By STUART LAU
with PHELIM KINE
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WELCOME TO CHINA WATCHER. This is Stuart Lau reporting from Brussels, a city on maximum alert following a terror attack in which two people were killed last night. EU leaders will today seek to set aside their different stances on Israel’s fight against Hamas, while Beijing takes a firmly anti-Israel position in order to shore up its standing within the Middle East. We’ll be seeing more of that play out as the week goes on, first with the Xi-Putin meeting in Beijing, then an EU-U.S. summit in Washington. Phelim Kine, as usual, will be with you from D.C. on Thursday.
LEADING THE WEEK: BELT AND ROAD TURNS 10
SUMMONING YOUR ALLIES: China kick-starts a two-day forum today marking the 10th anniversary of President Xi Jinping‘s brainchild, the Belt and Road Initiative. The Chinese leader is due to give a keynote speech tomorrow, in the presence of his best friend Vladimir Putin of Russia, Hungary’s Prime Minister Viktor Orbán and Serbia’s President Aleksandar Vučić. U.S. President Joe Biden, meanwhile, is due to host Ursula von der Leyen and Charles Michel, presidents of the European Commission and European Council, this Friday, with the draft communiqué heavy on “engaging China.” (More on that below.)
MESSAGE FOR EU … VIA HUNGARY: Orbán’s presence in China is a departure from the rest of the European Union which is unofficially boycotting the forum — a marked shift from six years ago when several EU figures, including Italy’s then-Prime Minister Paolo Gentiloni, attended the last such event. “China’s development is an opportunity and momentum for Europe, not a challenge or risk,” Xi’s right-hand man, Premier Li Qiang said in Monday’s meeting with Orbán, who was one of the 27 EU leaders who signed off the EU’s “de-risking” strategy aimed at China.
CHINA TO ‘ENERGIZE’ TWO STATE-SOLUTION WITH RUSSIA: Beijing will seek to work with Moscow to “immediately energize the ‘two-state solution’ as a fundamental solution” over the Israeli-Palestinian conflict, Chinese Foreign Minister Wang Yi told Sergey Lavrov, his Russian counterpart, on Monday, according to the Chinese ministry. “A wider consensus should be sought in order to create a timetable and roadmap toward resuming the Palestinians’ legitimate rights,” Wang said. He, again, shied away from criticizing Hamas directly, and instead said “China condemns all harm to civilians and all acts in violation of international law.”
Public display of affection: In an interview with China's state broadcaster CCTV, Putin called Xi "steady, calm, pragmatic and reliable – a true world leader.” He appeared to mock Western democratic leaders, and said Xi’s long reign — as a result of constitutional rewriting — sets him apart from the “temps.” “The temps only show off on the world stage for about five minutes before becoming lost to world history. However, President Xi is another kind of person,” Putin said. Watch here for more.
Russia, though, wants less reliance on Chinese drones: Speaking ahead of Putin’s departure, Russia’s Finance Minister Anton Siluanov told lawmakers that the country’s drones — which have played a big part in its war against Ukraine — are mostly sourced from China, adding that Moscow will spend more than 60 billion roubles on a new national project to develop drone manufacturing. Reuters has more.
ANALYSIS: US-EU ALTERNATIVE EASIER SAID THAN DONE
BIDEN’S ANSWER TO BELT AND ROAD is the G7-backed Partnership for Global Infrastructure and Investment plan. It's a bricks-and-mortar offshoot of Biden's campaign to rally allies and partners behind what he described last year as "a global struggle" between democracies and autocracies. How’s it going so far? Phelim, Stuart and Alexander Ward have this special analysis.
The PGII aims to raise $600 billion by 2027 to fund the development of everything from "climate resilient infrastructure" to "secure information and communications technology networks" to help bridge what the administration calls a $40 trillion infrastructure gap in developing countries. "The United States has already mobilized about $30 billion," for the plan, Secretary of State Antony Blinken said last month.
Unlike China: It's "a different model and a different offering that doesn't require countries to go into debt, that would adhere to the highest standards," said Amos Hochstein, senior adviser to the president for energy and investment.
The EU is all-in: Von der Leyen launched the EU's BRI-rival program — the Global Gateway initiative — in 2021 with funding of €300 billion (or $316 billion) for "sustainable and high-quality" infrastructure. Its projects include a €50 million (or $53 billion) investment in strategic mineral manufacturing, refining and processing in the Democratic Republic of Congo and construction of a high-speed fiber-optic cable linking Europe with northern Africa.
BUT BUT BUT: A chorus of former senior officials on both sides of the Atlantic say the U.S. and EU BRI challengers are too little, too late.
