China’s impact on Southeast, Central and East Europe

The region is not a monolith and comprises countries with different backgrounds and stages of development.

By (Mrs) Amb Narinder Chauhan

China’s global footprint has expanded so quickly that many countries have struggled to grapple with it. This is especially true in the regions of Southeastern, Central and East Europe-China’s sheer size is such it will play a role in these geographies. China is the world’s largest trader and manufacturer-and with a significant pool of foreign exchange reserves and capital that all these countries will wish to tap. Most of the countries of the region have another connection with China; many have been ruled by socialist or communist regimes.

After the Eurozone debt crisis and the 2008 global financial meltdown, many regional countries looked to China as an increasingly important economic partner. Hoping China would bring in the funds to revive their economies, they signed multiple pacts and contracts. China’s Belt and Road Initiative (BRI) promised investment in infrastructure, transport, and energy. In 2012, 15 and later 17 regional states joined China in the annual Summit process, known as the CEE-China Summit. Notable examples of Chinese investment projects in the region include Greece, where Chinese shipping giant COSCO has acquired a majority stake in the Port of Piraeus to create a regional transport and logistics hub in the Mediterranean as part of the maritime route of the BRI: under COSCO the port has seen an impressive turnaround; European firms such as HP gained by using its facilities to supply computer and other hardware to the Mediterranean region. China’s Wanhua Chemical group which has the largest investment in Hungary with over $2.2b is a top producer of polyurethanein Europe and is counted as one of the world’s prominent chemical producers. In Serbia, China’s Linglong has invested in a $1b tyre company to supply all over Europe. Both passenger and cargo trains run from Poland to China.

The region is attractive to China for several reasons: as an entry point into the EU single market for BRI land and maritime projects as in Greece, Serbia, Hungary and Poland. Second, being less economically developed than Western Europe, the region’s dependence on foreign investment means greater opportunities for Chinese firms to win infrastructure bids and ultimately acquire critical assets.China aims to build the critical Belgrade-Budapest railway line to connect the region with the Piraeus port.Third, local regulations and economic conditions are more conducive to Chinese companies than in western Europe, where transparency and accountability mechanisms present bigger hurdles. This is even truer for Serbia, a non-EU country where Chinese companies get projects without tenders. China has taken over the debt burdened copper mines and decided to invest in two metro lines. Finally, China can also leverage local ties to influence EU decision making or undermine EU unity on certain issues, as well as build legitimacy for the Chinese regime back home.Greece and Hungary blocked EU statements supporting the International Arbitration Court’s decision against China regarding the South China Sea and those critical of China’s worsening human rights records in Hong Kong, XinJiang and relations with Taiwan.

Today, many countries in the region are still keen to receive Chinese trade and investment opportunities, but China’s track record has disappointed all sides for several reasons. First, while 17+1 format is a useful way for China to engage, it has failed to address the interests of all the parties involved; far from coming up with clear policies, the summit has come to be seen as a tool to wield political influence with few tangible benefits to show. In a sign of growing apathy with the Summit process, as many as six regional leaders skipped the virtual 17+1 Summit in 2021 which for the first time was chaired by Chinese President Xi Jinping.Second, local trade unions even at the Piraeus Port have pushed back on Chinese investments which have not created jobs or brought sustainable growth. In Hungary where the Chinese investments have created 15000 jobs, it pales in comparison to European firms-Germany’s Bosch alone has created 13,500 jobs. Third, political shifts have brought in new elites skeptical of China, who have canceled nascent deals. Tsipras’s successor Mitsotakis in Greece is more subdued in China. Fourth, several countries have pivoted away from China and back toward the US and EU in recent years, due to existing security partnerships and pressures from the US and EU. Montenegro, for instance, built a highway with China’s help when none other was forthcoming, but it not only increased its debt burden,but it did also noteven translate into any influence or change in its strategic direction signified by it joining the NATO in 2017. Most countries in the region will stand with the US for security reasons out of their fear of Russia; they will also prefer the EU, because Chinese investments will not have the same impact as EU investments or the benefit of the single market.

The US, with its growing preoccupation and rivalry with China has increased pressure on regional and EU governments to reduce their dependence on Beijing. This means climbing down on such issues as 5G, Chinese ownership of ports and other strategic infrastructure, and investment screening. Similarly, the EU – increasingly vary of Chinese efforts to divide the EU with initiatives like 171+ and BRI- has identified China as a partner, an economic competitor and a systemic rival. Finally, the Covid pandemic has highlighted the growing dichotomy in the relationship. Even as China provided medicines, overly politicized Chinese assistance left a very bad taste in the region. For still others, Chinese finance has added to their debt. Public perception of China appears to have deteriorated across the region, although Greece, Hungary and Serbia are still among the most China-friendly countries in Europe.

