China cosying up to Eastern Europe

First high-level visit to Romania in two decades highlights Beijing’s effort to tap into Eastern Europe.

China's Li Keqiang shakes hands with Hungary's Viktor Orban and Serbia's Ivica Dacic in Bucharest [EPA]

Bucharest, Romania – While Western nations struggle to cope with economic woes, China continues to step up trade ties with emerging markets around the globe, and it appears Eastern Europe is now squarely in Beijing’s sights.    

China’s new Prime Minister Li Keqiang is on a three-day visit to Romania until Wednesday and scheduled to meet leaders of 16 Central and Eastern European nations at a summit in Bucharest to discuss trade and economic cooperation.

It is the first visit to the region by the new Chinese prime minister and the first by a Chinese leader to Romania in almost two decades. This could cause nervous glances by Western members of the European Union as their central and eastern continental neighbours continue to form independent relationships with the world’s growing superpower.

Coinciding with the meetings, the China-Central and Eastern Europe Economic and Trade Forum will be held, with hundreds of Chinese and European business people flying into Bucharest to attend a trade summit specifically designed to promote relations between the region and China. The first forum was held in 2011, and according to media reports, a delegation of 300 Chinese CEOs is set to attend the event this time.

A Romanian presidential honor guard is backdropped by the Chinese prime minister’s official plane [EPA]

“China is being very opportunistic,” says Thomas König, the China programme coordinator at the European Council on Foreign Relations (ECFR).

“With Western Europe still dealing with its economic crisis, deals that Eastern Europe would have struck with its western neighbours are not happening, and China has stepped in,” he says.

Planned investment

As much of Western Europe is still distracted by the global recession, and crises continue in countries such as Cyprus, Greece and Spain, China has begun to enhance its role as an investor in Central and Eastern Europe in recent years, utilising its huge trade surplus, which was an estimated $230.7bn in 2012, and is likely to top that sum this year.

In a visit to Poland last April, Wen Jiabao, China’s former prime minister, announced the establishment of a $10bn credit line to support Chinese investments in Central and Eastern Europe. At the same time he announced plans to set up a secretariat for cooperation between China and the countries in the region, outlining an ambitious goal of $100bn in trade between China and Eastern and Central Europe by 2015.

Chinese firms are beginning to bid on large infrastructure projects – roads, railways, bridges, power stations – in countries such as Poland, Hungary, Romania and Croatia.

With industrial overcapacity in China, there is a relentless search for new export markets and entry points into the broader European internal market. Eastern Europe offers just that.

by - Jonathan Holslag, Brussels Institute of Contemporary China Studies

“The relationship with China only really started again in the last two years, though, of course, the countries had a relationship in communist times based on ideology,” says Katarzyna Nawrot, an assistant professor of economics at Poznan University in Poland, and currently a visiting fellow at Harvard University.

According to Nawrot, in addition to large infrastructure projects, the Chinese seem to be focusing their energy across the region on new technologies, acquiring brands and high-end manufacturing investments. They also chase opportunities in industries such as services, automotive and aviation.

In February 2012, Great Wall, one of China’s leading car manufacturers, established an assembly line in Bulgaria to help it expand into the European markets. Chinese technology giants Huawei and ZTE have opened up logistic centres in Hungary and Romania, while other top Chinese companies are expanding into the region.

Earlier this year, China became Ukraine’s second-largest trading partner after brokering a $3bn loan-for-corn deal, while discussions continue about the possibility of the purchase of three million hectares of Ukrainian agricultural land. (Ukraine is not one of the 16 European nations involved in the Bucharest meetings).

“With industrial overcapacity in China, there is a relentless search for new export markets and entry points into the broader European internal market, and Eastern Europe offers just that,” says Jonathan Holslag, head of research at the Brussels Institute of Contemporary China Studies (BICCS).

“It is a cheap place to set up manufacturing, distribution and processing [facilities], and fits in with China’s broader strategic approach towards Europe,” he adds.

China derives much of its economic growth from exports and 30 million jobs in the country are directly related to the country’s export industry.

