potentially ambiguous as to the hegemonic claims which might lurk behind it, has almost accidentally become the first step towards a possible post-Western global order for which China is probably not yet ready.

That said, taking a look at the rapidly evolving and complex infrastructure map of Eurasia, the boom of different rail and intermodal corridor projects which partially overlap the Chinese-prioritised corridors (Figure 2) was never limited to China and started well before the OBOR initiative. At national level, the expansion or modernisation of domestic transport networks, specifically rail and logistics, even though to a much less extent than in China, has been taking place in various key Eurasian countries on route to Europe and the Middle East since the second half of the 2000s, along with the formulation of domestic and foreign policy strategies aimed at capitalising from China’s economic developments.

Russia and Kazakhstan are two of the most prominent examples of this development.

Figure 2 OBOR corridors and other Eurasian Transport Sea, Rail and Intermodal Routes (built, in-process, and planned corridors), 2015.

Source: Author’s map

Russia’s trade with China has increased dramatically (Pepe, 2016, chapter 3), even though it has proved particularly sensitive to the collapse of oil prices and the slowing of China’s economy. Russia-China relations reached a new peak in 2014 with the signing of a 400 billion US dollar heavy gas deal which should pump 30 billion m3 of gas to China, starting in 2020. Amid strained relation with Europe after the Ukraine crisis and the launch of OBOR, Russia has accelerated its “pivot to Asia”, hoping to rebalance its traditional ties with Europe (Karaganov, 2016).

The idea of a Eurasian Customs Union, and of a Eurasian Economic Union, dates back to 2008, well before the OBOR initiative was launched and so not directly in response to it. At that time, it seemed only another rhetorical attempt to foster post-Soviet integration. However, the destabilising effects of the world economic and financial crisis, as Julian Cooper (2013, p. 83) has pointed out, may have eventually let the interests of Russia, Kazakhstan, and Belarus converge around a more serious attempt to set up a regional economic block, potentially able to withstand future global crises.

In June 2009, a Single Economic Space (SES) was agreed upon, and eventually, it was agreed that the Eurasian Economic Union should be realised by 2015. Following these events, in January 2010 a common customs tariff was agreed upon, and in July 2010 a common customs space, followed by a Common Customs Code, was created. As of 1 January 2012, a big step had been taken towards a Single Economic Space by removing all barriers to trade, capital, and labour, and institutional bodies like the Eurasian Economic Commission and a Supreme Council had been created. In 2015, the Eurasian Economic Union was officially launched.

Along with a global economic rationale, however, Russia re-discovered regional integration as an instrument of domestic economic diversification and geopolitical power projection. President Putin’s electoral article in 2011 articulated a vision of a separate regional block for the first time, where he mixed a genuinely liberal approach towards transnational economic integration with more geopolitical and political considerations regarding re-establishing Russia as one pole in a multipolar Eurasia (Kazantzev, 2014, p. 59-91). The EEU has retained this ambiguity until today, adapting to changing conditions.

Indeed, in the following years, Russia’s economic dependence on its energy exports, its scarce complementarities with other former Soviet republics, the sustained growth of the Chinese and Asian economies compared to Western European countries, and the Ukraine conflict, have led Moscow to adapt its project to changing geo-economic realities and decisively prioritise the idea of a “block”, which was supposed to integrate with Asia, rather than the idea of a “bridge”. The EEU should now help in re-balancing Russia’s dependence on the European energy market and on capital goods imports from Europe, by leveraging the OBOR initiative and taking advantage of China’s economic strength, particularly in Russia’s far east (Karaganov, 2015).

Meanwhile, with the attempt to coordinate OBOR and the Eurasian Economic Union, Russia has also tried to react to the increasing economic penetration of China in Central Asia. By way of creating a common customs space with other Central Asian countries, particularly Kazakhstan, Russia has tried to counter China’s influence in the former Soviet backyard while retaining the role as an exclusive bridge between Europe and China.

Indeed, Russia has proven able to block, for a long time, any attempt to bypass its own territory. While China’s OBOR was originally seen both a chance and a danger for the country’s role as transit space between Asia and Europe, Moscow was able to include the Trans-Siberian Line in China’s OBOR plan (Northern Corridor). After all, this is still the most well-developed trans-Eurasian corridor to reach the European market. Moreover, Russian Railways and its logistics providers have worked on new logistics services with both German and Chinese companies and tried to harmonise these services inside the Eurasian Economic Union with the creation of the Unified Logistics Company.