Looking at the Chinese maps of the BRI, the Greek port of Piraeus remains at the center of the Maritime Silk Road given China’s national plan to become a strong maritime power. However, despite close contacts with both Russia and China, Greece remains firmly anchored in traditional Western institutions and alliances and the people do not want to trade their independence and sovereignty simply to comply with the grand strategy of Xi’s China. Greece needs NATO and EU support to counter Turkey’s militarization of the region surrounding Cyprus. China has little to offer in terms of security. But the way China has engaged with Greece for almost two decades demonstrates clear commitment on its long-term path. Both the US and EU may have managed to keep Greece on their side for now, but the future remains uncertain if China continues to pursue a strong and ambitious maritime agenda in the Mediterranean Sea and beyond.

Hungary has been another willing partner of China and an outlier in the EU. Viktor Orban who personally directs policy towards China has been in power for a decade and has troubled relations with western Europe. He views the Chinese govt which prioritizes state sovereignty and non-intervention in domestic affairs as an alternative to liberal west. For China, he is a useful interlocutor to help deflect international criticism of and stymie EU consensus on Chinese human rights violations. Orban has tried to pivot his foreign policy to the east to reposition Hungary as a Eurasian country. He uses China to leverage with Brussels and unlike some of his regional counterparts, Orban attended the virtual 17+1 Summit in 2021, though its flagship project, the Budapest – Belgrade rail link, first announced in 2013, has been long delayed over noncompliance with EU regulations on tenders.

Serbia is another major country that receives China’s attention. The strategic aim of Serbia is to join the EU, but it has close relations with Russia and China. Recovering from 79-day NATO bombing of 1999 and shunned by the West, Serbia developed close relations with China for funds to revive its industry. In addition to economic projects, recently, in the security field, over a thousand cameras have been installed in Belgrade by China’s Huawei, with facial recognition software. In June 2020, China supplied Serbian air force six combat drones armed with laser guided missiles, the first such deployment of Chinese unmanned aerial vehicles in Europe. The relationship deepened during the pandemic with China providing doctors and vaccines. In July 2021 Serbia’s Torlak Institute agreed to produce Sinopharm Vaccines, in addition to Russian Sputnik V. The rise of Chinese power in Serbia is based on the support of the state. China sees benefit in Serbia’s duty-free access to the EU, and yet, being a non-EU member, is not subject to its strict rules. However, given that joining the EU is Serbia’s foremost goal, further strengthening of relations will remain conditional.

The region is not a monolith and comprises countries with different backgrounds and stages of development. Among the 17 CEE countries, some like Romania, Poland, Lithuania, Latvia, or Estonia are staunch US allies, whereas there are pro-China governments in Serbia and Hungary. The Czech Republic, Slovakia, Lithuania, Latvia and Estonia are among the few countries around the world that have a parliamentary support group for Tibet. China recently downgraded relations with Lithuania for exchanging embassies with Taiwan.

The now ailing Czech president, Milos Zeman is a big friend of China, the Prague Mayor, Zdenek Hrib is a fanatic supporter of Taiwan, and the Parliament has the biggest group in Europe for Tibet. A former Senate president had plans last year to visit Taiwan before he suddenly died. Would anyone in the West have the boldness to visit Taiwan? The new incumbent nevertheless visited Taipei last year and pledged support to Taiwan and shrugged off threats from China.Even President Zeman has his limits when soon after receiving letter from the Chinese embassy threatening retaliation against Czech companies in China, he canceled his planned participation in 17+1 Summit on the grounds of unfulfilled investment promises. China reacted sharply to the visit by Taiwanese Foreign Minister to Czech Republic and Slovakia in October 2021.

Out of the around $126b of Chinese investments in the EU between 2000-2019, less than $10 b were directed at CEE, of which more than half went to Poland, Hungary and Czech Republic alone, whereas Germany received $25b, the UK $57b and the US 149.9b. After nine years of increased Chinese presence in the region, only 4 out of around 40 Chinese projects have been finished. Perhaps out of embarrassment, in 2019 China added Greece as a Summit partner to showcase the more successful project of the Port of Piraeus. The year 2020 appears to have been a turning point for China’s local perception, not only because China was seen as the originator of Covid 19 but also because of China’s clumsy attempts to fashion itself as a benefactor. Despite its overtures, most medical supplies from China for Covid relief were commercial orders rather than as gifts.

China, on the one hand, provides an alternative to the west and offers ready-made economic solutions. Yet, China also takes advantage of local vulnerabilities and weaknesses-such as fragile state institutions, elite capture, and weak civil society-to exert its own economic, political and soft power influence. Many countries in the region have become disillusioned with China’s ability to deliver on promises of investment. Regime changes have also contributed to local leaders looking more to the EU and US. Equally, Chinese projects have seen a pushback from local and subnational actors such as trade unions or municipal elections. Where perceptions were largely positive these have soured over China seen as the originator of the pandemic. The meteoric rise of China has been accompanied by growing international criticism of Chinese domestic and international policies. Its perceived role in the pandemic has reduced the effectiveness of its public diplomacy in the region. The Chinese influence in the region may have been overstated. China may yet realize the shortfalls of engaging with the region in the 17+1 format.

(The author is a former Indian ambassador and former envoy to the EU. Twitter:@nchauhanifs Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).

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