AS China and the EU celebrated their 40th year of diplomatic relations last year, the status of their bilateral relations appeared to be improving as indicated in the 2020 Agenda and the conclusions of the most recent EU-China summit in Brussels.

A most promising development is the launching of the EU-China Connectivity Platform, an initiative in which the EU and China will endeavour to combine each other’s pet programs, namely the Investment Plan for Europe (IPE) and the One Belt One Road initiative.

Faced with trade frictions, China and Europe have come to realize that they have to find ways to reach a pragmatic consensus on how to make policies mutually supportive.

To cope with this challenge the EU and China are already trying to improve communication and coordination through a number of dialogues, of which the EU-China High Level Economic and Trade Dialogue is especially important in terms of economic security.

Easing trade friction

This dialogue was set up to discuss strategic issues in the EU-China economic and trade relationship and provide a forum for easing trade friction between the two parties.

For one, the dialogue has offered both sides the opportunity to discuss recent developments in the EU and Chinese economies, as well as progress in reforms necessary to secure strong, sustainable and balanced growth.

While the eurozone is emerging from recession, the environment remains challenging and much remains to be done.

China also faces significant challenges, needing to adapt its growth model from being investment driven, and very resource and capital intensive, to one that is based more on consumer demand. Discussions in the dialogue therefore also covered reforms that China is undertaking to ensure a more balanced and sustainable pattern of growth in the future.

Second, the dialogue has set the floor for addressing issues at the level of multilateral global governance.

In this vain both parties have reached common ground on the importance of the G20 as a forum to develop cooperative responses to global economic challenges, particularly in a time of heightened economic uncertainty, and have committed themselves to making the G20 a more effective forum for economic policy coordination.

Finally, both parties have debated burning economic security issues such as future sources of growth, trade and investment, industrial policy and technology cooperation, and customs cooperation. While substantial results from these dialogues are slow to come about, it is the process itself that is important.

Recent developments in the EU-China relationship appear to resonate this dynamic. While Europe has been slow in its response to China’s One Belt One Road initiative, the pace and interest are picking up.

The launch of the Connectivity Platform at the EU-China Summit has kick-started a much needed exchange of synergies between China’s ambitious vision of an inter-connected world and Europe’s multi-billion euro investment plan to boost jobs and growth.

As China’s economic system transitions away from a reliance on manufacturing, ensuring both short and long-term profitmaking opportunities outside its borders are essential for China and are among the key drivers of One Belt One Road.

Europe, meanwhile, wants to make its economic recovery following the Great Recession permanent and more robust.

While China hopes that cooperation will facilitate the transfer of advanced technology eastward, the EU expects European countries to benefit from One Belt One Road as recipients of investment and expertise, which can contribute to economic development and stability, especially on Europe’s less developed periphery.

Conveniently, the EU’s new economic strategy prioritizes the development of various types of infrastructure in the EU and its neighborhood.

A US$358 billion plan

A US$358 billion Investment Plan for Europe is currently being put on the tracks to facilitate the strategy.

Significant overlap exists between the pillars and objectives of the Investment Plan for Europe and One Belt One Road, especially with regard to investment in infrastructure, improved connectivity and development of advanced technology.

In particular, the domains of digital technology and clean energy are at the heart of both initiatives.

Importantly, the IPE is driven by the European Fund for Strategic Investment, which aims to enlist contributions from non-EU and private sector sources.

One Belt One Road is just one facet of China’s global coming of age. Several European countries have already become founding members of the Asian Infrastructure Investment Bank (AIIB), another major Chinese initiative, which will play a key role in financing major segments of One Belt One Road initiatives.

A separate US$40 billion dollar Silk Road Fund has also been set up.

Moving from dialogue to action, however, will require time and effort — and willingness to compromise.

While the first meeting of the connectivity platform in Beijing was a first useful attempt to explore possibilities and problems, a more detailed dialogue is now necessary before the EU and China get down to identifying and working on the nuts and bolts of their cooperation.

Given their different working methods and cultures, European and Chinese policymakers, bankers and business leaders will not find it easy to work together.

But in an interdependent world desperate for investment, jobs and modern infrastructure, China has surely shown its capacity to surprise and think big.

In order for increased flows of goods and finances envisioned by One Belt One Road to materialize, a set of broader support policies and incentives, such as the Bilateral Investment Treaty currently being negotiated, must be in place.

The agreement is necessary as mutual investment flows between China and Europe are still low.

The current level of bilateral investment between the EU and China is way below what could be expected from two of the most important economic blocks on the planet and in no way stands the comparison with the mutual investment levels between the US and EU.

The Bilateral Investment Treaty will provide stimulus for economic growth to both the EU and China by opening markets to investment in both directions. China wants to move quickly on this front, as it sees the Bilateral Investment Treaty as a stepping-stone to a Free Trade Agreement with the EU.

However, the most important point for the EU is to ensure the same level of access to China’s market to European companies as Chinese companies enjoy in Europe.

More broadly, the issue of equality within the relationship is a top concern for the EU. While Beijing hopes that European markets will be able to absorb some of its industrial overcapacity and ever increasing amounts of Chinese goods, the EU appears more concerned about whether One Belt One Road will create more export opportunities for European products and services

One Belt One Road has already made a tangible impact on China’s image and position in the world.

Using the metaphor of a New Silk Road connecting China and the world, Beijing has mitigated worries about the implied threat of “China’s rise.”

A positive light

The vision of comprehensive development across Eurasia and the creation of a win-win interdependence along the way has allowed China to recast the “rising China” narrative in a much more positive light. That is yet another sign that China’s growing economic clout is increasing its influence well beyond its borders and is turning it into a more confident player.

Gradually Beijing appears to be developing an alternative discourse of modernity and spelling out its own narratives of global governance.

These geostrategic aspects of One Belt One Road are bound to influence Brussels’s assessment of the right place for the EU within the initiative.

Whereas for Europe it is key to redress its public debt and regain its economic dynamism while at the same time keeping protectionist pressures at bay, the challenge for China is to avoid the “middle income trap” by developing its domestic market and making it as open and rule-based as possible.

Gustaaf Geeraerts is Distinguished Professor in the School of International Relations and Public Affairs and Co-director of the Center for China-EU Relations, Fudan University. He is Emeritus Professor and founding director of the Brussels Institute of Contemporary China Studies (BICCS), Vrije Universiteit Brussel (VUB). The article is adapted from his speech at a local forum in Shanghai on May 18.