However, although the Union today is indeed bringing de facto benefits both to its members and to China as a facilitator of transit trade between the two edges of the continent, changes in China’s economic geography, its attempt to diversify both routes and final markets, and scarce interests for exclusive bilateral trade relations have increasingly challenged Russia’s position both in Eurasia and inside the EEU.

Specifically, Russia’s idea of leveraging relations with China to develop the eastern Siberian regions while retaining a monopoly on transit routes across Eurasia is proving increasingly complex. Indeed, the scarce interest from Chinese partners for consistent investments in Russian infrastructure, and sinking Chinese energy demand in a period of slowing economic dynamics, have left Moscow wondering whether the ‘Asia Pivot’ might have turned into a one-sided dependence on China without meanwhile being able to stop China’s attempts to by-pass Russia in Central Asia and across the continent.

One of the main reasons for this has been the growing role of Kazakhstan in Eurasia’s transport equation. Kazakhstan is not only China’s most important partner in Central Asia, but its exports to China are already higher than to Russia (UNCOMTRADE, 2016). The country has rapidly tried to take advantage of this situation. It is attempting to establish itself as an indispensable player for both China and Russia in transcontinental transport services while seeking alternatives to balance its dependence on trade with Russia, and diversifying its economy.

Evidence for the high priority that long-distance rail projects and logistics have enjoyed in Kazakhstan both for domestic and international policy goals is provided by the New Silk Way strategy. This strategy, approved in 2011, thus predating China’s OBOR, and resulting from the consolidation of different transport and industrial development strategies, was included as a main part of President Nazarbayev’s Stimulus and Modernization Plan, “Nury Jhol – The Path to the Future”, approved in 2014. Industrial diversification and transport modernisation are now top priorities for the country in its attempt to escape “the resource curse” in a time of low oil prices (Nazarbayev, 2014).

By developing just a few crucial rail lines to enhance connectivity inside the country and opening a new border crossing point and dry-port in Khorgos, at the border with China, Astana has become crucial for Beijing’s plan to create an alternative gateway to West Asia and Europe which could, eventually, bypass Moscow entirely.

Moscow, for its part, needs the trans-Kazakh routes to attract traffic from central China to the western part of the Trans-Siberian line.

The Kazak strategy aims to use all the advantages of the participation of the country in the Eurasian Economic Union to reach out to Europe via the northern route while re-balancing transport dependence away from the Russian rail system with fully-fledged integration in the rail networks of southern, South-East Asia, the Caucasus, and the Middle East, and further afield, with Europe.

Both Russia and Kazakhstan, while competing for transit trade along some routes, both have a common interest in integrating the EEU common transit, transport, and customs space into the OBOR initiative in order to raise reliability and the ability for seamless transit. China, for its part, while potentially able to leverage the Kazakh route against the eastern section of the Trans-Siberian line, needs both countries to reach out to Europe.

China’s OBOR and different initiatives by Russia and Kazakhstan show that while undoubtedly China-driven, the process of Eurasia’s reconnection is far from being China-centred.

That said, the strategic OBOR move has channelled economic and political resources, energising and accelerating the on-going geo-economic re-configuration of the central Eurasian space and its transport re-connection. The effect of structural long-term transformation, the Chinese initiative, and the convergence of other similar plans in countries like Russia and Kazakhstan will presumably accelerate spill-over effects on other in-between spaces similar to Central Asia, considered for a long time peripheral to global and continental trade.

These spaces are now emerging as part of a common interconnected space of co-development which is, in this way, directly affecting Europe.

3. Eurasia’s reconnection: Implications for Europe and Germany

Considering the ongoing tectonic transformation and the different initiatives across Eurasia from a European perspective, it seems clear that the EU needs to rethink its approach to Eurasia profoundly and rapidly.

The EU has traditionally looked at Eurasia in a selective and narrow fashion. It has approached it in two main ways: via bilateral relations with Russia, and via the step-by-step integration and stabilisation of non-EU members in Central-Eastern Europe, the Western Balkans, the Caucasus, and Central Asia.