In a speech last month Li said, “If exports drop quickly, there will be employment problems.” 

China is hoping with the growing economy and middle classes in these former communist nations, new export opportunities will emerge.

According to Chinese state media, a string of economic agreements and contracts are expected to be signed during Li’s visit to Romania, with trade between China and Central and Eastern European countries reaching $52.1bn in the first 10 months of the year alone, according to the Chinese Ministry of Commerce.

“We have taken legislative and governmental measures for big Chinese companies to be able enter Romania more easily,” Victor Ponta, Romania’s prime minister, told Xinhua, China’s state-owned news agency, last November while visiting the country.

COVEC failure

Not all of China’s deals in the region have gone well.

Li Keqiang with his Romanian counterpart Victor Ponta [EPA]

In September 2009, China Overseas Engineering Group (COVEC), a Chinese contractor, won the bid for the construction of a highway linking Warsaw, the Polish capital, with the city of Lodz.

After several years of multiple setbacks, including trying to bring workers from China to build the highway instead of hiring locals – resulting in immigration violations, other legal issues and local resentment – the company was forced to pull out, leaving the project unfinished and the threat of a €200mn (US$270mn) compensation claim looming.

“The COVEC case was a real failure, from both sides,” says Nawrot, who also points out there is still widespread prejudice and distrust in Poland when it comes to Chinese investments.

In fact, there are general misgivings about China’s motives in the region. Few believe that Beijing’s involvement in the area is simply good business; some say China is eyeing other prizes.

“Eastern Europe is not just an end in itself,” says König.

“As much as China’s push into Africa was about access to resources, its push into Eastern Europe is ultimately about an access point into the EU.”

Central and Eastern European nations are equal members of the EU, so it is good diplomatic policy for China to build relations with them.

by - Shi Yinhong, Renmin University of China

Opening manufacturing and distribution points in countries such as Bulgaria, Romania and Lithuania, Chinese companies can take advantage of easier access and cheaper costs and labour, while the Chinese government can build closer ties with nations that are growing in importance in the EU, as well as non-member states such as Serbia that are important regional players.

“Eastern Europe is becoming more important diplomatically,” says Shi Yinhong, a professor of International Relations at Renmin University of China.

“Central and Eastern European nations are equal members of the EU, so it is good diplomatic policy for China to build relations with them.”

While Shi says there aren’t any losers in this process, others are not so sure.

“It is the EU as a collective that is losing credibility. The very fact that member states increasingly go solo to China is detrimental to Europe’s credibility as an international actor,” says Holslag.

“I do not blame the Eastern European nations for what they are doing, but it just confirms how weak the EU is at the moment,” he adds.

There is also concern about the manner in which China is expanding into these poorer European nations, using strategic loans to secure large-scale projects for Chinese companies, or helping them buy up existing domestic companies.

“Never in world history has a country made use of such a large amount of credit and loans to facilitate its foreign trade,” says Holslag.

Days before the Bucharest meetings, the EU’s Trade Commissioner, Karel De Gucht, sent a letter to representatives of those EU member states participating in the summit, expressing irritation about the timing of the event, coming just days after a major EU-China meeting in Beijing.

The EU delegation had apparently struggled at times during the Beijing negotiations, with Chinese ministers saying some of the issues would be addressed at the Romanian summit. De Gucht’s letter was a reminder to EU member states to respect the general EU line and collective policies.

Despite any concerns from the rest of the EU, regional leaders appear optimistic about the growing presence of China in their countries.

Last Friday, Prime Minister Ponta attended the opening of Romania’s fourth Confucius Institute, the educational institutes often seen as a tool of China’s soft power overseas. At the event, he told those present his son had already begun studying Chinese.

A few days later he announced, along with Li Keqiang, an agreement for the construction of a Romanian high-speed railway line built using Chinese technology, as well as memorandums of understanding on Chinese involvement in Romanian nuclear reactors, power plant projects, and the facilitation of shipments of pork and beef from Romania to China.

Source: Al Jazeera