China’s Belt and Road Initiative (BRI) has entered the twilight zone in many parts of Europe, following a deterioration of bilateral relations between the EU and its member states and China over the last years. Italy’s official exit from the BRI at the end of 2023 was a blow to Xi Jinping’s signature foreign policy. Yet, the Belt and Road is not coming to its end in Europe. Rather, it is being reconfigured.
In Western Europe, the BRI is moving away from physical infrastructure projects and investment in industrial assets – the latter being increasingly protected from Chinese takeovers by both national and EU legislation – to financial and monetary connectivity. Concurrently, most Eastern European countries continue to promote BRI projects and seek to attract Chinese investments, suggesting that the future of the BRI in Europe is more complex and articulated than what meets the eye.
East vs West
Europe’s growing divide regarding the BRI was on full display during the third Belt and Road Forum (BRF) held in Beijing on 17-18 October 2023. The Forum was attended by more than twenty heads of state and government, mostly from the Global South – but none from the EU and its member states. Yet, high-level policy makers and former heads of state and government from Eastern Europe and the Balkans – including Serbia, Montenegro, and Bosnia and Herzegovina, all candidates for membership of the EU – did attend the BRF.
Serbia and Montenegro have received large amounts of BRI investments in recent years. In January 2023, a new $1 billion Chinese-funded highway outside the Montenegrin capital was officially opened. Croatia, which is a full member of the EU, is host to the Chinese Southeast European Business Association and has actively courted Chinese investments in critical infrastructure, including ports and the EU-funded and China-built Peljesac bridge, the first example of subsidized Chinese firms beating out European firms for EU-funded projects in Europe.
Bulgaria and Hungary. continue to look favourably to China’s BRI, both sent high-level delegations to the last BRF. For instance, the Bulgarian National Association for the Belt and Road – an organization which includes active and former politicians – had prepared a detailed list of projects which was given to Chinese authorities during the Forum. The previous month, Bulgaria had hosted a two-day conference on the 10th anniversary of the BRI with the aim to boost cooperation between Bulgaria and China during which Deputy Economy and Industry Minister Nikolay Pavlov declared that ‘China is a strategic partner for Bulgaria and the EU.’
The Hungarian delegation that attended the third BRF included the Governor of the Central Bank who signed with the People’s Bank of China an agreement to increase the amount of ongoing currency-swap between the two sides, which began in 2013. Although the sum of the deal was not revealed, it is possibly Europe’s largest, suggesting that Hungary wants to become a top destination of Chinese investments in Europe. On 22 December 2023, Chinese automaker BYD announced plans to establish an electric-vehicle manufacturing plant (the biggest in Europe with a production capacity of 200,000 vehicles per year) in the Hungarian city of Szeged, near the border with Romania and Serbia, along the Budapest-Belgrade-Skopje-Athens railway which is the BRI’s flagship project in Eastern Europe.
While several Central and Eastern European countries continue to promote Beijing’s connectivity projects and seek to attract Chinese investments, most Western European governments have put limits to the BRI and to Chinese takeovers of European companies – a trend that began in 2016-17 when the core members of the EU, led by Germany and France, had become increasingly wary of China.
The pushback towards the BRI has been nowhere more evident than in Italy which had signed a Memorandum of Understanding (MOU) with China in 2019. The government of Mario Draghi (February 2021-October 2022) put limits to BRI’s projects, making it impossible for China to acquire stakes in the port authorities of Genoa and the various ports in the North Adriatic Sea (Trieste, Venice, and Ravenna) that formed the backbone of the MOU. The arrival of a nationalist-conservative coalition led by Giorgia Meloni in September 2022 would initiate a dismantling of BRI’s infrastructural projects and Chinese acquisitions of industrial assets considered of strategic significance. In June 2023, the Italian government used specific legislation to block ChemChina, Pirelli’s largest stakeholder, from taking control of the tire making giant. The acquisition of Pirelli in 2015 had become a powerful symbol of China’s investment inroads into Europe and of the opportunities that the BRI would entail for cash strapped governments and companies. By halting ChemChina’s aspirations and by exiting the BRI, the Meloni government dealt a major blow to Chinese interests in the EU, following the call by the President of the European Commission Ursula von der Leyen to de-risk ties from Beijing.