With the outbreak of the Ukraine crisis, the idea of an uninterrupted expansion of Europe’s economic influence and institutions in Central-Eastern Europe has taken hold. Against this backdrop, the creation of the Russian-led Eurasian Economic Union in 2014-2015 has been considered less a serious attempt for regional economic integration and more a classical geopolitical tool aimed at guaranteeing Russia’s sphere of influence in the former Soviet space vis-à-vis further expansion of EU influence.

Only when relations with Russia dramatically worsened, along with increased destabilisation in Ukraine and the north-eastern Mediterranean, and Russia’s turn to Beijing seemed to announce the formation a Eurasian geopolitical axis, did Brussels start to consider possible cooperation with China’s OBOR as a potential means to escape the Russia–Ukraine conflict trap, and, in the meantime, as a means to reinvigorate relations with a vast number of actors in Central Asia whose strategic importance for Europe has diminished in recent years.

Only very recently, however, has the EU undertaken a series of proactive initiatives, mainly aimed at finding ways to coordinate its tools with China’s proposed instruments. After all, China’s pragmatic approach has clearly targeted Europe as one of the key final destinations of its initiative, seeing countries like Germany, Italy, and the United Kingdom both as important trade partners for its own industrial modernisation, and as destinations for its increasing foreign direct investments.

At the seventeenth EU–China summit in 2015, connectivity and integration of intra-European and trans-Eurasian transport corridors became key new areas for concrete cooperation between the EU and China. A new mechanism for cooperation was introduced as the “EU–China Connectivity Platform.” This aims at working out synergies between the OBOR initiative and the Juncker Plan for Infrastructure Investments, particularly focusing on integrating the Trans-European Transport Network TEN-T (European Commission, 2005) and OBOR, and exploring joint business and investment opportunities.

The Junker Plan and the TEN-T Networks (Trans-European Transport Networks) have been identified by the EU as complementary to OBOR instruments like the AIIB, the New Silk Road Fund, or the loans and credits schemes offered by Chinese policy banks (EU, Government of China, 2015).

However, what is still lacking is a broader European geo-strategic vision which relates stabilisation, association, and pre-accession agreements with EU non-members at its eastern periphery and a renewed engagement with the eastern European EU-members with the larger transformations on the continent.

For example, the TEN-T Network corridors were originally developed to create a common intra-European rail and transport space based on the principles of interoperability, multimodality, third-party access, safety, and security. These were re-thought in a more global manner in 2005 and extended to non-EU neighbours to the east and south. However, the corridors through non-member states like the Western Balkans, the Caucasus, Turkey, and other Mediterranean areas are still underfinanced, and missing links along the routes still exist. Likewise, the TEN-T corridors did not integrate functionally with other proposed Eurasian corridors like the OSZHD, TRACECA, and CAREC corridors.

The coordination of the TEN-T corridors with other transport projects outside the EU has been delegated to other more comprehensive initiatives like the Eastern Partnership, the Neighbourhood Policy, the TRACECA framework, or – in the case of the Western Balkans – different pre-accession instruments (IPSA) or Stabilisation and Association Agreements. Accordingly, the technical and economic realisation of a common rail and transport space inside the EU (still hampered by border-crossing barriers at its national borders, different technical hurdles, and chronic under-funding) should have been developed alongside similar plans for non-member states on the EU’s periphery and for more remote regions across the Eurasian continent.

The EU institutions in general, and leading European countries like Germany in particular, now seem increasingly aware that a broader connectivity agenda across Eurasia is superior to any selective approach based on fragmented European initiatives and a multiplication of instruments, agencies, and cooperation schemes.

Different financial and juridical instruments and tools now need to be merged in order to approach the entire space stretching from the eastern border of the EU to China. This should include – besides Russia – both Central-Eastern European member states, the Balkans, the Caucasus, and Central Asia, Turkey, and even Iran in an increasingly geo-economically interconnected space.

Against this backdrop, a space which might become a source for both greater integration and cooperation and of greater division both inside and outside the EU is Central-Eastern Europe.

