In 2020, according to the Chinese Ministry of Commerce, China and Central and Eastern European countries (CEE) saw their trade value cross US $100 billion for the first time, writes Dr Jianli Yang.
The Chinese media lauded this development, deeming it a ‘role model’ in a time when regional cooperation has taken a hit. It was in this background that the recent annual 17+1 summit between 17 CEE nations and China was conducted virtually on February 9, 2021 after a gap of one year. The 9th iteration of the summit, scheduled originally for the first half of 2020 in Beijing, had been cancelled last year due to the COVID -19 pandemic.
Quite unexpectedly, of the 17 participating CEE countries, leaders of only 11 showed up. For the rest, ministers of respective countries participated in the discussions on the summit hosted by Xi Jinping. This was in spite of the fact that there were specific instructions stating that the Prime Minister or the President of the participating countries must attend. It is not as if the attendance of lower representation in the summit has no precedence; in 2018, Poland had only sent a deputy prime minister and Lithuania only its minister of finance. However, since the current meeting was virtual, the presence of leaders was not a tall order for countries. Lower representation in such a case has thus been taken as a snub to China, indicating that contrary to their expectations, Chinese relationship with CEE is far from model.
In 2012, China and sixteen CEE countries came together to establish a ‘16+1’ cooperation format in Warsaw, now known as ‘17+1’ format after the addition of Greece in 2019, to expand cooperation between them. The format became an important avenue for CEE; the investment and infrastructural development China promised had potential to be an economic boon, and an effective leverage against an EU steeped in crisis (especially so for the CEE countries in European Union). This was also crucial for China, with their plans for the Belt and Road Initiative, greater access to the European market, and geopolitical ambitions for influence in the region against the EU and Russia. The cooperation had been under scrutiny from the beginning; it was believed that the format was essentially a Chinese Trojan Horse to fracture the EU.
The fears were not without basis. According to the Director of Central European Institute of Asian Studies, Richard Q. Turcsányi, China and CEE countries do not share much in the way of economic complementarity to begin with. The US $100 billion trade goal has reached five years later than the promised time limit of 2015, and the trade growth has not been especially significant despite media furor over it. Many believe this to be an indication that Chinese interests in the region were not centered around its economic objectives, but political ones. The format created a rival for the EU since, Professor Emilian Kavalski puts it, the 16+1 format demonstrated that “China has already become a fully-fledged European power.”
The fear of a disunited EU has yet to materialize visibly, which experts attribute to rising dissatisfaction with the Asian giant within the region and Beijing overestimating the role it could play in the region with its wallet-diplomacy. It is felt that Beijing has failed to deliver on its promises of fair economic, trade and investment. Despite the assurances regarding market access, all of CEE countries are currently in a trade deficit that is heavily skewed towards China. The CEE region recorded a trade deficit of around US $75 billion in 2018, while total trade volume was US $89.3 billion. There are also reports regarding how CEE countries are finding it hard to compete in Chinese agro-markets against Canada and Australia (who have free trade agreements with Beijing).
Investments are also becoming a sore spot in China–CEEC relations. Connectivity, Greenfield investments and Energy have been primary areas where China and CEEC economic cooperation had been centered at. While the 16+1 format predated the Belt and Road initiative (BRI), it is believed that the initiative was in fact setting up for the Chinese mega connectivity project in Europe. As a result, China had put in a heavy amount of funds, largely as loans (with a lot of fine print attached). The loans were negotiated bilaterally, and while the EU members among CEEC desisted from taking too much of the heavily stipulated loans, the non-EU members borrowed them without much consideration. It was hoped that the BRI and related investments will generate economic capital which will help the countries pay their debt. For instance, Montenegro incurred a US $953 million debt, around 80 percent of its GDP, due to BRI alone.
However, most of these projects have not even completed the planning stage. For instance, the construction of Hungarian section of the Belgrade-Budapest railway, which was announced in 2015, has yet to begin. For Romania, an agreement for a 500MW power project worth US $1 billion had been signed with China Huadian, which has still not materialized, yet China still counts it as an ‘investment’ in the region. Most of the infrastructural development and greenfield projects employ Chinese workers, stunting the CEE countries’ job growth. In the case of Montenegro, the Bar-Bolijare highway project was constructed entirely by Chinese workers, using raw materials imported from China, which had to be kept exempt from VAT or other taxes and their costs added to the nation’s ballooning debt.
The investment is also highly insufficient and skewed; in 2019 Chinese investment in CEEC accounted only for about 10 percent of its total investment in all of Europe. There is disparity even within the CEEC region itself. According to an ORF report, 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.
An interesting aspect of CEEC–China cooperation has been energy. The Kaposvar photovoltaic power plant in Hungary has been termed as one of the few successful greenfield projects borne out of cooperation. Beijing has also used it as an example to show its commitment for multilateralism and, given its efforts to wean off of its domestic thermal power requirement, its environmental goals. Yet, according to a CEE Bankwatch Network report, China has also been responsible for financing several coal-plant projects in CEE region as part of what has been called a “go out” directive; Chinese reduction in its carbon emissions has come from moving its production and procurement to other countries, which it may access cheaply with the BRI. In turn, CEE nations have seen an increase in coal production on China’s behest.
The reluctance shown by CEEC leaders in attending 17+1 summit has shown a shift in winds for Chinese relations with this country. The region is increasingly shifting gears back towards EU, US and other NATO allies, largely since many countries in the region are concerned due to rising Russian influence. However, this is also serving as an additional leverage against China, especially with the Biden administration taking a stance against them. Chinese media’s derision for European countries, especially during COVID-19, has also chilled CEEC relations with China, and only two countries have shown any interest in the Sinopharm vaccine so far, in spite of aggressive advertising by China.
At this point, as Romanian Think tanker Andreea Brînză puts it, the 17+1 is a “zombie,” on a “lifeless march to nowhere.”
The Author, Dr. Jianli Yang, is the Founder and President of Initiatives for China