The PGII's funding "is not remotely close to the $1 trillion provided by China's state-backed lending arms, making it an ineffective counterbalance to the BRI to date," said Paul Haenle, a former National Security Council China director under Presidents George W. Bush and Barack Obama. The PGII currently only funds projects in Africa and Latin America, denying it "the global scope of the BRI." Haenle said.
Neither the White House nor the State Department responded to requests for comment.
European foot dragging: Reinhard Bütikofer, an EU lawmaker who's chair of the European Parliament's delegation on relations with China, said that while the EU had moved ahead from a few years ago, European countries are still "dragging their feet" in partnering with the European Commission to fund and execute Global Gateway projects. "European companies have been pushing hard for a long time to get access to the process … but as regards the member states, I think there is a lot to be improved,” said Bütikofer. “Von der Leyen spoke of the 'Team Europe' approach; that has not really been achieved yet.”
High ambitions: Biden announced last month that the U.S. and EU would team up to "build a railroad all the way across the African continent. The U.S. will also lead G20 partners in building a shipping and rail corridor connecting India with Europe via the Middle East.
Beijing is dubious: The India-Europe link "will be another case of ‘much said, little done’," China's state media tabloid Global Times snarked last month.
The BRI juggernaut: Meanwhile, Beijing has sealed BRI contracts with 149 countries worldwide over the past decade for projects including railroads in Africa and Southeast Asia, ports in Central America and bridges and wind farms in Europe. The value of those projects total "nearly one trillion dollars of investment globally and created more than 3,000 projects and 420,000 jobs for participating countries," China's Foreign Ministry said in a statement in August.
Timing is everything: A flurry of reports of BRI-fueled crippling loan repayment burdens among participating countries, including allegations of "debt trap diplomacy" and an increasingly cash-strapped Chinese government— could boost the viability of the U.S. and EU plans. "China's BRI casts long shadows of debt and dependency —when the bill comes due, China leaves developing countries dangling in a sea of debt, with their sovereignty in doubt,"the U.S. Ambassador to Japan, Rahm Emanuel, said on the social media platform X on Monday.
Beijing rejects that criticism: "The BRI has brought valuable opportunities for the common development of all participating countries," China's Executive Vice Minister of Foreign Affairs, Ma Zhaoxu, said on Friday. That viewpoint has foreign backers. "China built infrastructure that they cannot carry with them to China… China took the risks when people didn't want to take the risks," Saudi Arabia's Finance Minister Mohammed al-Jadaan said in defense of the BRI at an international finance conference last week.
There is skepticism about whether the PGII and Global Gateway programs can reverse decades of U.S. and EU neglect of the developing world's infrastructure needs. "U.S. and European companies are simply not willing to participate in significant construction projects in Latin America —the Chinese tend to focus on development and that is one reason they made their mark," said Jorge Heine, Chile's former ambassador to China.
BUREAUCRATIC HURDLES FACING EU AND US: Chinese officials "can walk into the office of an African minister or head of state, discuss a project, they already have the company picked out and can order one of the state banks to finance it," said Tibor Nagy, former assistant secretary of State for African Affairs. The U.S., EU and G7 countries "have totally different environmental requirements, contracting regulations, limits on financing" that will slow project approvals and rollout.
Don't underestimate Western resolve: "If they make headway in facilitating the private sector as they are pledging to do, they will really give the BRI a run for its money," said Danny Russel, assistant secretary of State for East Asian and Pacific affairs in the Obama administration.
BEWARE BRI 2.0: While the EU and the U.S. focus on physical infrastructure development, the BRI has evolved into an international political influence machine. BRI lending from China's main state-owned institutional lenders, China Export-Import Bank and China Development Bank peaked at $87 billion in 2016 and totaled only $3.7 billion in 2021.
That makes U.S. and EU programs "a misreading of the Chinese plan," said Nadege Rolland, former senior advisor on Asian and Chinese strategic issues to the French Ministry of Defense. Beijing has segued from bridge building to "policy coordination — trade, financial integration and people to people exchanges," Rolland said. That reflects Beijing's "pivoting the BRI's focus from mere economic development to one focused on reforming global governance," said Craig Singleton, senior China fellow at the nonprofit Foundation for Defense of Democracies.
"Values" are the secret sauce: Despite that, Biden and his EU partners are betting that their explicit emphasis on "values-driven" infrastructure investment gives them an edge. A "values-driven approach to financing and construction will likely be popular with recipient countries …[and] unlike the BRI, will draw in greater private sector investment," said former National Security Council China director Haenle.
Just build the bridge: "What values can you talk about when you build a bridge? Either it’s built or not," said Heine, the former Chilean ambassador to Beijing.
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BIDEN’S SUMMIT WITH EU
LATER THIS WEEK, BIDEN’S SHOW TIME: The EU’s leading duo of von der Leyen and Michel will be heading to the White House later this week, with the Middle East and Ukraine top of their mind.
