Jacob Gunter: “Europe does not benefit from China's Silk Road”

Jacob Gunter is American, lives in Germany and knows China like the back of his hand. He was at the head of the European Chambers of Commerce of China Union. He is now an analyst at Merics (Mercator Institute for China Studies). A few days ago he participated in a closed-door meeting at Cidob on “China, EU and the Global South.”

Is China a threat or an opportunity for Europe?

Both. We have to remember that there is a lot of trade and investment between Europe and China that is not in sensitive goods: what about agriculture, food, drinks and raw materials? How many products in this room where we stand do you think were made in China? We have to find the right balance.

And does Beijing agree?

There are many technologies and many supply chains where China is still very dependent on European, American and Japanese companies. And as long as he has to import them, this is a point of concern for Xi Jinping. I think from Beijing’s perspective, anything that can cross a border is potentially a national security risk, because it can become a weapon.

And in this perspective, what role does the Silk Road initiative play?

The Chinese want to secure and diversify supplies so they are not so dependent on Americans and Australians for natural gas, for strawberries and other foods, and for iron ore. Look at the investments China is making in Brazil, Argentina and Chile. Or those carried out in Central Asia, the Middle East or part of Africa, which also have a lot to do with energy, that is, with oil and gas, to try to diversify the economy.

And could this strategy harm Europe?

To what extent can European companies participate in these Silk Road projects? It’s an incredibly small part. So, if you look at infrastructure projects financed by the World Bank or the IMF and other types of multilateral development banks, the projects typically have about a third of their value going to Chinese companies, about a third to Western companies. , including Japan and Korea and the like, and about a third to local companies in that jurisdiction. In the case of the Silk Road, it is more like 80%-90% Chinese companies and maybe 10%-15% local companies.

So, in your opinion, should we Europeans be worried about the Chinese managing strategic ports in the Mediterranean?

Of course. If we look at the port of Piraeus, in Greece, the Chinese shipping company Cosco holds the majority of the exploitation contracts. It was a very small port and now it is a huge port. Large ships come from China, go to Piraeus, leave much of the cargo in Europe and distribute it to smaller ships that go to different European ports, which makes maritime transport much more efficient. But there are also many Chinese ships that pick up different goods in Europe, take them to Piraeus and put them back on the big ships. The danger is that, since it is a somewhat artificial demand, if China wanted to cause problems for Greece, or if it wanted to threaten it, it would be enough for it to say: “Hey, Athens, we need your vote in the European Council and for you to veto or vote against.” from this”. And if not, then Cosco, which is a state-owned company controlled by Beijing, may do less trading. While that would be bad for the company, it would be much worse for Greece.

Will we see a wave of Chinese cars heading to Europe?

I think it’s very likely. Because excess capacity is a part of the Chinese economic model. The government floods the market with subsidies to try to encourage domestic production of something and encourage innovation, then there is market consolidation in which really weak companies fail. And over time, Beijing even begins to pick winners and losers to force consolidation. And that’s when you will have competitive world-class companies, a handful of automotive champions that are not just good Chinese companies, they are good global companies.

Can Europe replace China with other countries as trading partners?

It is absolutely possible. But it will take time and difficulties. It will cost a lot of money. Because in China there is a first-class infrastructure that works incredibly well, so it is very easy to get in and out. The customs and tax authorities are very well governed. A good description is of a businessman who was in a coffee shop with his cup of coffee in his hand and said to me: “Suppose I have to order 100 of these. If I go to China, I can immediately find dozens of companies that can do this. They will give me exactly the right number. 99% of the cups will have no defects. They will all be exactly the color I ordered. They will all be packaged correctly and ready to ship. If I do this tomorrow in Vietnam, maybe 80% or 85% of the cups will not be broken or defective. Maybe I have to bribe someone at customs to get them out…” I always hear businessmen say that there is no second China right now.

What can change if Donald Trump wins the election?

After his first victory, at the beginning of 2017, Xi Jinping went to Davos, to the World Economic Forum. He made that great speech about China taking the lead in globalization. He remembers? That didn’t happen. Of course not. I think that if Donald Trump wins again, Europe will have a hard time finding its place, but it will not turn towards China as it did in 2016. Because after the Davos speech and then three, four, five years of unfulfilled promises, the European Union distrusts.