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EU-Japan take on China's BRI with own Silk Road

October 4, 2019

The EU and Japan have signed an infrastructure deal to boost connectivity between Europe and Asia. The pact is being described as the EU and Japan's riposte to China's Belt and Road Initiative (BRI).

European Commission President Jean-Claude Juncker with Japanese Prime Minister Shinzo Abe
Image: picture-alliance/dpa/AP/V. Mayo

What is the EU-Japan infrastructure pact?

The European Union and Japan, which signed a free trade deal last year, have agreed to build infrastructure in sectors such as transportation, energy and digital services to improve connectivity between Europe and Asia. The agreement is part of a broader EU plan to strengthen economic and cultural ties between the two regions. The infrastructure building will be backed by a €60 billion ($65.48 billion) EU guarantee fund, which the bloc says would be used to attract further investments from development banks and private investors.

Why is the EU seeking better connectivity with Asia?

The EU and Asia are major trading partners with €1.6 trillion in annual trade between them. The two account for over 60% of the world's economic output. The EU is looking to deepen ties with Asian countries, which are home to 60% of the world's population. It is estimated that Asia will require over €1.3 trillion a year in infrastructure in the coming decades just to support today's growth rates. Raising and deploying such huge amount of funds is going to be challenging in a continent as diverse as Asia. The EU feels its experience with European integration could come in handy. The Asia push is also part of a wider plan by the EU to use its economic might in trade, aid and investment to achieve strategic foreign policy goals, the British business daily the Financial Times reported.

Read moreChina's 'New Silk Road' - perception and reality

What is Japan hoping to achieve?

The Asian economic superpower is concerned at China's growing economic and political influence and is seeking to win new allies through its investments. Japan is the biggest donor in Asia and the largest lender to projects in southeast Asia, financing infrastructure projects worth hundreds of billions of dollars.  But Tokyo has struggled to market its efforts the way China is doing with the BRI, also known as the New Silk Road. Japan is also looking to promote its vision for a "free and open Indo-Pacific strategy," which is being threatened by Beijing's aggressive maritime strategy. Experts say a collaboration with the EU can help Tokyo on these fronts.

China’s ambitions on the New Silk Road

What's the EU-Japan connectivity pact got to do with China and its Belt and Road Initiative?

Both the EU and Japan refrained from mentioning China or its Silk Road project during the signing of the agreement. But the speeches by their leaders and the terms of the deal made several veiled references to China and its ambitious project. Japanese Prime Minister Shinzo Abe and European Commission President Jean-Claude Juncker stressed the need for the projects to be environmentally and financially sustainable, provide "rules-based connectivity," foster "free and open" trade and a "mutually-beneficial" relationship.

China has faced criticism for creating mountains of debt by bankrolling white elephant projects in Asian and Balkan countries that could ill-afford them. Beijing has also been accused of strong-arming poor countries through predatory lending as part of its BRI, which has been endorsed by more than 100 countries, including many in the EU. There are also concerns about the Chinese-backed projects falling short on environmental standards. Critics of BRI also point towards it being aimed at perpetuating Beijing's dominance as the global manufacturing hub.

Read more: China tries to allay fears over Belt and Road policy

Which projects are the EU and Japan undertaking as part of the deal?

Both sides are yet to zero in on specific projects. One EU diplomat told the Financial Times that the collaboration could include the EU financing Japanese firms looking to use drones to map roads in need of repair in Africa, and the Japanese funding European renewable companies contemplating investments in southeast Asia.

Ashutosh Pandey
Ashutosh Pandey Business editor with a focus on international trade, financial markets and the energy sector.@ashutoshpande85