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EU’s Global Gateway

An answer to China, or ‘another rubber check’?

For almost 10 years, China has been diligently building a new Silk Road. Through ports, railroads and other infrastructure, it is trying to bind other countries economically to itself. Although this leaves partner countries with a lot of debt and some projects, critics say, are not very profitable, the new Silk Road has contributed to Chinese exports and remains profitable. The premise is that Europe enjoys credibility as an honest-and-responsible partner, while China short-sightedly fumbles with credits and mega-projects that benefit no one. So, now Europe wants a Silk Road of its own.
It is in this backdrop that the European Commission and the High Representative for Foreign Affairs and Security Policy launched, on December 01, the Global Gateway project — an investment program the bloc claims will create “links, not dependencies.” The aim of the Global Gateway is to help underpin the global recovery by mobilizing investments in digital, clean energy and transport networks, as well as boosting health, education and research systems across the world. Low and middle-income countries were already facing a $2.7 trillion infrastructure investment gap before the pandemic, according to World Bank estimates. “We want to make Global Gateway a trusted brand that stands out because of high quality, reliable standards and high level of transparency and good governance,” said EU Commission head Ursula von der Leyen.
Europe’s goal is to provide a sustainable alternative to China’s Silk Road, also known as the Belt and Road Initiative. Brussels is committed to putting some €300bn into that over the next five years – €60bn a year, in other words.
‘An alternative to Chinese money’
China was not mentioned in the European Commission’s press release that unveiled details of the new initiative. But it’s difficult not to view the Global Gateway as a European response to BRI. Over the past few years, China has poured billions into building roads, railways and ports worldwide to forge new trade links and diplomatic ties. As of March 2021, 139 countries had signed up to Beijing’s initiative, accounting for 40% of global GDP, according to the Council on Foreign Relations, a US think tank.
The European alternative to China’s Belt and Road will be financed by a mix of €18 billion ($20 billion) in grants and €280 billion ($317 billion) in investments from member states, their development banks, the private sector and EU financing bodies, including the European Investment Bank, the European Commission said in a statement.
It seems that Brussels hopes to focus on the differences between the Chinese and European ways of doing business, starting with the nature of funding.
Europeans blame that the structures of funding from China come mainly from loans, while the European programme will rely on both public and private sector investment. However, the EU comes to the table with financing that is transparent and more favourable, especially to developing countries.
Critics of the BRI say Chinese loans are a way to create an economic dependence on Beijing among recipient countries. Sri Lanka’s experience with the Hambantota port is often cited as an example of China’s controversial “debt trap,” which pushed the South Asian nation, when unable to repay its loan, to hand over a majority stake and 99-year lease on the port to a Chinese firm.
Finally, the Global Gateway aims to be a more modern version of the BRI, with a focus on investments in future-oriented, environmentally responsible projects in the digital, health, renewable energy and other sectors. This programme looks much more than China’s BRI, which has mainly constructed roads and railroads or renovated bridges and ports.
The Commission also said that it was considering the creation of a new credit facility for European companies selling into markets outside the EU, which would help them compete with businesses receiving hefty government subsidies.
Breakdown of Global Gateway
Here’s how the plan breaks down.
1. Digitalization
The European Union will invest in fiber optic cables between countries, satellite communications and cloud infrastructure to better facilitate global cooperation, data sharing and AI development. It will provide an additional €15 million ($17 million) to a program that aims to extend work on a 35,000 km (22,000 mile) high-speed fiber optic network to the rest of Latin America.
2. Clean energy
The bloc plans to integrate its energy systems, transition to renewables and partner with other countries to boost renewable hydrogen production. It will also work to eliminate barriers to the international trade of hydrogen. It has committed €2.4 billion ($2.7 billion) in grants to Sub-Saharan Africa and €1 billion ($1.2 billion) to North Africa to boost renewable energy production and energy efficiency.
3. Transport
In perhaps the most direct challenge to China’s initiative, the European Union will also invest in transport infrastructure — railways, roads, ports, airports and border crossings — to help develop countries and diversify their supply chains. It said it would provide an additional €4.6 billion ($5.2 billion) toward sustainable transport links, including establishing a trans-Mediterranean network connecting North African countries to the bloc.
4. Health
In response to the pandemic, the new EU plan aims to help countries develop local vaccine manufacturing capacity and diversify their pharmaceutical supply chains. It did not offer specific funding targets, but earmarked Africa as a priority, and said it would collaborate with the Africa Centres for Disease Control and Prevention.
