The Belt and Road Initiative, and Eurasian Economic Union: Legal Unification & Integration
A common economic space between Europe and China remains an academic vision – but can it be realised?
By Asials with additional commentary by Chris Devonshire-Ellis November 29, 2023
The combination of China’s Belt & Road Initiative (BRI) and the Eurasian Economic Union (EAEU) can form a common transcontinental economic space, according to numerous PRC and EAEU officials. They are now discussing maximising interconnection, by using integration tasks and methods of solving them within the framework of the EAEU and the BRI, and the legal processes involved to make this happen.
Liu Xu, a deputy director of the Institute of Russia, Eastern Europe and Central Asia at the People’s University of China, has been speaking on this issue, which he says involves the highest levels of Chinese economic diplomacy. As he notes, in the EAEU space, a trend towards integration in the region and in the service sector has already formed.
The BRI is a collection of countries that have signed MoU with China to develop worldwide interconnectivity via supply chains, with a view to ushering in a more inclusive, multipolar society. The EAEU is a free trade bloc including Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia, and occupies the geographic space between Western China and Eastern Europe. As such, the two entities are fundamentally different in that the EAEU is institutionalised and has a multilateral set of rules and trade agreements, while the BRI is a far looser arrangement, often involved bilateral agreements with China rather than any multilateral format. Connecting the two is a complex question and one that Liu is addressing.
According to Liu, since the EAEU and the BRI are united by joint tasks, their combination will make it possible to create a single market. Accordingly, it is possible to ensure a mutual reduction in duties, create more favourable conditions for the flow of goods, and in the financial sphere of connecting the BRI and the EAEU there are certain opportunities.
Liu noted the high activity in cooperation between the EAEU and China in the Central Asian region. Therefore, he suggests, the connection of the Belt and Road with the EAEU is an excellent opportunity for both China and the Central Asian countries, taking into account the regional infrastructure challenges and tough Western sanctions designed in part to prevent Russia being part of this.
However, trade trends between 2020 and 2023 confirm the compatibility of the BRI with the EAEU. During this period, according to available estimates, trade between the EAEU and China increased by more than 25%; while the number of joint venture projects between the Russia and Chinese companies in Central Asia increased by approximately 15%. The share of national currencies in regional settlements has already exceeded 65%, with 80% of this being settled in Chinese RMB Yuan and the Russian Ruble.
In addition, Russia, Turkmenistan and Uzbekistan – the latter two are not part of the EAEU at present – provide the bulk of China’s growing demand for natural gas. Russia’s share of oil supplies to China already exceeds 20% of China’s total imports, and these supplies are increasing through Kazakhstan. Tariff reductions have also been negotiated: approximately 35% of the total range of mutual trade between the EAEU and China can take advantage of reduced export-import duties.
However, in 2021, the EEC (the Ministerial body that regulates the EAEU) excluded China from the list of countries whose exports are subject to reduced duties or are exempt from them for a number of supplied goods. At least 15% of the range of Chinese industrial exports to Russia-EAEU, primarily in the category of chemical industry goods and the metallurgical and pipe-rolling industries, are subject to anti-dumping duties (that is, increased duties due to supplies at prices that are lower than prices on the intra-Union market). Of course, China periodically introduces retaliatory measures. The downside here to Liu’s overview of merging these markets is that these “duels” are unlikely to speed up the integration of the BRI with the EAEU.
Meanwhile, various Chinese trade experts have noted that at present, in the cost of foreign economic relations of China, the share of the collective West still exceeds 40%, and Russia-EAEU (as a whole) is 4.5 times lower. Moreover, at least 70% of EAEU exports are made up of various raw materials and semi-finished products, while exports and imports with the West are dominated by high-tech and generally finished products. These indicators are difficult to change in the short term meaning BRI-EAEU integration is a long-term vision.
