Roadblocks

China hits roadblocks in Central Europe

Tough competition laws and investment from the bloc slow Beijing’s infrastructure push.

By LILI BAYER

China’s seduce-and-divide strategy in Central Europe is getting a reality check.

For years, Beijing has promoted heavy investments and a particular diplomatic format — called 16+1 — to build its influence with a cross-section of 16 Central and Eastern European countries, some that belong to the EU or NATO, some to neither. Chinese Premier Li Keqiang and Hungary’s Prime Minister Viktor Orbán on Monday opened the sixth China-Central and Eastern Europe summit in Budapest.

This push has set off alarm bells in Brussels, in particular about Beijing’s activities in the Balkans. But it is now also running into regulatory, financial and political hurdles, highlighting possible limits to Beijing’s economic and diplomatic influence in Europe.

China’s “One Belt, One Road” program has pumped money into infrastructure, logistics and transportation networks to allow Chinese products easier access to European markets. Chinese officials estimate that the country has invested over $8 billion (€6.7 billion) in Central and Eastern Europe. This region of some 120 million is relatively new and unknown to the Chinese, but trade is growing: Last year bilateral trade between China and Central and Eastern European countries was up 11 percent from 2011.

As much as Beijing envisioned 16 Central and Eastern European countries as a cohesive entity that could work together to implement joint projects, in practice they have different priorities and operate under different legal regimes. The EU members among them are less welcoming to Chinese investment.

Rules and regulations

For Hungary, the host of this week’s summit and the country that absorbs the most Chinese investment in Central and Eastern Europe, Beijing is a potential source not only of capital but of political leverage that could play to Orbán’s advantage as his government’s relationship with EU institutions become more tense.

“As a country that cooperates with the EU, China — if it notices us, because there’s the problem of size, the problem of the difference in our sizes — can quite confidently say that they have an interest in Hungary being strong in the European Union,” Orbán said in July in his annual speech at Băile Tuşnad (Tusnádfürdő), Romania.

But China faces significant challenges as it tries to push through its plans in the region.

“Chinese investment in EU members of the 16+1 has remained limited,” said Tamás Matura, an assistant professor at the Budapest-based Corvinus University. “Some countries have not received any new major Chinese investors in the last five years.”

China has had more success in Western Balkan countries like Serbia, Montenegro and Bosnia and Herzegovina, “where EU funds are not available and EU regulations are not applicable,” he said.

Western Balkan leaders have warmly welcomed Chinese economic initiatives and worked to build friendly ties with Beijing. In Serbia, the region’s largest beneficiary of Chinese investment, China has bought factories and provided funding for roads, bridges, energy projects and railways.

“There are no problems in our economic and political relations, we are always on the same side, and when China has something to say, we are always on the side of China,” Serbian President Aleksandar Vučić said in May.

From Brussels to Beijing

China’s flagship project in the region is the planned Belgrade-Budapest high-speed rail link, with construction work on the Serbian stretch expected due to begin this week. The modernized railway would enable Chinese goods coming through Greek ports to quickly move from Serbia into the EU.

Currently, the journey between the Serbian and Hungarian capitals by rail takes eight hours. The planned railway would allow passengers and cargo to travel up to 200 kilometers per hour, cutting travel time to less than three hours.

Progress on the project has been slow. The Export-Import Bank of China is expected to lend about 85 percent of the funds for the €2.4 billion-project, and an agreement between China and Hungary over the railway raised concerns within the European Commission earlier this year that the planned tender process may not be in compliance with EU rules.

“The EU welcomes investment — whether domestic or foreign — as long as it is compatible with EU law,” the EU Delegation to China said in a statement in February regarding the Belgrade-Budapest railway project.

“It is standard practice for the Commission’s services to assess the compliance of major public contracts with EU law. Against that backdrop, a dialogue with the Hungarian authorities, at technical level, is ongoing in order to seek some clarifications,” the delegation wrote.

Analysts say China is also likely to face challenges when attempting to implement projects in other Central and East European states that are members of the EU.

The bloc’s newer members are not only bound by EU competition rules, but also receive significant infrastructure funding from the bloc.

China’s interest in the Baltic states “focuses on transportation and logistics,” with Latvia hoping to offer its ports and railway network to help Chinese goods reach Scandinavian markets, said Una Aleksandra Bērziņa-Čerenkova, who heads of the New Silk Road program at the Latvian Institute of International Affairs.

Nevertheless, she said, “under the current situation and the availability of the EU funds it is difficult to see a viable project that could require Chinese loans.”

“We cannot guarantee Chinese companies would win tenders” due to EU rules, she added.

Despite the hurdles, for some leaders in the region, China is still seen in some respects as a friendlier negotiating partner than Brussels.

“It has become increasingly offensive that a few developed countries have been continuously lecturing most of the world on human rights, democracy, development and the market economy,” Orbán said during a television appearance in May. “Everyone has had enough of this; and of these the Chinese are the strongest.”