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Is Central and Eastern Europe a lost bet for China?

Following the economic crash in 2008, China became an attractive option for regional governments hoping to weather the storm. Despite this, many of the promises and agreements made at this time have caused more trouble than good. This is best seen in the fading influence of the once promising 17+1 platform.

July 17, 2024 - Rigels Lenja - Articles and Commentary

130 terracotta soldiers on loan from Shanghai, China, displayed at the Móra Ferenc Museum in Szeged, Hungary. Photo: belizar / Shutterstock

During his first trip to Europe since the outbreak of new tensions with the West in 2020, President Xi Jinping only paid a visit to Hungary and Serbia. The times of receptions in Warsaw, Prague and Athens are over. In 2008, when Europe and the US were undergoing a major economic and financial crisis, several countries set their eyes on China. At the time, China was seen as the rescuer for many ailing European economies. The countries that opened their doors to Chinese investment included a whole range of countries from the Baltic states to Greece.

In an effort to achieve better integration with the region, China launched the so-called 17+1 partnership. The geo-economic plan appeared to be a win-win situation for both sides: Central and Eastern Europe (CEE) was in urgent need of investment and China was far from posing a threat to the countries’ sovereignty. Simultaneously, it was advantageous for Beijing to establish a road to penetrate Western European markets via the Eastern Corridor. Sixteen years later, the only countries that remain strong supporters of the Chinese are Hungary and Serbia. The 17+1 partnership has suffered the withdrawal of the Baltic states in recent years, followed by a cooldown by the Polish government under Tusk. The new administration in Warsaw supports further integration with the EU, as opposed to the different path preferred by the previous PiS government.

Chinese commitments did not translate into investments or real economic growth. Moreover, the Russian war in Ukraine, in which China managed to rescue the Russian economy from collapse, made the Central and Eastern Europeans cautious about further engagement with China.

Shortage of real investments

CEE and the Balkan countries were once viewed as China’s gateway to Europe. As a result, China pledged investment as part of the Belt and Road Initiative. For instance, the number of Chinese investments in the Balkans reached 136, but 61 of them were located in Serbia. All these investments have not promoted local employment, as Chinese companies recruit workers either from China or other Asian countries. In terms of investments, China is still behind the EU. In 2021, 61 per cent of foreign direct investment in the Balkans came from the EU. In 2021, China injected around 1.4 billion euros into various investment projects in the Western Balkan countries that are not EU members, while only 1.3 billion euros were poured into the rest of the so-called 17+1 bloc.

The majority of Chinese investment flows into either infrastructure projects or the energy related sector, which are two key sectors where local economies do not have sufficient resources to invest. Some of these investments are controversial. For example, the famous Bar-Boljare Highway in Montenegro was nicknamed ‘the highway that takes you nowhere’. This project nearly drove the tiny Balkan state into bankruptcy. At the same time, it is hard to forget the inhumane living conditions of Vietnamese workers in the northern Serbian city of Zrenjanin, one of China’s largest investments in country. In contrast, the Pelješac Bridge in Croatia and the Port of Piraeus in Greece were successfully delivered with little controversy. When it comes to investment and trade, China has a virtually negligible presence in CEE. The EU and some member states such as Germany, Italy and Austria are the main engines for investments, loans and other projects. China saw CEE as a gateway to the larger markets in the west of the continent. Some experts saw this Chinese move as a debt trap, by offering investment in exchange for sovereignty. Despite this, the nightmare of a debt trap seems to have been exaggerated.

Russia always matters most.

The Russian attack on Ukraine in February 2022 disrupted China’s plan to smoothly penetrate CEE. Despite tacitly accepting Putin’s actions, China has not supplied the Russian army directly with ammunition or weapons, in contrast to Iran or North Korea. This attitude was taken in order to avoid massive sanctions that the EU and the US might impose upon a stagnating Chinese economy. The purchase of oil and gas by China has saved the Russian economy from collapse, even though China is not the only country buying Russian gas and oil, India and Turkey do as well.

However, what really brought an end to 17+1, which might likely be followed by a withdrawal or lower engagement starting with the Czech Republic, Poland or Albania, was Beijing’s failure to condemn Russia’s actions in Ukraine. This raises a question in CEE of what China will do if Russia attacks another country in the region. While Russia might not be a danger to Greece or Albania, it is an existing threat to Poland, the Baltic states and Moldova. In addition, China is undertaking a further step by launching a warning campaign against the newly elected government in Prague. Chinese investments were so low that Estonia decided to pursue an open rapprochement with Taiwan by letting Taipei open a Representative Office in Tallinn. This crossed one of China’s red lines. Prague followed quickly by dispatching Czech Senate leader Milos Vystrcil, making him the highest-ranking Czech official to visit Taipei in decades.

For many governments in CEE, to have China as a major investor may have been a pleasant dream, particularly for those with an authoritarian style like VIktor Orbán or Aleksandar Vučić. This was good as long as China did not bother them with concerns about the rule of law or the strength of civil society. For many others, however, China was always a partner as long as sovereignty was not in the equation. When the war in Ukraine was followed by Chinese unwillingness to criticize Putin’s actions, many CEE countries saw China from a different perspective, in particular those that Russia considers part of its sphere of influence.

 

Was China really a serious challenge for the EU in Central and Eastern Europe.

During the period of the EU’s worst economic and financial crisis, China provided essential loans and investments. Even at this point, China never reached more than five per cent of investment or trade, with the exception of Hungary and Serbia. However, for a large number of right-wing governments, such as Orbán in Hungary, PiS in Poland, Vucic in Serbia, Andrej Babiš in the Czech Republic and the economically troubled Greece under Aleksis Tsipras, China was seen as a bargaining chip to gain leverage in disputes with Brussels. Conversely, China’s entry into CEE and the Balkans established a corridor to reach larger markets such as Germany or the Netherlands and offered Beijing a high-profile position in an area that was considered America’s overseas backyard.

In the present circumstances, when Russia is running a brutal war in Ukraine it is highly unlikely that any country in CEE or the Balkans is going to choose the China in case of a direct conflict between the US/EU and China. The US-led NATO is vital in preventing any sort of conflict in this region, including for those who are not members of the Alliance. The EU is the largest economic partner that can hardly be replaced, not even by openly EU-critical states such as Hungary.

Dr. des. Rigels Lenja is a journalist, columnist and historian. He holds a BA/MSc degree in East and Southeast European Modern History from the University of Tirana. In April 2024, he defended his PhD thesis at the University of Munich’s Institute for East and South-East Europe. His research has focused on dictatorship, modern warfare, democracy and modern religion in the Balkan countries.


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