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The European Union Won’t Be Fooled by China’s Health Silk Road


   

The eruption of the coronavirus pandemic brought with it not just a health crisis, but also an economic one. With many countries experiencing failures in their economies, many feared China’s interference with investments and acquisitions on the cheap, as happened after the 2008-2009 financial crisis. These concerns are amplified by China’s vast campaign to portray itself as a reliable partner, as the reemergence of the Health Silk Road shows, a branch off its Belt and Road Initiative (BRI). Yet, this time the European Union has been faster to react to the crisis and its member states more careful in screening external investments.

The Health Silk Road was first outlined in 2017 through the signature of a memorandum of understanding between China and the World Health Organization (WHO) during the Belt and Road Forum for Health Cooperation in Beijing. The aim of this initiative is to establish a system to contain disease outbreaks, preventing them from becoming epidemics, and to achieve a universal health coverage through cooperation in health research (thanks to the ability of the BRI to build infrastructures and guarantee access to medicines and human resources). At the time, the newly appointed director-general of the WHO, Tedros Adhanom, praised the proposal by China, and stressed its role as a world leader in disease surveillance and outbreak control. Yet, after its proclamation, the project remained at a standstill.

In a post-coronavirus context, the needs and objectives for China’s Health Silk Road appears to be different. The pandemic has hurt China’s image and its perceived capability in disease control, and it risks undermining China’s stance as a reliable actor and partner. Moreover, the economic consequences of the pandemic have been harsh, driving the country to an unprecedented GDP fall. This crisis has the potential to strongly undermine the BRI, which relies on Chinese investments. Moreover, several of the BRI’s important partners in the Mediterranean region have been badly hit by the coronavirus, including Italy, Egypt, and Turkey. Greece has registered a lower number of cases, but it is likely to struggle during a global recession. According to the World Bank, the consequences of the coronavirus crisis mixed with plummeting oil prices will cause in the Middle East and North Africa a contraction of around 4.2 percent of GDP, with many countries experiencing drops in GDP of more than 5 percent. On the other side of the Mediterranean, the economic impact of the coronavirus is set to contract the European Union’s GDP by 8.7 percent, with the Italian and Greek economies expected to contract respectively by 11.2 and 9 percent in 2020.

Even before the coronavirus hit, many projects in the framework of the BRI were at a standstill, and now the future of many more seem uncertain. BRI-related projects are dependent on China for materials, workforce, and funding. Moreover, the coronavirus has strongly affected China’s image to the point that it fears a lack of trust among its partners. It is in this context that China revitalized the Health Silk Road project. In a call with Italian Prime Minister Giuseppe Conte on March 16, 2020, Xi Jinping stated that “Italy and China are the cornerstones of the new Silk Road of health.” Many observers see China’s Health Silk Road revival in Europe as a short-term tactic to ensure economic gain and to help the recovery of the BRI in a moment of difficulty. Beijing can take advantage of the network of ports and logistics hubs that constitute the BRI to provide medical aid to partner countries in need. China aims to use the Health Silk Road to turn this crisis into an opportunity, moving the attention away from it as the epicenter of the pandemic to portray itself as an experienced actor that can offer support and solutions.

China has invested considerable resources in channeling and controlling the public discourse on the coronavirus, trying to push a narrative firmly focused on contrasting the idea of a “Chinese virus.” This is a crucial aspect for China, as deteriorated relations with Mediterranean partners could result in a more unstable supply of energy, more difficulty in using regional trade routes, and, overall, a further decline of its economic and political position. Its provision of emergency medical assistance—including masks, ventilators, and medical equips—and its media campaign across the region are driven by the need to ensure it remains a trusted economic and political actor. That is part of the reason why China has ramped up efforts to assist countries across the region, sending medical equipment and crews to Spain, Italy, Greece, Israel, Palestine, Egypt, Tunisia, Algeria, Turkey, and Morocco. Moreover, the role of China’s medical-technology sector in the region is continuously rising in importance. Many countries in North Africa rely on online training with Chinese teams to manage the coronavirus better, and China’s success in using artificial intelligence and mobile apps to monitor and control the spread of the virus can be a model for countries with a fragile health system. Companies such as Huawei are offering cloud systems to store health data and hospital databases online, a proposal that prompted much criticism in Europe linked to the low reliability of Chinese cyber infrastructure, particularly for such sensitive data. The distribution of medical equipment and the provision of support through technology are important aspects of the Health Silk Road, and tools for China to promote the efficacy of the BRI in responding to the pandemic.

Many observers fear that China could use this opportunity to increase its influence inside the European Union. Italy was the first member state that officially joined China's BRI and could be the first to become part of the Health Silk Road as well. Foreign Minister Luigi Di Maio claimed that, despite Italy’s request, Europe had not offered assistance comparable to that of China. Yet, China’s aid was not for free. The equipment sent by China (masks, ventilators, and other medical equipment) was part of a commercial deal with Italy, and only a small portion was donated. Moreover, even if European support was slightly slower to come, it was bigger. Germany donated 1 million masks and 7.5 tons of medical equipment, including ventilators. Austria donated 1.5 million of masks, France 1 million, and the European Commission 1.5 million. Germany and Austria also treated several coronavirus patients transferred from Italy.

Once again, China has shown its readiness to intervene in countries hit by crisis. In the aftermath of the financial crisis, China offered support to Greece and Italy, whose governments welcomed the help in revitalizing their shattered economies. This often resulted in huge pay-off, such as a more prominent presence of Chinese companies in the countries’ national economy and a significantly increased share of the stock exchange market owned by China. In 2015 the People’s Bank of China purchased shares worth more than $5 billion in the Italian stock market, acquiring holdings in important companies such as Unicredit, Eni, Enel, and Telecom Italia.

The Health Silk road and the vast propaganda campaign put in place by China today could reinforce this process, increasing the perception that China is a reliable and experienced actor while pushing many countries further into its sphere of influence. Yet this time the EU and the member states seems to have learned from the past, limiting the possibility for China to intervene in their economies. The European Commission with its Next Generation EU initiative, has offered in the framework of the EU budget for 2021–2027 to allocate €750 billion in support to member states (€390 million in grants and €360 million in loans). Even more importantly, while the response to the financial crisis took some years to come, this time it was a matter of months before the EU reached a historic agreement to face the situation. Finally, the member states also seem to have learned a lesson, as the case of Italy and its accent on the necessity of using the “golden power” (special powers through which the government can oppose or require specific conditions to the purchase of shares of Italian firms by external buyers) to protect its strategic economic assets shows. This was also advocated by the European Commission, which in its guidelines dated March 25 strongly underlined the necessity to protect national strategic assets. As a result, the Italian government issued Law Decree No.23 of April 8, focused on special measures to safeguard Italian assets and expanding the “golden power” to previously excluded sectors. The same was done by other countries: Germany enhanced its foreign direct investment (FDI) screening process; France lowered the threshold for foreign investment notification from 25 percent to 10 percent until the end of the year; Spain approved a restriction on FDI, requiring government authorization on any investment by non-EU or non-European Free Trade Association nationals.

All these elements clearly show that the European Union has learned a lesson from the financial crisis. This time there has been a strong attempt to build up a protective net against foreign (particularly Chinese) direct investment to protect strategic assets. The emerging situation looks different from the one envisaged at the beginning of the crisis when the concerns of an increasing Chinese presence in the European economy were strong. The guard should be maintained high, but this time the European Union proved to be better equipped and prepared to face the crisis.

The views expressed in GMF publications and commentary are the views of the author alone


https://www.gmfus.org/blog/2020/09/02/european-union-wont-be-fooled-chinas-health-silk-road

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