China in Europe: reshaping trade relations with Central Eastern Europe
China, who has been systematically and intentionally bypassed by the most important regional trade agreements, is now making history by building its way into the Western markets. For China, Central Eastern European Countries (CEE) is the best opportunity.
The attention of the world is focused on the recent US presidential election and its implications: the end of the TTrans Pacific Partnership (TPP) and an uncertain future for NAFTA. However, keeping a lower profile, China is slowly but steadily redesigning the Asian – European trade maps starting from the Central Eastern European Countries (CEE). Under the so-called “16+1” Platform, China is linked to 16 CEE countries in an historical attempt to influence European trade policies and infuse cash in the region. The Platform involves Baltic, Balkans and Adriatic countries.
The “16+1” initiative originated in Warsaw in 2012. A year later, China launched the Silk Road Economic Belt and 21st Century Maritime Silk Road (a.k.a. One Belt, One Road, OBOR), which is now the largest and most important geostrategic, economic and financial project being implemented globally. OBOR aims to link Asia with Western Europe, CIS countries and Africa through a network of interconnected infrastructures, with particular emphasis on rail, road and maritime transport. “16+1” became a key component of OBOR and in 2016, Chinese President Xi Jinping strongly advocated the program in a series of trips to Central Eastern Europe.
Why CEE?
China was never able to sign a free trade agreement with the EU despite the impressive trading volumes. However, it hopes to have more success in approaching the EU through the CEE. For China, the strategic value of these countries lies in their status:
- 11 of them are members of the EU and as such have a saying in the decision-making process and can serve as influencers in Brussels;
- Despite their EU membership some are more driven by historical economic rivalries, which can cause a domino- effect with decision making on collaborating with China despite EU’s protective stance;
- They are positioned towards the European border with Russia and represent a “gateway” to Europe from the East;
- They are all considered less economically developed than their Western brothers and consequently more inclined, post economic crisis, to find alternative means to boost trade and improve their trade balances.
Out of the projects that are either underway or soon to be so, two stand out:
Freight train services between China and Europe: The network counts on 12,000 km of rail linking 12 Chinese manufacturing hubs to 9 European ones – it is also in constant expansion. Eastern European countries are taking advantage of this opportunity now that shipping cargo through Russia and CIS countries is as reliable and hassle-free as the maritime routes. Other European countries are jumping on the opportunity, not to flood their markets with Chinese products but to allow their manufacturers to reach growing markets in Eurasia.
In 2008, the first freight train from the Hunan province in China arrived in Hamburg, Germany. The event marked the beginning of a new era in trade relations between China and Europe, but it was too inconsistent and too slow to gain momentum. Heavily dependent on volumes, the operator would have to wait days to achieve capacity. The situation started to change with the Chengdu-Lodz (Poland) rail shipments. Originally created to connect Dell’s manufacturing operations in Chengdu with those in Lodz, last year, 50 trains filled with food, beverages and dairy products left Lodz for China. The expected traffic for 2016 is 500 trains in both directions. In November of this year, the first trans-Eurasia container train linking China to Latvia arrived in Riga following the China-Russia-Latvia route. Latvia is the first Baltic nation to have established a direct rail freight route with China.
China-Europe land-sea express passage: Originating in the Greek Port of Piraeus in the South and ending in Hungary in the North, it is “an extension and upgraded version” of the planned Hungary-Serbia railway running through Belgrade and Budapest to connect China. The express passage links the Mediterranean with the Danube.
Poland – Greece: puzzle pieces to fit in
China sees Lodz as a communication hub with Europe and especially when connected to the port of Piraeus. Everything clicks into place considering that earlier this year, Beijing and Athens signed a €368.5 million deal to sell the Piraeus Port Authority to the Chinese shipping group COSCO.
The Port of Piraeus is extremely valuable to China in the context of the economy and security on the continent. It is also a key component of the China-Europe land-sea express passage. It is close enough to the Suez Canal whilst being in the Eurozone and Schengen space, implying relative security and stability, minimum bureaucracy and free movement of goods throughout the whole EU. From a connectivity point of view, the Ikonio-Thriasio rail line, though not fully functional yet, links COSCO-operated ports to the Thriasio logistics center – one of the most important intermodal transportation hubs. When the rail is operating, the ships that now have to circumvent the continent to Amsterdam, Antwerp, Hamburg and Rotterdam to reach northern markets will be able to unload at Piraeus and then load up the containers on freight trains.
Port of Piraeus: a key element in the expansion of trade between China and CEE
Despite the heavy subvention, the China-Europe freight trains are a cost/lead time trade-off – they reduce lead times by half but are about four times more expensive than the maritime route. For now, the option only makes sense for high-value goods and select industry sectors. However, as the route will become more efficient, more and more companies will jump on the opportunity. The same cost-lead time trade-off will most likely hold for the Piraeus-northward route when the various segments are completed.
Since the fall of the Wall, the CEE countries have forged policies oriented towards the West: the aspirations to join the EU and NATO have positively reshaped these countries. However, the assumption that they will unconditionally follow Brussels or Washington D.C. on the basis of historical resentment was always unrealistic. The 2008 economic crisis trumped everything else when CEE countries became collateral victims; this was because of their dependence on the trade with the Western European countries and US. Some of these countries have still not fully recovered and welcome any form of investment.
China is gradually entering the heart of Europe through the CEE countries and the EU can do little to stop it. As the puzzle pieces come into place, the European companies are increasingly taking advantage of the alternative routes and the Chinese investments. These companies will pressure their governments for the extension of these routes, making it almost impossible for the EU to take a firm stance against China. As other European countries, including Germany, UK and Ireland give in to the allure of Chinese investment, it is only a matter of time until the 16+1 platform will become the framework for a EU-China Trade Agreement.