Still, there’ll be a focus on China: According to a draft of the EU-U.S. leaders’ statement seen by Jacopo Barigazzi, Camille Gijs and Sarah Anne Aarup, “engaging China” will be the second topic, after Russia, under the first category, “toward a secure and stable world.” Here are some of the highlights:
— De-risking: Brussels and Washington will agree to recognize China as an “important trade and economic partner,” while adding: “At the same time, we recognize that economic resilience requires de-risking and diversifying. We will reduce excessive dependencies in our critical supply chains.”
— Taiwan: They will also mention the fact that they “remain seriously concerned” about “growing tensions in the Taiwan Strait.” That’s a nod to the recent record-breaking number of Chinese airplanes making incursions over the Taiwan Straits’ median line.
— Russia/Ukraine: There’s no new language on China’s ties with Russia. The EU-U.S. joint statement is expected to “call on China to press Russia to stop its war of aggression, and immediately, completely, and unconditionally withdraw its troops from Ukraine.” It will also encourage Beijing to have direct dialogue with Ukraine.
Coming up: Von der Leyen will give a speech at Hudson Institute on Thursday, where she’ll elaborate on China among other issues.
EUROPE TAKES THE US DEAL ON STEEL: "It's impossible to escape the conclusion that the EU is taking the U.S. deal," said Alfredo Montufar-Helu, a China expert at The Conference Board, after news surfaced last week that the European Union would join a green steel club with the U.S. in return for lifting the threat Trump-era tariffs could be reimposed. Douglas Busvine writes in to report.
How bad? But Montufar-Helu, who runs the U.S. business group's China Center for Economics and Business, pushed back against the geopolitical pessimism that is driving Europe into the protectionist U.S. camp — saying that the Western business community operating in China was more upbeat than its own political leadership.
Don't say Japanification: But things aren't that bad, either, and talk that the world's second-largest economy is destined for a big financial crash followed by Japan-style deflationary lost decades is overdone" "The risk of a Lehman moment in China is really low," said Montufar-Helu, citing ample banking sector liquidity and low risks that households would default en masse on their (full-recourse) mortgages in the event of a credit crunch. "Nobody has an incentive not to pay."
TRANSLATING WASHINGTON
BIDEN ADMINISTRATION TIGHTENS CHINA EXPORT SCREWS: The Biden administration is about to roll out regulations that will widen the categories of semiconductors that U.S. firms are prohibiting from shipping to China. The administration will unveil the new rules — an expansion of semiconductor export restrictions implemented last year — later this week, per Reuters reporting on Monday. China's Foreign Ministry has repeatedly accused the Biden administration of "abusing" export controls in order to hobble the country's technological development.
SMITH SLAMS BEIJING ON KOREAN DEPORTATIONS: Rep. Chris Smith (R-N.J.) has condemned the Chinese government for reportedly forcibly repatriating more than 500 North Koreans who had fled political repression and economic insecurity in their homeland. "Despite repeated warnings and appeals from the international community…China has chosen to perpetrate another gross violation of internationally-recognized human rights," Smith said in a statement on Friday. Chinese authorities transported those returnees, the majority women, back to North Korea earlier this month.
COMMISSION WARNS ON CHINA-RUSSIA THREAT: A congressional commission has warned that the "no-limits" cooperation between Xi and Putin puts the U.S. at risk of a two-front war against both countries. "The new partnership between Russian and Chinese leaders poses qualitatively new threats of potential opportunistic aggression and/or the risk of future cooperative two-theater aggression," the Congressional Commission on the Strategic Posture of the United States said in a report published on Thursday. Beijing's growing military muscle — including a dramatic expansion of its nuclear weapons arsenal —also raises the risk of U.S.-China conflict over Taiwan "even at the risk of nuclear war," the report said. GOP lawmakers are listening. "We must urgently consider additional adjustments to our own nuclear posture if we are to sustain deterrence against two nuclear peers," said Senate Foreign Relations Committee ranking member James Risch (R-Idaho) and House Foreign Affairs Committee chair Michael McCaul (R-Texas).
OTHER HEADLINES
BBC: A spooked and lonely Taiwan looks for new friends.
Bloomberg: Slow and steady is never enough for China.
CNN: The world will pay a high price if China cuts off supplies of chipmaking materials.
Nikkei Asia: Flying taxi obtains ‘world’s first’ type certification from China
Wall Street Journal: How Evergrande's chief tried to turn things around—and failed
MANY THANKS: To editor Christian Oliver, Douglas Busvine, reporters Jacopo Barigazzi, Camille Gijs, Sarah Anne Aarup, Alexander Ward and producer Seb Starcevic.
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