The EU must strongly and strategically re-engage the space that – owing to historical experience, geographic contiguity, and new geo-economic realities – is now evolving again, transforming from an EU periphery, between Europe and Russia, into a natural point of entry and linking-node between Western Europe and the broader Eurasian space, encompassing Russia, Central Asia (particularly Kazakhstan), and China.

Indeed, together with Central Asia, this vast region – which includes both EU and non-EU members and stretches vertically from the Baltic to the Western Balkans – is geographically and geo-economically the common platform where Chinese, European, and Russian initiatives could meet and potentially integrate. Unlike Central Asia, however, Central-Eastern Europe is not simply part of the European economic and political space, but the geographic and infrastructural highway from the south and the east to the heart of Germany, Europe’s economic powerhouse and logistics hub.

In a time when tensions between Berlin and traditional partners like Italy and France over diverging economic performance and political-economic visions are matched by increasingly tense relations with some nationalist and anti-European governments in Eastern European countries like Poland and Hungary, it is in Germany’s primary interest, as the leading economy and political country in Europe, to develop a coherent and coordinated approach to this space, where new and old Eurasian powers are now converging.

In fact, if a new diplomatic and political divide across the EU emerges both among western members as well as between them and eastern members, Germany might find itself needing a balance between commitment to the eastern EU members and its geo-economic integration within Central-Eastern Europe.

Germany’s geo-economic pre-eminence in Europe has indeed been favoured by its central position and by the logistical and economic integration of Eastern and South-Eastern European countries into the industrial supply chains and regional production networks of its companies (European Central Bank 2013, 15-16). This is reflected in the strong intra-industrial and final trade volumes between Berlin and most of the Central-Eastern European countries, particularly Poland, the Czech Republic, Hungary, and Slovakia (German Statistics Office, 2016) as well as non-member states like the Western Balkan countries (European Commission, 2016).

Germany’s central geographic position is not only crucial for its relations with Central-Eastern Europe but also for its role as a European transit country. For instance, six of the nine core TEN-T corridors cross Germany (Federal Ministry for Transport and Digital Infrastructure, 2016).

China seems to have become aware of the geographic and geo-economic relevance of this space for its relations with both Europe and Germany long before the launch of OBOR. Since the EU enlargement in 2004, Beijing has taken a double-headed strategy. On the one hand, China seeks to strengthen bilateral trade ties with countries in the region, establishing a new presence in this space via the creation of industrial parks and economic zones. On the other, it is looking for alternatives to the northern-European ports to access the affluent markets of southern-central Germany via the east-Mediterranean gateways.

In 2012, China established a cooperation framework with Central-Eastern and South-Eastern Europe known as the “16+1 cooperation framework” (China-CEE, 2012). Its goal is mainly to strengthen trade and transport ties between China and the countries of the region. Since 2012, meetings have taken place regularly, increasingly focused on transport and logistical connectivity in the Western Balkans and on Chinese FDI and trade agreements in Central and Eastern Europe. At the latest 16+1 transport summit in 2016, the participants agreed upon new cooperation guidelines, centred on connectivity, to be integrated into the EU–China Connectivity Platform (Baltic Course, 2016).

At the time of the second 16+1 meeting in 2013, trade between China and the 16 countries had reached 52 billion US dollars and was planned to expand to over 120 billion US dollars by 2020 (Tiezzi, 2014). In 2014 trade exchange had already reached more than 60 billion US dollars. China’s penetration is most visible, however, in the transportation sector: the high-speed railway connection proposed in 2013 between Serbia and Hungary, the so-called Europe–China Land-Sea Express Line, which will be finalised by 2019, will free-up volume for direct connections between the Greek port of Piraeus and Central-Eastern European markets.

Meanwhile, Russia, which is still the main supplier of energy to many of the Eastern European Countries, is also raising its political influence in some of these countries, like the Baltics, Bulgaria, and Hungary, raising questions about the potential destabilisation and the real intentions of the Russian action in this space after the Ukraine crisis.

Against the backdrop of China’s silent but constant inroad into Central-Eastern Europe and Russia’s reinvigorated interest in this region, the EU and Germany have not yet decisively re-focused their strategic attention on the evolving role of this space under changing geo-economic and geopolitical conditions. In fact, connectivity and trade have increasingly turned from instruments for stabilising the European periphery and binding it economically to the EU, to crucial tools for reaching out and linking the EU to other Eurasian spaces and regions.

