France joins China in global infrastructure projects

Paris and Beijing have agreed to build infrastructure projects in Africa, South East Asia and Eastern Europe.

Published : Feb 25, 2022 17:15 IST

French President Emmanuel Macron, left, listens as Chinese President Xi Jinping talks during a ceremony in Beijing. France became the first country to establish the third-party market intergovernmental cooperation mechanism with China.

French President Emmanuel Macron, left, listens as Chinese President Xi Jinping talks during a ceremony in Beijing. France became the first country to establish the third-party market intergovernmental cooperation mechanism with China.

Paris and Beijing plan to jointly build seven infrastructure projects worth over $1.7 billion ($1.9 billion) in Africa, Southeast Asia and Eastern Europe, making France the first country to establish the third-party market intergovernmental cooperation mechanism with China. Proponents hope that it will make Chinese foreign investments more transparent, while skeptics suggest that it may simply provide an optical boost for Beijing in the face of growing conflict with the United States.

Following the recent virtual meeting between French President Emmanuel Macron and his Chinese counterpart, Xi Jinping, the two countries signed the Fourth Round China-France Third-Party Market Cooperation Pilot Project List in mid-February. The list includes projects in infrastructure, environmental protection and new energy, China's Foreign Ministry spokesperson, Wang Wenbin, said in a statement.

China's senior planning body, the National Development and Reform Commission (NDRC), said in a press release that "French enterprises have a unique advantage in advanced manufacturing, environmental protection and engineering construction, while Chinese firms have accumulated rich experience in basic infrastructure construction, energy, equipment building and the internet. Enterprises from both countries are complementary, and have a huge potential for third-party market cooperation."

Old wine, new bottles?

"I think this sounds very interesting. France could be onto something," said Martin Jacques, a British journalist, academic and China watcher. But is it anything new? "Paris and Beijing have been discussing cooperation on development projects in third countries for years. In a way, this is a way for Paris not to leave China acting alone in Africa," Marc Julienne, the head of China Research at the Center for Asian Studies of the French Institute of International Relations (IFRI), told DW . "France shares an alliance with Washington, whereas its China policy is articulated on two legs: one of dialogue and cooperation where it is possible, and one of systemic rivalry and opposition where it has to be," Julienne said.

"As the world's second-largest economy, with a large presence in many Francophone areas, it is natural that China and France should seek some sort of cooperation on infrastructure issues," said Eric K. Hontz, from the Center for International Private Enterprise. "I do not think this marks a dramatic shift in the relationship between France and the U.S., but is a way for France to continue to remain engaged and put itself, and its industry, forward into these markets. I think the Macron government is trying to navigate very tricky waters through dialogue and engagement," he added.

Corrosive capital in Central and Eastern Europe

Skeptics suggest that China's foreign investments tend to have a corrosive influence on smaller, often only nominally democratic nations, including some in the European Union. In the cases of Slovakia and the Czech Republic, Beijing has developed ties with local oligarchs who have financial interests in China and, as a result, Chinese entities have been able to exert influence in areas such as government communication networks.

Hungary has the highest share of Chinese investment in the region after Serbia and plans several new projects, including construction of the controversial Fudan University campus in Budapest. Total Chinese foreign investment in Hungary stood at $5 billion, with companies such as Huawei, Wanhua and Bank of China leading the way.

Poland has significant economic relations with China, especially with regards to railway transportation, as Poland is a key transit country for railway cargo transports from China. In 2018, Xi upgraded Chinese-Bulgarian relations to a strategic partnership. A recent study from the Central and Eastern European Centre for Asian Studies (CEECAS) notes that China's FDI positions in the region are modest. According to China Global Investment Tracker data, in the period 2000-2019, of $129 billion worth of Chinese investments in Europe, only $10 billion went to the countries of CEE.

A place in the sun?

In 1990, U.S. and European companies had about 85 per cent of construction contracts in Africa. Now Western firms are fighting often with Chinese rivals to win business there. The World Bank predicts that demand for infrastructure spending in Africa will be over $300 billion a year by 2040. Most will be built by Chinese firms, which in 2020 were responsible for 31 per cent of all infrastructure projects in Africa with a value of $50 million or more, according to Deloitte. That was up from 12 per cent in 2013. Western firms were directly responsible for 12 per cent, compared with 37 per cent in 2013.

European Commission President Ursula von der Leyen recently unveiled a $172 billion investment plan for Africa, part of the E.U.'s Global Gateway infrastructure initiative. This will see investments of up to $340 billion for public and private infrastructure projects around the world by 2027. A response to China's Belt and Road Initiative, the E.U. plans will use private sector investments and funding from E.U. institutions and member countries.

In terms of the stock of FDI in Africa, in 2019 the Netherlands was the continent’s biggest investor (with an FDI stock of $67 billion), followed by the U.K. ($66 billion), France ($65 billion) and China ($44 billion), according to UNCTAD. The U.S. was in fifth place with $43 billion. China overtook the U.S. as an investor in Africa in 2014. China’s FDI stock in Africa grew from $490 million in 2003 to $43.4 billion in 2020. Loans from China to Africa were estimated at $153 billion between 2000 and 2019.

France has lost nearly half of its market share in Africa since 2001, falling from 12 per cent to 7 per cent. "French exports have doubled in a market that has quadrupled, hence a halving of our market shares," according to former minister Herve Gaymard in a report delivered in 2019. The French decline has been most visible in French-speaking Africa. French exports to the African continent are low in relation to overall shipments abroad. They represent only 5 per cent of all the goods and services exported by France each year.

Transparency concerns

Analysts worry about whether these projects will engage their publicly targeted recipients, the tender processes will be transparent, and environmental and labor laws will be followed. "I do hope that this agreement will mean that Sapin-II will apply to these projects. The long-arm jurisdiction of the French legal system over these projects could lead to greater transparency and accountability," Hontz said. "The business environment is very complex, and to have French companies as a partner in these projects might allow China to de-risk some aspects of the investment while bringing greater credibility to the investment if done with a French investor or company that has a long-term presence in the market," Hontz concluded.

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