5. Education and research
The European Union wants to further invest in education globally, including the expansion of online learning. Through talent partnerships, it will offer a pathway for young professionals to move to Europe for work or training, and inject an additional €400 million ($453 million) into its signature Erasmus+ study exchange program.
Financing
Global Gateway will be implemented through a Team Europe approach to scale up resources from the EU Institutions, member states with their financial and development institutions, the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD). It will actively seek to mobilise private sector finance and expertise and support access to sustainable finance.
Using all of the financial and development tools at the EU’s disposal and supported by the strong commitment from EU member states, Global Gateway aims to mobilise up to €300 billion between 2021 and 2027.
Under NDICI-Global Europe, with an overall budget of €79 billion, investments in building connections are expected to rise significantly. It has a 35% spending target for climate actions and an additional 10% approximately of the total funding will be dedicated to digital actions.
NDICI-Global Europe establishes the new European Fund for Sustainable Development Plus (EFSD+) as its financial arm, backed by the Union’s External Action Guarantee (EAG), of €40 billion (out of a total of €53.4 billion) to de-risk investments and leverage private investments, working together with the EIB and other European financial institutions, as well as EU member states’ institutions (development banks, national promotional banks, export credit agencies) and capital from the private sector.
The EU can also leverage private investments by means of its Instrument for Pre-Accession Assistance (IPA) III, Interreg, InvestEU and the EU research and innovation programme Horizon Europe.
The EFSD+ will make available up to €135 billion in investments guaranteed by the External Action Guarantee for Global Gateway projects, in addition to up to €18 billion in grants and a further planned €145 billion in investment volumes by European financial and development financial institutions. Financing will rely on systematic mechanisms to filter out abnormally low tenders, and foreign subsidies that undermine the level playing field.
The EU is also exploring the possibility of establishing a European Export Credit Facility to complement the existing export credit arrangements at member state level and increase the EU’s overall firepower in this area. The facility would help ensure a more level playing field for EU businesses in third-country markets, where they increasingly have to compete with foreign competitors that receive large support from their governments, and thus facilitate their participation in infrastructure projects.
Africa, the logical target
One of the most important tests of the effectiveness of the European programme in countering Chinese economic influence will be in Africa, which should be one of the main beneficiaries of these investments. Although the European Commission has not mentioned the African market as a priority objective, it’s the logical target since it is there that the arrival of Chinese financing has most hurt European companies, which have often lost market share.
The Global Gateway also has an advantage because, by more or less copying the Chinese way of doing things, the European Union is depriving Beijing of one of its favourite arguments in Africa: declaring that China acts differently from the former European colonial powers.
How China sees it
As per a report published in Global Times (often called Chinese government’s mouthpiece), the EU’s Global Gateway is essentially a new case of the West’s endless moves – right on the heels of the US-led G7 initiate known as the Build Back Better World (B3W) – to seize the ground in moral terms as such BRI counter-initiatives that tout higher standards and values-based cooperation are de facto rubber checks. The EU’s feeble governing credentials and economic slowdown undercut the credibility of its new infrastructure strategy. The infrastructure strategy’s implicit BRI rival target, as shown by its self-touted standards and values, builds on the West’s never-ceasing efforts to portray their BRI version as superior in moral terms, experts said, noting that such hypocrisy would by no means mask similar pushes that are born to be unviable.
According to Gao Lingyun, an expert at the Chinese Academy of Social Sciences in Beijing, “With the Global Gateway, the EU, moving alongside the US, is orchestrating a push for their voices to be heard and followed in a global race to set trends and standards in the environment and social activities … The much smaller Global Gateway, compared with the B3W initiative which aims to narrow the $40-plus trillion worth of infrastructure needed in the developing world by 2035, is some sort of allegiance the EU swears to the US.”
Conclusion
Europe is not alone in wanting to overshadow China’s BRI. The US also announced its own initiative, “Build Back Better World” (B3W), at the G7 summit in June. “With the arrival of Joe Biden in the White House, there has been a new dynamic for better transatlantic cooperation to counter China, and these programmes prove it.
The new initiatives are interesting because they are not, as in the era of Donald Trump, purely hostile and anti-China measures. They are more positive programmes that try to offer an alternative to China.
Above all, it is important for Europe to have its own agenda. It is essential in terms of communication because this time, Beijing cannot say that the EU is only following Washington. In other words, with the Global Gateway, China risks having to change its tune, which seeks to capitalise on anti-US sentiments across the world by suggesting that there were only two alternatives: the American model or their own.
The writer is a senior analyst and columnist.