1

From: PA International Foundation Date: 12 October 2015 Ref. nr.: 15.36505AA

CONFIDENTIAL

GLOBAL CHANGE: INFRASTRUCTURE INVESTMENT IS KEY Severe competition between the strategic investment giants China and Japan

for a high speed railway between Jakarta and Bandung in Indonesia has confirmed how infrastructure investment shapes both a developing economy and the politics around it.

In a conflict rife world future tensions and influences may well be decided by the rules and conditionalities that are applied by both lenders and client states. The Chinese and Japanese

Governments, both experiencing either weakening or stagnating domestic growth, have radically and substantially increased their lending capacities to the growth regions of today’s

world: Asia, Africa and Latin America. China boasts a total of over 1 trillion USD in foreign investment funds. This will allow its huge construction potential to be used abroad as domestic

construction has led to an over 3 trillion USD debt. Japan doubled the Japan Bank for International Cooperation (JBIC)’s funds to 200 bn USD. Both lending capacities informally

require developing countries to contract Chinese or Japanese firms and personnel. It is a triple whammy: national industries are enabled to find work, create income and innovation abroad

and increase political influence in other countries.

Republican radicals in the US Congress and a powerful combination of European politicians and bureaucrats have both effectively blocked their own industries to compete where real money is earned – not created by banks. The United States Export-Import bank (US EXIM) has ceased its operations, the European Investment Bank (EIB) never reached out at all. Its billions must be

spent in the EU only, and that is not creating growth but making the EU even less competitive.

China won the ‘Railway Battle’ by promising Indonesia the establishment of a new factory to produce train wagons. This ‘In-Country Value’ was demanded by Jakarta. Three previous

Chinese projects in Indonesia gave Beijing a bad name and this can now be repaired – and China looks forward to spend up to 85 billion USD in Indonesia alone.

Can the EU earn money, improve innovation and create jobs in the EU by creating a similar EU facility? It seems the only way to avoid that mostly Chinese environmental and human rights

rules apply – while Europe invests in its own fair share.

From single to multi-stakeholder infrastructure-investment models 1. The provision of financing for major infrastructure projects has gone through

an evolution with different actors taking on the role of this essential service for national socio-economic development. In the 1990s and early 2000s, primarily American banks took up this role. In the middle of the 2000s, European banks substantially engaged in export and project financing. However, since the 2008 financial crisis, Asia, most notably Japan, South Korea and recently China, are becoming the biggest export and project finance providers. Whatever the

2

motives and the consequences for both the invested and investing countries, this has been accompanied by an apparent weakening of the rules governing export financing as agreed in the OECD framework of 1992. In an opinion in the journal Foreign Affairs, Mr. Fred P. Hochberg, President of the US EXIM stated that as recently as 1999, nearly 100 percent of export credit was governed by its rules. By 2004, with the rise of Chinese exports, the share of export support governed by the OECD had fallen to roughly two-thirds. By 2013, the share had plummeted to one-third.1 Although OECD members Japan and South Korea do not strictly speaking violate these rules, they circumvent some of them in order to use export financing to better support their respective economies by demanding that, to a certain degree, their companies be involved in the implementation of the projects they finance.2

2. China, a non-OECD member, on the other hand, usually demands quasi-full

control of the financed projects’ implementation and demands a very high degree of Chinese industrial involvement, usually to the detriment of national and among others European companies. It is well-documented that in such an ‘all China’ approach, human rights of both local and Chinese workers have been disregarded. In Indonesia and elsewhere, for example, China was accused of dispatching prisoners to major infrastructure projects. Only recently has a ‘national awakening’ – accompanied by a loosening political grip of local oligarchies – taken on overtones of ‘In-Country Value’ and effective Corporate Social Responsibility. Cases like the fierce competition between the Chinese and Japanese Government-supported industries over a high speed railway from Jakarta to Bandung, Indonesia, recently won by China on higher In-Country Value, point to the new shape of infrastructure project funding to come. The construction of a factory in Indonesia building Chinese aluminium wagons now renders obsolete contractual practices like the Ecuadorian deal providing China with virtually all Ecuadorian oil revenues for the next 80 years and virtually all connected jobs.3

