The EU priority is that China opens public procurement to competitors

Pubblicazioni Easternational

Source: MF 17/05/2018

While China is engaging in many BRI-related projects, both in Asia (the world longest sea bridge of about 55 km that connects Hong Kong Macau and Zhuhai is about to be inaugurated), and in Europe, (the preparatory work for the Hungarian section of the Belgrade-Budapest high-speed railway proceeds), it is news of two weeks ago that twenty-seven ambassadors in Beijing of as many EU member countries have sent a letter to the Chinese government criticizing the Belt and Road Initiative. Only the Ambassador of Hungary has not signed the document. The news, reported by the German business newspaper Handesblatt, casts a new shadow over the huge Chinese commercial project.

The letter is considered by many as an anticipation of the issues that the European Union intends to discuss during the bilateral Summit that will be held in Beijing this July and that everyone is hoping will make more progress than the one held in Brussels last year.

Relations between the European Union and Beijing are complex: the two players have an unprecedented partnership, with a record of reciprocal exchanges, in and out, of almost € 600 billion. However, the numerous differences in markets regulation are a major obstacle in their relations. In 2016, the decision of the European Parliament to reject China's Market Economy Status (MES) was not welcomed in Beijing. The MES would make the imposition of anti-dumping duties on Chinese products more complex; however, in order to have the possibility to obtain this status, it is necessary to be able to demonstrate that in the Chinese economy, prices are decided entirely by the meeting of supply and demand without State intervention or other distortions.

The massive participation of the Chinese government is one of the reasons for the skepticism of EU ambassadors towards the BRI. The letter from the ambassadors, according to Handesblatt, criticizes the BRI as 'contradictory with the European agenda of trade liberalization ' and because it 'favors companies subsidized by the Chinese government.'

This criticism is not an exclusive of European diplomacy, but it also comes from other countries that have expressed skepticism about the BRI. India, for example, is particularly critical of the Chinese project, even if it is more for geopolitical reasons, specifically because of the importance attributed by Beijing to Pakistan, the historical rival of New Delhi, and for the involvement of China in infrastructural projects in the neighboring Sri Lanka. The China-Pakistan economic corridor and the possibility of a Chinese military presence near its shores worry Indian premier Narendra Modi.

The concern of Europeans seems to be different: 89% of the BRI-related projects are carried out by Chinese companies. The problem is that if, as often happens for the BRI projects, a given project is financed almost entirely or mostly by one of the Chinese 'policy banks', especially at preferential rates, China has precise rules that require minimum content of Chinese origin in the project that is financed. It is therefore obvious that in these cases, given the origin of the funds, it will be predominantly Chinese companies to secure the main share of the works or supplies. It is up to the country that receives these investments to try to negotiate more favorable conditions and this has already happened in some countries involved in the BRI. When the local government requires at least part of the work to be entrusted to indigenous companies, it is quite possible that the 'cake' will be split between the Chinese general contractor and a series of subcontractors or local suppliers. The space for European companies, unless they are already present with their own production or services in the given country (and therefore considered as 'local' category) or are already suppliers of those who perform the work, ends up being very limited. Perhaps this is what is causing some bad mood.

However, it should also be noted that, in countries where there are precise rules for public tender, these have been respected. Take, for example, the already mentioned project of the Belgrade-Budapest high-speed railway, for a length of 350 km, which is part of a more general Chinese plan to enhance its investment in the Greek port of Piraeus, through the strengthening also of the goods transport networks in the Balkans. After a false start, the Hungarian portion of the work has been called for bids since Hungary is part of the European Union and therefore follows the European rules.

The other problem, partially different but in some way connected, concerns access to Chinese public tender, and therefore the relationship between China and the World Trade Organization. When China entered, chose (as it was possible under the WTO rules) not to sign the Government Procurement Agreement which regulates all matters of public tenders. Consequently, China is not, for example, bound to open up the public tender sector, whose value estimated by the EU-China Chamber of Commerce is about 1 trillion dollars. China's entry into the Government Procurement Agreement should be a negotiating priority for Europe, and in particular for Italy, in the coming years.

Marco Marazzi, Attorney, and President of Easternational
Stefano Basilico, researcher, Easternational

Areas of interest

Infrastructures (38)
Trade (40)
Direct Investments (52)
Geopolitical aspects (32)

Geographical areas

Italy (41)
China (70)
Russia (7)
Europe (46)
Asia (33)

Reserved area