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Can the EU's global investment scheme rival China?

David Hutt
December 9, 2021

The EU has promised investments tied to values like transparency and good governance in Southeast Asia, where China already has a big footprint and doesn't ask authoritarian governments to change their ways.

Men work on scaffolding
Chinese workers in Laos build a rail line as part of a Belt and Road projectImage: AIDAN JONES/AFP/Getty Images

Earlier this month, the European Union announced details for its new global investment scheme, dubbed the "Global Gateway," which aims to mobilize up to €300 billion ($339 billion) in infrastructure investments abroad by 2027.

Through a combination of EU funds, member state investments and capital raised by European investment banks, the scheme has been presented by Brussels as a big step for the EU in building influence around the world.

"We will support smart investments in quality infrastructure, respecting the highest social and environmental standards, in line with the EU's democratic values," European Commission President Ursula von der Leyen said in a statement.

"The Global Gateway Strategy is a template for how Europe can build more resilient connections with the world," she added. 

Although the EU did not explicitly mention China in presenting the strategy, the investments are aimed at developing regions such as in Southeast Asia, where a majority of big infrastructure investments in recent years have come via China's vast Belt and Road Initiative (BRI)

To promote sustainable development internationally, the EU said Global Gateway funding will also be "values-based," with investments tied to issues like transparency and good governance in other parts of the world.

This is in stark contrast to China's BRI, which has provided funds with no strings attached to the domestic politics of recipient nations. 

EU sees potential in Southeast Asia

However, with the Global Gateway, the EU hopes to build momentum on other initiatives in Southeast Asia.

The strategy is "of particular importance in Southeast Asia," where the EU has been a strong partner for the region, said Igor Driesmans, the EU ambassador to the Association of Southeast Asian Nations (ASEAN) bloc.

Driesmans said the Global Gateway will build on a strategy for cooperation with countries in the region, including the 2018 EU-Asia connectivity strategy.

"This will include strengthening cooperation on climate change and protecting the environment, boosting trade competitiveness and resilient supply chains, on sustainable infrastructure and green finance, digital transformation, as well as people-to-people exchanges," he added. 

While these commitments look good on paper, big questions remain over how much effect the Global Gateway will have on the ground in Southeast Asia.

The Global Gateway aims to generate €300 billion by 2027. However, a significant portion of this comprises existing commitments and mere loan guarantees. 

According to a recent Oxford economics study, China has already provided around $740 billion worth (€653 billion) of BRI projects in Southeast Asia alone.

"This is more than the EU has for Global Gateway projects across the entire world," noted Greg Raymond, a researcher on Southeast Asian strategic affairs at The Australian National University.

Chinese investment sees no evil

Raymond said another problem for the EU's investment scheme is its values-based approach.

Out of 11 Southeast Asia states, only Timor-Leste was classified as "free" in Freedom House's latest rankings on political freedom. Moreover, Timor-Leste is the only state not part of the ASEAN bloc. In Transparency International's latest Corruption Perceptions Index, Cambodia and Laos were ranked near the bottom. 

"China is often preferred as a source of infrastructure because Southeast Asian regimes do not want transparency as they are using the Chinese projects as part of patronage politics or lining their own pockets," Raymond said.

Moreover, authoritarian regimes have no intention of opening up politically, he said. "China imposes no conditions and accepts and even welcomes these aspects of Southeast Asian politics. The EU will not be able to do the same," he added.

The EU's Global Gateway will not be able to compete with China's BRI on scale, while the values-based strings attached are likely to prove problematic for several Southeast Asian governments, deterring them from even applying for investment from Brussels. 

"The combination of much less funds and that some Southeast Asian countries are going to reject the values aspect of it, will probably not make it that successful in Southeast Asia," Joshua Kurlantzick, senior fellow for Southeast Asia at the Council on Foreign Relations in Washington, told DW.

Where can the Global Gateway succeed?

However, much depends on what the Global Gateway's achievements are judged against.

Although the Global Gateway has been implicitly described as the EU's response to China's BRI, supporters of the scheme argue it should not considered to be in direct competition with Beijing.

Neither should it be seen as standalone EU mission. Southeast Asia is one region where the EU can find "synergies" with the US and Japan when it comes to connectivity projects, Francesca Ghiretti, an analyst at Germany's Mercator Institute for China Studies, told DW.

There is also the potential for the EU's Global Gateway to partner with the United States' global investment proposal, Build Back Better World.

Japan also has an often-overlooked investment portfolio for the rest of Asia. A recent report by Fitch Solutions found that Japan's stock of investments in currently unfinished projects in Indonesia, Malaysia, the Philippines, Thailand and Vietnam amounts to $259 billion. That compares to just $157 billion from China. 

"If these actors, the EU, the US and Japan, collaborate with local actors in Southeast Asia, then there is a good chance of delivering positive projects," Ghiretti added.

But the EU's tighter purse strings mean that Brussels must clarify its priorities to avoid "overstretching," Ghiretti said, adding that the Global Gateway does not have infinite capacity. 

"The best course of action is to focus on a few priorities and make sure they succeed," she said. 

China's Gateway to Europe - The New Silk Road, Part 1

Edited by: Wesley Rahn

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