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China’s European Games: Chinese Investments in Central and Eastern Europe

by Vasundhra Chauhan - 30 March, 2021, 12:00 209 Views 0 Comment

In 2012, an idea envisaged somewhere in the corridors of China was finally turned into a reality. Twelve EU member states and five Balkan states – Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia came together and along with China formed the “17 + 1” with an aim to expand cooperation between Beijing and the CEE (Central and Eastern Europe) member countries, with investments and trade for the development of the CEE region. The framework also focuses on infrastructure projects such as bridges, motorways, railway lines and modernisation of ports in the member states. (Gupta, 2020)

When taken at the face value, it looks like an initiative to enhance economic cooperation which seems like a pragmatic approach for a country which is perceived as the next Superpower by many. However, when the pieces are put together it is seen that 17 + 1 is a small yet significant piece of China’s ambitious “Belt and Road initiative” picture.

Although, China’s narrative towards the 17+1 initiative is about improving its relations with the European countries that are less developed as compared to the Western European states, we have heard this narrative before and seen its unwarranted results for countries like Sri Lanka and Maldives. According to China, Beijing was keen to construct an arrangement of interconnected relationships in the CEE region. Back in 2012, China announced a $10 billion line of credit for investments in Central and Eastern Europe. Trade relations between China and the CEE countries remained modest, leading to an increasing trade deficit since its inception.

The Motivations

China’s European Games

At the core of the 17+1 initiative is a geopolitical strategy and aspirations of both sides. The 17+ 1 set up largely includes former communist countries which are also the poorer countries in Europe and of the European Union. These countries aim to seek better investment and development opportunities through this initiative. On one side, China perceives the region as a place to fill the investment gap by exporting products, technologies and loans; not to forget Europe is an essential and perhaps an indistinguishable part of Xi Jinping’s master plan, Belt and Road Initiative. Hence, setting up an institution to leverage infrastructure development in the region is a precondition for BRI to be successful. China also understands the prestige stemming from gaining influence in a region that had been the main arena of Russian- American rivalry for the past 70 years. The appearance of a third player, who is gaining unavoidable significance in the geopolitical world, in this region, heralded a significant change in the balance of power in the world.

As for the CEE countries, they are only hoping for development and progression or perhaps leverage this particular setup and their closeness with China to get better deals and more importance from the EU.

The Promises

So far, it is clear that the basic motives of Chinese activities in the region was to increase mobility and connectivity, which was directly related to Beijing’s dream project – the Belt and Road Initiative. Hence, most of the projects announced under 17+1 initiatives were concerned with transports, infrastructure, motorways, ports and in particular the rail network which is crucial for the transportation of goods between Europe and Asia. No wonder, the hopes of politicians sitting in Eastern Europe were high. The first flagship project announced was a high-speed rail link between Budapest and Belgrade. China also promised 10 billion dollars’ worth of investments in Romania’s energy infrastructure and Montenegro was assured of the country’s first highway. However, China’s most echoed purchase was in Greece. In 2016, China’s shipping firm Cosco purchased a majority stake in Piraeus port. Situated in the Saronic Gulf, Greece’s largest harbor — and Europe’s seventh biggest — is at a strategic location between the Asian and European continents. (Amaro, 2019)

According to Kostas Fragogiannis, Greece’s deputy minister for foreign affairs “The objective is to transform it into the biggest transit hub between Europe and Asia and, potentially, the biggest port in Europe”. Piraeus is believed to be one of China’s main gateways to the old continent. Even more significant is China’s presence in Belarus, a country close to the world and its commodity exchange is directed almost exclusively to its closest eastern neighbours hence, the breakthrough moment for Minsk was the visit by Chinese premier Xi Jinping in 2015 and the signing of several thousand agreements for a total amount of almost 16 billion dollars. This included infrastructure, industrial, communication and even cultural contracts. The flagship project in Belarus is the recently opened technology park which is worth half a million dollars in which 33 Chinese companies have already invested additional 2 billion dollars. According to the Chinese academy of Social Sciences, the cumulative amount of Chinese loans, subsidies and the investment in Belarus is estimated at 20 billion dollars, an exorbitant amount for a comparatively poor country.

The Flaws

Given the scale of these mega projects, spread across the entire eastern Europe many thought that the region was “in bed” with China but can it be perceived as a fact?

There are many indications that suggest that the pompous declarations on close corporations between China and Central and Eastern European countries are not supported in reality. Over the years 2000 and 2019, out of the 129-billion-dollar worth of Chinese investments in Europe only 10 billion dollars went to the countries of Central and Eastern Europe. Chinese foreign direct investment to the Eastern European countries such as Austria, Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia was only 2% of the total investments in the region whereas the Western European countries received a larger share. (Gupta, 2020)

There is a sense of disappointment within the CEE countries regarding future engagement with China under the mechanism. For example, Romania’s active engagement with Beijing led to many proposed investments in the country under the 17+1 initiative, although none have been implemented as yet. Similarly, the Budapest-Belgrade high speed railway line is a major infrastructure project for both Hungary and Serbia but the construction is yet to get underway. The delay has not augured well for the two countries and China as it was the flagship project of the 17+1 initiative. This is not to say that there haven’t been some successes. The expansion of the Kostolac thermal power plant in Serbia, the Pupin Bridge, the Montenegro highway and the Port of Piraeus in Greece may help portray the Belt and Road initiative as a success in Europe but the lack of implementation of major projects in the CEE region has led to a rising trust deficit between Beijing and these countries.

The Skepticism

The gap between the big promises and the on-ground realities has made China’s CEE partners agitated. Czech Republic President Milos Zeman’s decision to skip the ninth summit of the 17+1 initiative citing lack of actual investments, has showcased the differences between Beijing and Prague (Gupta, 2020). A virtual conference under the Belt and Road International Cooperation held in June 2020, saw the representation from Serbia, Hungary and Greece. The other members of the 17+1 initiative refused to attend the event, revealing the strained relations between Beijing and the CEE countries. The CEE parliamentarians and policymakers were also signatories to the statement against China’s introduction of the controversial national security law in Hong Kong. Estonia too is considering a reassessment of its inclusion in the 17+1 initiative citing China’s posture as a threat to Western values and a grave violation of human rights against the Uighurs in China.

Overall, it appears that China’s engagement with the CEE countries through the 17+1 setup seems to be unravelling and faced with skepticism. What was Beijing’s pivot to Europe is being questioned with incredulity about the future of the framework because of its delayed results? China’s maneuvers in the region are now increasingly being viewed as merely symbolic, and the pandemic has only added to its woes.

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Vasundhra Chauhan
Author is currently pursuing masters in International Relations from Amity University, Noida
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