3. Leading Asian countries provide export-financing through major export-import banks which are funded by the State. Japan has JBIC. As a response to the recent establishment of the China sponsored and powered Asian Infrastructure Investment Bank (AIIB), Japan has doubled the capacity of this bank which now has a capital of $200bn. South Korea runs the Korea Eximbank (K-ExIm) and China has, or will have, at its disposal, besides the AIIB, multiple institutions such as China Ex-Im, Sinosure, China Development Bank and the Silk Road Fund with a total capacity of over 1 trillion USD. A recent report published by the US EXIM estimates that China provided its exporters with at least $670 billion in export credit financing over the last two years, while the US EXIM has

1 Protecting America’s Competitive Advantage, Fred P. Hochberg, Foreign Affairs, May/June 2015 2 Interestingly, such issues are occasionally also raised with regard to the modus operandi of European counterparts, such as e.g. Germany’s KfW. 3 China’s Global Ambitions, with Loans and Strings Attached, The New York Times, 24-07-2015

3

supported American exporters with only about $590 billion in financing—over its entire 81-year history. Certain European companies also apply for funds from JBIC and K-ExIm because of lack of European alternatives. However, these banks, not surprisingly, prefer cooperating with companies from their respective countries and if they do offer financing to European companies, it is on the informal condition that they sub-contract their national companies or buy their respective countries’ products. It should be noted that these banks are not draining state funds, but instead both make a substantial profit from their activities while providing their Governments with political and economic diplomacy benefits.

4. Confronted by the big challenge of the China dominated AIIB, similar benefits may now be within Europe’s reach. After initially uncoordinated actions by Germany and the UK – in the expectation of bilateral advantages – the European Union sees itself forced to come up with a joint or at least coordinated strategy. Indeed, the AIIB forces European policy for extra-EU investment to come about. If that would happen this may free the EIB of its EU-focused mandate. In 2016 the European Parliament will discuss this mandate. Particularly German resistance against the broadening of this mandate could prevent all European Member States and indeed both European larger and smaller industries to engage in areas where economic growth is in abundance.

5. Talks have started on potential cooperation between the still rather limited

external EIB funding capacity – only in countries bordering the EU, and that is not where substantial growth is expected) – and the European Bank for Reconstruction and Development (EBRD) in which also the US is taking part. Under the current circumstances of Russian aggression in and around Crimea, Ukraine, Syria and Turkey, cheap lending to Russia and its satellites may not be politically attractive. A radical renewal and funding and expansion may now be on the cards.

China’s angle

6. A recent example of current Chinese investment angles is its decision to secure major infrastructure projects for Chinese companies in Pakistan’s Gwadar port. This strategic (oil) hub was open for international tendering through Chinese funding. But to shortcut this tendering process, Beijing decided to fully subsidize this port development – and allow only Chinese companies to win.4

7. The lesson of the Indonesian Jakarta-Bandung Railway project and the Pakistan Gwadar port project are clear. Only fierce competition in or balanced cooperation with a well-organised polity and rather transparent economy, will

4 China converts $230m loan for Gwadar airport into grant, Geotv, 23-09-2015

4

produce results based on internationally acceptable rules to the benefit of both the investment country and the invested country.

