This article was shortlisted as a finalist in the 2024 E-International Relations Article Award, sponsored by Edinburgh University Press, Polity, Sage, Bloomsbury and Routledge.

In the aftermath of the 2007–08 Global Financial Crisis, the Western world has dealt with a range of crises that simultaneously gave China a series of an opportunities. Its subsequent growth within political, economic, and military domains has caught the world off guard – and caused a shift in the power balance between China and the EU. With the deepening of economic cooperation and multiple areas involved, the Belt and Road Initiative (BRI) was proposed by China in 2013. However, after dealing with the financial crisis, the subsequent refugee crisis, Brexit, the pandemic, and the Russia-Ukraine war, the EU’s internal disagreements and conflicts are ever more pronounced. In this context, with its internal issues, the EU is facing a situation that shifts the power of the China-EU relations and China’s strong and aggressive economic actions. Despite Brussels noticing this and attempting to cope by proposing related policies, the situation often catches Brussels off guard due to the speed of developments. Cooperation is, therefore, the better alternative due to the current political and economic circumstances. Eighteen European Union nations are currently a part of the BRI, according to official Chinese government statistics, yet the EU itself still hesitates to sign an agreement with China as seen by its absence in the BRI memorandum’s list.

According to the current public speeches, data, and arrangements, there are two main reasons for the prudence and hesitation of the EU. One is that the mega-project involved too much money, and most projects are infrastructure construction and investment. According to the OECD’s report China's Belt and Road Initiative in the Global Trade, Investment and Finance Landscape in 2018, global infrastructure investment is, on average, falling short by USD 0.35-0.37 trillion per year (“The Belt and Road Initiative in the Global Trade, Investment and Finance Landscape” 2018). It points out that the BRI faces a growing global infrastructure investment deficit at present and in the future. In this regard, the EU is sceptical about joining this Initiative as the infrastructure is a key connectivity sector to the investment deficit. Another reason is that the EU is sceptical and worried about the intention of the BRI. This economic project has a potential influence on the unity of the EU. Furthermore, whether the potential political influence of the BRI on geopolitics weakens the EU’s presence and influence in Eurasia.

Overall, China-EU relations have entered a new stage, and both sides have little experience facing the other with different appearances. The process of deepening and promoting the economic cooperation between China and the EU faces challenges. Discussing and analyzing the challenges is essential for the following arrangements and influencing the two sides likely to take and make.

Priorities and Issues of Processing the Belt and Road Initiative

The Belt and Road Initiative, an economic mega-project, has been developing for over a decade since it was proposed first in 2013. According to the China Belt and Road Initiative (BRI) Investment Report H1 2022 produced by the Green Finance & Development Center (GFDC) of the Fanhai International School of Finance at Fudan University, the cumulative BRI engagement amounts to US$932 billion (Nedopil 2022). The main aims of the BRI are connecting global value chains, promoting regional integration, and efficient use of resources, and one crucial goal of the BRI’s infrastructure investment is to reduce trade costs and promote market integration along the BRI countries (Bashir 2021, 19-21). It is not a Chinese foreign aid program but a platform for pursuing pragmatic collaboration. Mutual discussion, mutual construction, and mutual sharing are the core principles of this initiative. As the OECD mentioned, the world has a large infrastructure gap constraining trade, openness, and future prosperity (OECD 2018). Scholars emphasize the importance of infrastructure construction along the BRI countries to boost the regional economy, whether the physical stocks, such as the roads and ports, or social development, such as social services (Canning and Pedroni 2008, 524).

In 2021, the total value of imports and exports between China and countries along the BRI increased from 6.5 trillion yuan to 11.6 trillion yuan, an average annual growth rate of 7.5%, and the proportion of Chinese total foreign trade value in the same period increased from 25% to 29.7% (National Bureau of Statistics of China 2022). China is the EU’s second-biggest commercial partner behind the United States. Besides, exports from the EU to China are outpacing those from China to the EU (see Figure 1), despite China being the second-largest market for EU exports after the US. The EU’s trade deficit with China is evident and affects the China-EU economic relations.

As the largest developing country, China benefited from reducing the tariffs faced by its exporters because of the most-favored-nation principle since it joined WTO in 2001. Most trade between China and the EU is in goods such as mechanical and electrical and labor-intensive products, with little trade in services. With the development of China Railway Express, transportation cost is reduced, and transportation time is shortened, which increases the export volume of goods. However, the EU questions if it is still necessary to apply the most-favored-nation principle to China as it has been the second-largest world economy. The EU trade imbalance of goods with China is still an evident situation and problem (see Figure 2) for economic cooperation.

Trade balance issues are also present in the BRI. China’s free trade areas along the BRI-covered countries undermine the EU’s trade gains. For example, trade gains arise from removing trade tariffs from free trade agreements with countries along the BRI. Moreover, the trade gains through the free trade areas influence the EU’s economic cooperation with these countries. Aside from the China-US trade war, the BRI is crucial to the EU as it has clear geographic coverage. The EU can benefit from the mega economic project, but ensuring its benefits and economic security is also a significant problem for the EU. Brussels and the EU member states are still thinking and finding a solution.

Compared to the trade imbalance between China and the EU, direct investments of China-EU are in a fluid state of balance. The EU direct investment inflow into China is far greater than China's investment in the EU (see Figure 3). However, this situation has changed as many European companies complain about the lack of equal treatment with Chinese SOEs in most industries. With the influence of uncertainty in the global investment environment, the decline in EU FDI in China is evident. At the same time, Chinese direct investment in the EU increases. The situation of China-EU direct foreign investment is also directly reflected in the investment framework of the BRI. One of the reasons why the EU’s interest in and participation in BRI investment has declined is that EU direct investment in China is concentrated in manufacturing. The Chinese economy has stagnated for years, which is anticipated to continue as the population ages and urbanizes (“Global Economy to Slow Further Amid Signs of Resilience and China Re-opening” 2023). EU’s rate of return on China’s direct investment is not optimistic. As for the increase of Chinese direct investment in the EU, it is also a concern for the EU because the BRI targets high-tech industries (such as ICT).

The BRI’s financial resources are identified into five types: pure assistance, preferential loans, development financing, commercial loans, and different special funds. Development finance and special funds are essential for the five types of BRI infrastructure development and........

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