Italy is not the only European country to turn its back on the BRI despite initial enthusiasm. Since 2021, anti-China sentiment has also been growing in some East European countries which were some of the earliest entry points of the Belt and Road Initiative. In particular, the Baltic countries have begun changing their stance toward Beijing, finding that the economic benefits coming from China are not as great as they had expected. In August 2022, Latvia and Estonia joined Lithuania in abandoning the so-called 16+1 grouping, a format between Beijing and Central and Eastern European countries established in 2012 as a platform for cooperation on infrastructure and development projects. Russia’s invasion of Ukraine in February 2022 and the decision by China to side with Putin, declaring that Beijing-Moscow relations would be characterised by ’unlimited friendship’, has exacerbated tensions between China and the Baltic states which have been severely hit by the war in neighbouring Ukraine.
The Europeans are thus increasingly split in two camps regarding BRI’s infrastructure projects and investments. All of Europe appears, however, united when it comes to embracing the financial and monetary aspects of China’s connectivity project.
Monetary connectivity
European participants in the third Belt and Road Forum included not only high-level political delegations from Central and Eastern Europe, but also representatives of major banks from Western Europe. During the Forum, China’s policy banks signed a series of yuan-denominated loan contracts with foreign lenders, including those from EU countries.
There are now offshore renminbi hubs throughout Europe, including Budapest, Frankfurt, London, Luxembourg, Madrid, Milan, Paris, and Prague. All central banks in Europe, including the European Central Bank, have accepted China’s currency as a viable reserve and signed swap agreements with the People’s Bank of China – a trend benefiting both sides since it reduces exchange risks. Through these currency swaps, Chinese companies can settle their payments using euro, while European businesses can make RMB payments using clearing banks located in almost all EU member states.
In addition, China’s Cross-Border Interbank Payment System (CIPS – alternative to the Western-dominated SWIFT) launched in 2015 to facilitate BRI investments abroad, is being used by more than 200 banks across Europe, including BNP Paribas, Deutsche Bank, HSBC, and Intesa Sanpaolo, signaling that the Belt and Road’s next chapter will be about the yuan. European banks tend to view the RMB as a stable currency, especially after it was included in the IMF's Special Drawing Rights (SDR), a synthetic reserve currency that includes the US dollar, the euro, the British pound, and the Japanese yen. The Europeans unanimously backed the decision by the IMF in December 2015 to include the renminbi in the SDR, in stark contrast to Washington which has repeatedly stated its opposition to the inclusion of the renminbi in the IMF’s basket, on the grounds that the Chinese currency does not yet meet the criteria for reserve status – a position that highlights the difference between Europe and the US regarding the renminbi’s global role and, more generally, Beijing’s monetary ambitions.
More recently, some large European companies have begun using the RMB for their transactions with China, with backing from politicians. For instance, in April 2023 France’s TotalEnergies and China National Offshore Oil Corporation completed Beijing’s first purchase of imported liquefied natural gas, a transaction settled in RMB through BNP Paribas and the Shanghai Petroleum and Natural Gas Exchange. The deal came a few days before the state visit to China of French President Emmanuel Macron who – as a strong advocate of ‘EU strategic autonomy’ - declared that, when it comes to Sino-European trade, ‘Europe must reduce dependence on the U.S. dollar’.
Would the converging monetary interests between China and Europe have occurred if the BRI had not been there? Probably so. Yet, the Belt and Road has undeniably provided the broader framework for the strengthening of Sino-European monetary ties.
China’s connectivity project is thus being reconfigured across the old continent. While Western and Eastern Europe are increasingly divided regarding the Belt and Road’s infrastructure projects and investments, the whole of Europe is welcoming monetary connectivity with China and wider adoption of the renminbi. This makes the Belt and Road an enduring presence across Europe – a dynamic that has implications for the transatlantic alliance and US-China relations.