8. Many economists consider the Chinese financial policies and the AIIB a challenge to the American-led Bretton Woods system. Virtually all believe that the Chinese approach – unless properly balanced – will lead to a lowering of global investment standards. China’s consistent policy towards Germany, the United Kingdom and the EU – in that order – has led to a new kind of bilateralism intended, apparently, to weaken joint EU economic diplomacy approaches. Indeed, the individual EU Member States announcements to join the AIIB demonstrate a clear lack of EU coordination.5/6 Subsequent events in China and the United Kingdom do indicate an emerging preferential UK-Chinese7 and German-Chinese8 relationship, clearly inducing the avoidance of international tender procedures. A recent example is a UK dredging project given to Chinese industries without proper tendering. 9 European competitors now call on the European Court of Justice to annul the UK procedure. Germany is also a relevant example; initial advantages for German companies investing in China now seem to hinder effective decisions on investment in other Asian countries. Obviously, this uncoordinated approach gave China effective leveraging power over individual EU Member States that applied for AIIB membership and thus over the EU as a whole.

China – Russia: geopolitics

9. However, in the meantime the Chinese economy has started to stutter. In Beijing, experts feel China is overstretching abroad and underperforming domestically. Asian countries now adopting the TPP relationship with the US rather rapidly adapted their strongly Beijing focused policies. Moreover, less attractive investment conditions has led to several major EU and US industries,

5 The Asian Infrastructure Investment Bank: A New Multilateral Financial Institution or a Vehicle for China’s Geostrategic Goals; European Political Strategy Centre, 24-04-2015 aptly observed that “The AIIB case highlights the lack of a common strategy among EU Member States, as well as between the EU and its closest allies. The founding of the AIIB was announced as far back as autumn 2013, providing a comfortable time frame in which a more coordinated EU response could have been organised. In its absence, Member States decided largely on their own.” 6 At the 28 August, 2015 conference on “China’s Foreign Policy and Global Governance”, Dr. Joëlle Hivonnet, Senior Policy Officer at EEAS stated that the few Council meetings on the AIIB were held after the Member States already formally applied for membership which was confirmed by Mr. Thomas Renard, Senior Research Fellow at the Egmont Institute. 7The statement of the UK’s Chancellor of the Exchequer Mr. George Osborne that “Britain should be China’s best partner in the West” can serve as additional proof of this trend. (The Osborne Doctrine, The Economist, 26-09-2015) 8 Some anecdotal evidence is that the German car manufacturer Volkswagen is dependent on China for 2/3 of its profits; BMW, another German car manufacturer for half (source: The Economist Espresso). 9 “Jan de Nul cries foul over Swansea lagoon contract decision”; The Construction Index; 17-06-2015. Chinese dredgers beat EU dredgers such as Jan De Nul in the Swansea Bay Tidal Lagoon tender due to privileged UK-China agreement.

5

but also Chinese companies, moving out of China.10 Some others, such as German (car) producers, are tied to Chinese domestic joint ventures as initially demanded by Chinese law.

10. Wider economic and political considerations come into the global infrastructure equation. Chinese companies, for example, are now involved in the exploitation of gas on the Russian-Arctic and Sakhalin shelf. The territorial disputes over the North Pole may well become the future issue of a great power conflict. If such a conflict occurs between the US and Russia and the latter is backed by China, the question arises where the EU stands. Is the EU coordinating with its foremost ally the US or is it connected to Chinese interests through AIIB and other Chinese funded contracts? Another example is that today’s emerging Assad/Russia ‘anti-terrorist’ operations in Syria equally challenge the US-led alliance trying to depose Assad and eliminate ISIS. Such geostrategic and geopolitical questions require a consistent, integrated and coordinated diplomatic European response, which is apparently lacking at present. Can such a response be defined and implemented without consultation with the US?

11. China’s multiplying domestic problems will, in the near future, heavily weigh

on the international competition and cooperation with Beijing. To overcome the 2008 financial crisis, China launched a Keynesian policy ‘on steroids’ with an investment rate of 47% of bbp per year11 which led to a construction boom that is rapidly becoming unsustainable. On the Chinese Government’s watch, Chinese industries built up major industrial overcapacities while domestic lending to use these capacities created a debt of over 3 trillion USD. This now forces China to intensify its outward investment campaign as can be observed with the establishment of the AIIB and the world-spanning One Belt One Road (OBOR) initiative.12 Clearly, one of the main drivers and political motivations for geopolitical expansion aimed at securing China’s future raw material, food and even water needs, are domestic. This development is further strengthened by the recent Shanghai stock exchange crash that has put an end to over-optimistic analyses of the Chinese economy. Many domestic investors, losing