Additionally, almost all BRI countries including in Central Asia, impose restrictions not only on imports from China, but also on China obtaining a predominant participation in raw materials, industrial and infrastructure sectors. There has been some push-back – some are being actively reduced. In addition, China regularly introduces new trade and credit incentives for the same countries. This illustrates that BRI nations are capable of standing up to China’s needs and can pressurize Beijing to make concessions.
Taking these factors into account, Beijing is becoming a decisive player in the Central Asian area of the Belt and Road Initiative, with some academics feeling that China will be able to almost instigate favourable conditions for connecting the BRI with the EAEU.
Chinese analyst Wang Hao of the Industrial and Commercial Bank of China has stated that Central Asia occupies a key place in Beijing’s Eurasian plans, including linking China’s West with South Asia, the Middle East and Europe, reducing its dependence on distant sea routes. For example, the China-Central Asia-West Asia economic corridor, is being created to connect China with the Persian Gulf through Iran and through Turkiye with the Greek Aegean Sea port of Piraeus.” That bypasses Russia.
This is being done because the economic belt routes within the BRI to the corridor in Turkiye through Kazakhstan and the Caspian Sea significantly shorten the path of Chinese goods to the markets of the Middle East and Europe, as they run further south.
Even prior to the official launch of the BRI in 2013, Central Asia’s resource-rich and landlocked neighbours were Beijing’s first choice in diversifying hydrocarbon imports. Currently, Chinese companies control a quarter of oil production in Kazakhstan, and Beijing is interested in increasing Kazakh oil imports.
Currently, almost all natural gas exports from Kazakhstan are transported to the Middle Kingdom through three gas pipelines, built using mainly Chinese BRI loans and investments. In addition, Kyrgyzstan, Tajikistan and Kazakhstan have also become increasingly important suppliers of rare earth metals used in China for the production of high-tech products.
Wang also notes that Kyrgyzstan’s main lender for concessional loans is the Exim Bank of China the key policy bank in financing the BRI. Between 2011 – 2021, the amount of debt owed by Kyrgyzstan companies to Eximbank increased more five fold. It is a common regional trend. In Tajikistan, 70% of the national total volume of foreign country loans were provided by the Exim Bank.
Chinese analyst Li Na, with Global Capital Markets in Beijing, in exploring the economic and geographical goal setting of the BRI, also notes the significant role of the oil and gas sector in its development. By 2030, China will import about 85% of the oil it consumes and at least 65% of its natural gas consumption. Accordingly, in the oil and gas sector, with the participation of the PRC, 100 projects are currently being implemented in 25 countries, including almost all Central Asian countries, Iran and Pakistan, valued at more than $200 billion.
In general, the implementation of the BRI means for China another significant expansion of its sphere of influence in Eurasia, and, at maximum, the establishment of economic control over the largest transport routes and hegemony on a continent with a population of more than 4 billion people. Taking into account the global economic role of Eurasia, the strengthening of China’s position in the region will lead to an increase in its influence in the world as a whole.
But there are sticking points: a negative attitude towards these plans exists in Vietnam, due to disputes with China over the status of the South China Sea and its resources, and especially with India, dissatisfied with border disputes and the growing political and economic activity of China in its own geographic sphere, and especially Pakistan.
India, like Vietnam, is not part of the BRI, and has formed during 2023, together with the United States, Saudi Arabia, Israel and the EU, an interregional initiative that indirectly includes the countries of Central Asia – the India-Middle East Corridor. Turkiye meanwhile has suggested that resources should be directed to the Iraq Development Road as an alternative to that.
Russian President Putin has basically noted ‘the more the merrier’ although it is difficult to say whether these projects truly reflect China’s Belt and Road super-task. Regardless, it would be advisable to fix the real compatibility of the BRI with the EAEU not so much in declarations, but in a comprehensive agreement, or package of agreements of the EAEU with China, and even better, between all member states of the EAEU and BRI. Perhaps, only in this scenario will a common political and economic space of Greater Eurasia, equal for all participating countries, be ensured.
Source: AsiaIs with additional commentary by Chris Devonshire-Ellis