South-Eastern Europe, Central-Eastern Europe and the Western Balkans should hence be increasingly perceived as a common geo-economic sub-region and not approached bilaterally. For instance, Berlin promoted the first EU–Western Balkan conference in 2014, aimed at strengthening the regional transportation links and trade ties of non-EU members (German Government, 2014). However, this initiative, and the renewed attention given to eastern Mediterranean trade corridors was meant to be a reaction to worsening relations with Russia, and less a strategic answer to Chinese financial, commercial, and diplomatic penetration in South-Eastern, Central and Eastern Europe, directly related to the OBOR initiative.

Indeed, both China’s OBOR strategy and Beijing’s engagement in Central-Eastern Europe might offer a great chance for the EU to turn the Central-Eastern European countries into a first concrete test for enhancing cooperation with Beijing, while finding a common strategic field of cooperation between western and eastern EU-members. By engaging China and its OBOR initiative in Central-Eastern Europe, the EU could become, again, a strategic, proactive rule maker in this key geographic space while developing its own vision for a re-connected Eurasia based on its own geo-economic priorities.

While offering the EU the chance to balance both Russia and an increasingly isolationist US administration, a proactive approach to China in Central-Eastern Europe could also help re-start relations with Moscow in the form of a triangular cooperation with both OBOR and the Eurasian Economic Union.  Indeed, either the EU and Germany become the rule makers in Eurasia’s reconnection, by setting common standards and clear rules in the face of increasing Chinese are Russian activism, or the risk for both the EU and Germany will be further division inside the EU and potential international marginalisation.

4. Conclusion

In the past 15 years, the geo-economic structure of Eurasia has changed dramatically. A shift in the centre of gravity of the world economy towards Asia and China, rising intra-Eurasian trade flows, and changes in the economic geography of value and supply chains have decisively advanced the reconnection of the Eurasian space.

As old legacies weaken, new trade relations and transport linkages develop and Eurasian regions and sub-regions long considered peripheral are now becoming central bridging spaces. China’s One Belt One Road initiative has catalysed much attention and China is the undisputed driver behind the latest attempt to deepen intracontinental ties.

However, this paper has shown that mutual interdependencies started to rise before China’s plan was unveiled. Different visions for the reconnection of Eurasia have emerged beside China’s, and all, including Beijing’s plan, are more a response to long-term trends than short-term policy measures. Moreover, the Eurasian Economic Union and the Kazakh National New Path Plan have shown that both economic complementarities and strategic divergences might exist among different strategies and that only coordinated development can foster deeper Eurasia reconnection.

The EU, still one of the largest trading partners for many Eurasian countries, has partially lost its exclusive centrality and its attractiveness as sole stabiliser and welfare provider at its periphery. Against this backdrop, initiatives like OBOR and the EEU have directly challenged the EU’s ability to react strategically to this trend, starting with the space at its southern and eastern periphery in Central and South-Eastern Europe, and in the Balkans. This sub-region should now increasingly be considered an integral part of the infrastructure and trade re-connection process taking place in continental Eurasia and involving regions so far considered by the European Union to be marginal.

The Chinese outreach in the southern and eastern European space, and its integration into Beijing’s OBOR initiative offers opportunities and challenges for both the EU and its key player, Germany.

At a time of internal division and rising divergences on economic and migration issues between western and eastern members, with relations with Russia still strained, and in view of current transatlantic relations and China’s increasing engagement in Europe, the EU and Germany need to rethink their approach to both EU and non-EU members in the East, and find a common and coordinated approach to the Eurasia reconnection.

 

This paper was originally published as The New Silk Road and Eurasia’s Reconnection: Implications for Europe and Germany, in P. Schulze (Ed.). Core Europe and Greater Eurasia. Frankfurt/New York: Campus.

 

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[1] The OECD (Organisation for Economic Cooperation and Development) forecast for 2017 predicts that China and India will grow at 6-6.5 percent and 7.3-7.4 percent respectively, and the rest of the world at 2.5-3.1 percent, with a growth in advanced economies of around 2 percent in the US and 1.4-1.7 percent in the Euro area.