10 The Wall Street Journal reported on 9 June, 2015 that according to the EU Chamber of Commerce in China’s latest survey of 541 European companies “more than one-third of European companies are planning cost reductions, including firms in the energy, logistics, machinery and the automotive industries. Nearly one-fifth of the companies surveyed said they are considering shifting some of their China investments to other markets.” 11 The World Bank database: Gross capital formation 12 Some anecdotal evidence supports the analysis of China pursuing an aggressive outward economic campaign. The country for example already started competing with European companies inside the EU: the construction of the world’s biggest lock gates for the Deurganckdok in Antwerp was carried out by a Chinese company. The Port of Antwerp chose for a Chinese company for reasons of financing. China is also embarking on a $100 million venture to build high-speed rail from Los Angeles to Las Vegas through China Railway International.

6

billions due to the crash, are now inclined to invest abroad to ensure a decent Return on Investment (RoI).13 Last but not least, the OBOR strategy is said to have a military origin as argued by Ms Christina Lin, research fellow at the Rubin Center.14 Indeed OBOR can be understood as an all-encompassing strategy for China to address its current and future domestic problems. If that is so, what role will the EU and the EIB be willing and able to play – and to what extent is this strategized in concertation with all relevant EU institutions, including the European Parliament and the European Council?15 Are such questions not worthy of a proper public debate? Should it not be wise for Chinese State Owned Enterprises to avoid European and American consumer blocks if the owner of these Enterprises – the Chinese State – is understood to support Russian claims and or aggression in Ukraine, Crimea and Syria? The Chinese Melamine Crisis is a case in point. Chinese mothers simply stopped buying unsafe Chinese infant formula, bankrupting China’s largest dairy industry Sanlu and halving the entire Chinese dairy industry. Even today Chinese ‘raiders’ empty European shops in an effort to find sufficient safe infant formula.

12. In other words, both China and the EU are required to optimally understand current and future mutual dependencies, and the role the US as the world’s largest economic and geopolitical force must play in this. Or yet in other words: how can the world help address China’s domestic problems that may take on existential forms? Studies show that 60% of Chinese groundwater and 50% of Chinese soil are seriously polluted. Moreover, due to urbanization and modernization, China’s water consumption is growing while its water resources are dwindling. China also has to feed one-fifth of the world’s population with just 8% of the world’s farmland.16 Antimicrobial Resistance (AMR) looms large over the country – possibly killing a multiple of Indonesia’s 130,000 annual AMR deaths. Last but not least, China has the steepest ageing curve in the world: it is projected that 39% of the population will be pensioned in 2050, while China has neither adequate pensions nor pensioners’ facilities.17

13. Overseeing all of China’s current and future issues, the Chinese Communist

Party’s main concern nevertheless is expected to maintain its own grip on power. However, the classic domestic recipe underpinning its position so far –

13 The recent stock market crash in China vaporized $3 trillion worth of investor wealth, all within a month. 99% of those investors are domestic Chinese investors. Source: Why The China Stock Crash Matters, Forbes, 10-07-2015 14 ISIS Caliphate Meets China’s Silk Road Economic Belt; Christina Lin, Rubin Center, 22-02-2015 15 The Asian Infrastructure Investment Bank: A New Multilateral Financial Institution or a Vehicle for China’s Geostrategic Goals; European Political Strategy Centre, 24-04-2015 similarly argues that “the AIIB is only partially an economic vehicle, which, in reality, may be used for the pursuit of China’s wider geo-political interests in the region and the world.” 16 Farm Subsidies, Bitter Harvest, The Economist, 16 May, 2015. 17 United Nations; World Population Ageing 2013

7

allowing industries to capitalistically prosper while the Chinese Communist Party is allowed to monolithically rule – may erode. The current economic downturn may further contribute to a socio-political crisis, leading to nationwide instability. This is not a scenario thought up by foreign observers. China’s budget for domestic security continues to be higher than its defence budget. Hence, a further erosion of China’s economy and potentially of the Communist Party’s leadership role would not only endanger domestic stability but also global stability and thus European economic growth and stability. Therefore the avoidance of such dramatic scenarios seems in everyone’s interest. In a way, defining a European strategy on China is confronted with similar questions and variables as designing a European strategy on Assad’s Syria, or on China’s expansion in the South and East China Seas, or even on China’s position regarding Russia’s role in the Crimea and Ukraine. The EU challenge

14. There is scope for solutions. China and its wider Asian region offer major opportunities; the EU and the US should try to cooperate with China but only in a multilateral framework instead of in a China-dominated on bilateralism based framework. This may allow Beijing to both assist Asian infrastructure development while addressing many of its domestic problems. Indeed, the global demand for infrastructure as the best facilitation of social and economic development may be the multilateral way out for all. So how to equip the EU to not only strategize its global role but also implement it? The global competitiveness of European MNEs has seriously eroded despite top quality products and services. The cause is a dramatic lack of export and project financing means compared with their Asian State supported competitors. So far the Juncker Plan has done little or nothing to change this - despite the April 2014 decision of the European Council and its instruction to the EIB to examine how European companies, both large and SMEs, can better be supported in their international ventures, including, of course, in competing for infrastructure tenders. This ignoring of opportunities outside the EU contradicts sharply with the observation of both Vice-President Katainen and Commissioner for Trade Ms. Cecilia Malmström that 90% of global economic growth is situated outside the EU. 18/19 Indeed Europe’s top economist Prof. Dr. Dieter Helm (Oxford) stated that “Either the EU decides to engage in the global competitiveness of its industry in order to let them win, or we lose”.20 The Chairman of the Industrial Dialogue Group Mr. Dirk Beeuwsaert, Senior Vice-President of one of the world’s largest infrastructure companies, Engie (GDF-SUEZ) stated that: “Over the years, many European investors teamed up with Asian players enabling access to these competitive sources of funding.

18 Hearing of Vice-President Jyrki Katainen, 7-10-2014 19 Malmström pushes TTIP in Paris, Euractiv, 16-12-2014 20 8 October 2014 High Level Seminar on Long Term Lending to EU Industries Inside and Outside the European Union

8

This however, unavoidably leads to a substantial loss of know-how and contracts for the European Industry”.21

15. Indeed, pessimistic observers noted that a “naïve protectionism” has taken

hold of the EU, leading its policymakers to largely ignore extra-EU affairs and opportunities. This robs the European economy of income, innovation and jobs. Large EU MNEs operating outside the EU can sub-contract EU SMEs for the implementation of major projects. Based on international corporate banking and project management experience, it is not exaggerated to state that around 40% of major infrastructure contracts are subcontracted to SMEs.

16. The forecasted pipeline of infrastructure outside the EU in the next 10 years

amounts to 31,110tn USD. In the past 10 years, EU MNEs accounted for 25% of extra-EU infrastructure projects. If this ratio is maintained, EU MNEs would account for 7,775 tn USD of extra-EU infrastructure projects. As EU MNEs subcontract around 40% of these projects to EU SMEs, this means that EU SMEs could potentially benefit from a total of 3,110 tn USD worth of sub-contracts. This missing link in the European economy may now be corrected through a multilateral and balanced form of cooperation with the Chinese AIIB. ‘Balanced’ means that the EIB – possibly in coordination or cooperation with the EBRD - finally creates a major lending facility for extra EU infrastructure projects.

The United States

17. With the closure of the US EXIM since 30 June, 2015, major American Multinational companies (MNEs) are now facing a similar problem. Referring to the shutdown of the US EXIM, Mr. Jeff Immelt, CEO of General Electric, for example, stated that “What you are really doing is helping Siemens and China Rail-companies that rely heavily on their countries’ export financing.”22 CEO and Chairman of Caterpillar, Mr. Doug Oberhelman similarly commented that “if this [the closure of the US EXIM] doesn’t change, we’re all going to be losers”.

18. This situation is critical: just as Europe’s domestically oriented politicians, conservative Republicans with an isolationist mind-set block any action taken in Congress to re-authorize the US EXIM’s mandate. They argue that by providing export financing to American companies, the American Government is strengthening its future competitors. Consequently, the EU – if, at last, coordinating its positions on the AIIB – may have a strong message for Washington: the US and the EU must geo-strategically coordinate and cooperate and should start with global infrastructure investment and development – including through the AIIB.

21 8 October 2014 High Level Seminar on Long Term Lending to EU Industries Inside and Outside the European Union 22 New York Times, 18-09-2015

9

19. Without such a financial-economic component and a clearly coordinated US-

European industrial/investment strategy, NATO’s recent efforts to impress the Russian adventurist President Putin may fail. The serious factors of people dying in Syria through Russian bombs while Syrian migrants try to find shelter in the EU also force the EU to understand how to align its policies with those of NATO. And yes, this has everything to do with TTIP, the transatlantic trade dialogue that particularly Germany lately seemed to have blocked. The space for bilateralism is running out – and only if China, as Russia’s last major friend in well-understood self-interest, distances itself from further Russian adventures, peace and security as targeted by Beijing can be found.

20. So China should be the multilateralist partner of both the US and the EU. That

will help Beijing – whose current form of State must therefore simply be accepted – tap into US and European resources to address its virtually existential problems in the next decades. Conclusions and Advice a) The history of Foreign Direct Investment in general and of investment in

major infrastructure projects in particular demonstrates and reflects a strengthened focus on true value creation for the nations in need of social and economic development. Terms such as ‘In-Country Value’ and ‘Corporate Social Responsibility’ are increasingly relevant for investment propositions by the investor and investment decisions by the invested. In an ever more transparent and communicative world the issue of ‘Inclusiveness’ is gaining terrain. Benefits for more limited interest groups seem on the retreat.

b) More realism about the investment capacity of major players such as China, the US, Japan and the EU, more competition between investment bidders and more concern for the applying environmental, human rights and sustainability standards, are all contributing to a growing understanding of what is at stake: that the trillions USD of investment required by Asia, Latin America and Africa can lead to an effective division of roles. The consequential and rather unique combination of competition and cooperation may contribute to reducing bilateralism and optimize multilateral frameworks. Even if oligarchical structures may well continue to guide certain investment procedures, the required and secured Return on Investment over the many years that infrastructure investments entail, will stimulate transparent, balanced ‘win-win’ approaches.

c) On the side of the investors, new equilibria must be created between

the benefits in the invested country and the benefits for the investor’s

10

domestic environment. An analysis of future growth in China, Europe and the US in connection with regions in the world with the strongest economic growth, provides focal points for investment and magnitudes of required funding. An analysis of future weaknesses among the investors in terms of water, food and energy underlines the existential necessity to plan for peaceful cooperation in the absence of which currently existing causes of violence may grow into serious conflicts.

d) Today’s areas of conflict and violence overlap with areas where

substantial infrastructure investment is required. The inherent demographic and socio-economic weaknesses among the investors give way to geopolitical strategies that either contribute to confrontation or lead to a future-oriented management of potentially new forms of cooperation. At the heart of these considerations may well be the question whose interests are served: those of an entire nation or those of a more limited group of oligarchs.

e) In the framework of designing its Economic Diplomacy, the challenge of

tackling the lopsided competition for large outside-EU infrastructure projects ought to be a top-priority for the EU. It is an illusion to think that even major EU Member States can, with their national export promoting arsenal, successfully overcome this hurdle on their own. This is another convincing case whereby pooling of limited resources can achieve a substantial Return on Investment for the EU as a whole. In comparison to their Asian and, in particular, Chinese competitors, EU’s MNEs and their subcontracted SMEs are suffering more and more from significant disadvantages in export and project financing tools and capabilities. The EU is faced with a steadily more ferocious ‘Asian model’, geared to winning major infrastructure projects in emerging countries, unhindered by any respect for OECD consensus based rules. Fired on by China’s urge to win major contracts for its industry which is plagued by overcapacity, Korea, Japan and others are increasing their own financial firepower, which only an EU wide institution could adequately match. In fact, the situation has deteriorated so much that this ‘Asian model’ is now also felt by EU MNEs in the competition for infrastructure works inside the EU. In this model, obvious transport and logistic handicaps are easily compensated by generous – and for most if not all EU states at present unmatchable (or forbidden!) – financing by state owned institutions, mainly from Asia (e.g. the Deurganckdok case in Antwerp).

f) In designing its Economic Diplomacy’s financial tools, the EU could

explore several avenues. A certain rebalancing could, firstly, be established through adding an external dimension to the Juncker Plan. It is actually very odd that, as it stands now, economic advantages for the

11

EU and in the EU (“les retombées économiques”) of winning international infrastructure projects are, with a few very limited cross-EU-border projects, not taken into account for qualifying under the Plan. By bluntly limiting its scope to projects inside the EU, the added value in expertise, reputation, knowhow, competitive edge, etc. gained in the slipstream of MNEs by subcontracted European SMEs in these type of major projects (harbours, railroads, utilities, etc.) is not at all exploited.

g) Alternatively, a new approach can be proposed that is not linked to the

Juncker Plan. It consists in a merger of – or, more realistic perhaps, a joint venture between - the EIB’s external activities (which would be expanded to that end) and the EBRD. The establishment of an export financing institution run by Western democracies, could also be used by the EU as a ‘political power tool’ strengthening the EU’s geopolitical position in the world, as it would enable the EU to impose and/or demand respect for investment standards. As the EBRD is currently searching for a new role and is facing difficulties to invest in those countries for which it was initially established, the new institution could fill in the role of a multilateral, rules-complying export and project financing institution that would offer an alternative to the Asian and Chinese models (and reinforce the hand of the European states which joined the AIIB). In light of the current problems with regard to the reauthorization of the US EXIM, the US might be more inclined to envisage such an EIB-EBRD cooperative venture for strengthening the competitive edge of EU and US MNEs and the EU-US subcontracted SMEs.

h) Although differences in types and scope of financing exist, the EIB’s external activities and the EBRD’s activities as a whole overlap to a large extent, making the argument for a merger or joint-venture more compelling. The EIB, which like the US is a member of the EBRD, has its department for EU-external activities in London, facilitating the transition to an eventual co-location that would reduce spending. Such a cooperative and focused venture between the two banks should be accompanied by an increase in funds and could counter-balance growing supremacy from the East.

i) A fully coordinated and strengthened EU global infrastructure

investment approach must first of all be enshrined in a new expanded mandate by the European Parliament and EU Member States. Secondly, and in view of the global security challenge by Russia with apparent Chinese support, the new EU global effort must be strategized through new forms of consultation and concertation between the EU and NATO, including the total of the industrial potential of both.

12

j) The giant infrastructure needs of Asia, Africa and Latin America require a global approach. Clearly the existing institutions and structures including the Japan supported Asian Development Bank and UN institutions have failed to provide an adequate place for the People’s Republic of China. With the delays of the BRICS infrastructure bank, China was bound to establish its own fund. Multilateral cooperation with the AIIB will help meet the infrastructure demand in the emerging economies. Such a multilateral framework will disallow strategic abuse, prevent unintended support for Russian adventurism and secure the most inclusive way forward for advancing nations.

12/10/2015 15.36505AA