The dragon over Visegrad: China in central Europe

The dragon over Visegrad: China in central Europe

“Peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit” comprise the ‘Silk Road Spirit’, the legacy of the trans-Eurasian trade route that linked East and Southeast Asia with East Africa, West Asia and Southern Europe for thousands of years. Or so goes the rhetoric espoused by the government of the People’s Republic of China. But the modern successor to the Silk Road – the Belt and Road Initiative (BRI) – has received heavy criticism from the West as a tool that could be used to divide Europe through economic influence. Just how well-established is China’s influence in Central Europe – and does Chinese investment represent a threat?

China’s rise to economic superpower status since its entry into the World Trade Organisation in 2001 has been well documented, but its activities and interests in Central and Eastern European countries (CEEC) in the subsequent years bear closer analysis.

Since the global economic crisis of 2008, China’s foreign economic policy has broadened to more thoroughly encompass the CEE region, even as Central European firms deepened their economic ties with non-European sources to better resist the global economic crisis. In the nations of the ‘Visegrad Four’ (V4) – the Czech Republic, Slovakia, Poland and Hungary – the extent of such cooperation has drawn much speculation over the eventual goal of Chinese involvement in Central Europe. At the highest level in the European institutions, there is growing concern that Chinese takeovers of the energy and banking sectors, particularly in the Visegrad Four, could represent a threat to European unity at a moment when several members of the V4 already face significant domestic challenges.

Of the V4, Hungary has historically seen the most Chinese direct investment, most of which (approximately 75%) occurred in one transaction – the acquisition of Hungarian chemical firm Borsodchem by the Chinese giant Wanhua Group. Figures vary dramatically as to the total of Chinese investment in Hungary (between US$200mn according to the National Bank of Hungary, and as much as US$3.5bn according to Hungarian governmental statistics), but it is clear that under the Orbán government’s “Opening to the East” policy, Hungary has taken considerable steps to welcome and accelerate Chinese investment. Elsewhere in the V4, Poland’s “Go China” strategy promotes cooperation between Polish entrepreneurs and SMEs and Chinese investors, and separate programmes promote Sino-Polish collaboration in energy, agriculture and technological research. Diplomatically, Hungary is somewhat closer to China, having vetoed anti-China motions in the EU, particularly those related to the poor treatment of human rights lawyers or on the EU response to the South China Sea arbitration ruling. Poland, by contrast, welcomes closer economic and political ties with China but has not yet taken such an overtly pro-China stance in European politics.

In the Czech Republic and Slovakia, public opinion of China remains informed primarily by ideological concerns, not economic issues, but at a higher level both Czech and Slovak governments have made strides to welcome Chinese FDI in transport, energy infrastructure, and entrepreneurial endeavours. The Czech Republic’s annual China Investment Forum represents the formalisation of the Czech leadership’s political will for closer relations with China, and has given rise to further forums promoting Chinese investment in aviation and transport industries. The concept of Chinese involvement domestically and throughout CEEC is marketed – by Czech, Slovak and Chinese media – as a ‘win-win’ situation. However, at a grassroots level in both the Czech Republic and Slovakia, Chinese investment remains a politicised issue, despite the highly publicised and controversial pro-China stance of the Czech President, Miloš Zeman.

New silk road, or Trojan horse?

It is clear that trade and cooperation between CEEC and China has risen significantly, and the impact of this could have very long-term consequences if Chinese investments continue to grow. Mutual tourism between China and all CEEC nations expanded by 146% between 2011 and 2016, and efforts to formalise trade and economic ties have similarly increased. This can be seen in the 2012 “16+1” framework (which established loose cooperative mechanisms between China and CEE nations), and most recently the ‘One Belt, One Road’ initiative (later re-christened the Belt and Road Initiative, or BRI). The scope of the BRI is particularly ambitious; according to some analyses the BRI will eventually cover almost 70 countries, encompassing over 60% of the world’s population and around 40% of global GDP.

But the reality may not live up to the lofty ideals espoused. China’s spending on the BRI has been disseminated among dozens of partners, and some analysts argue that the threat posed by Chinese foreign direct investment has been overblown. The planned scope of China’s foreign investments has not as yet been fully realised; for example, the target put forward in 2012 by then-Premier Wen Jiabao of reaching US $100 billion in mutual China-CEEC trade by 2015 has never been met (it was around US$90 billion in 2017). China-CEEC economic cooperation has clearly grown significantly since the early 2000s, but Chinese FDI constitutes less than 1% of overall FDI in the CEE region, even as than 90% of overall Chinese FDI to the European Union goes to Western European projects.  The majority of transport and infrastructure-related projects planned by Chinese businesses in the V4 – such as the Budapest-Belgrade railway – similarly remain incomplete.

Potential outcomes

The potential threat to European unity posed by Chinese economic influence in the V4 should not be seen in black-and-white terms. Undoubtedly, Chinese influence and soft power in Central Europe grows concurrently with Chinese investment in infrastructure and energy and transport industries, and the emergence of China as a larger foreign market for CEE nations will facilitate closer political ties between China and the V4.

However, the purpose of China’s investments does not appear to be to establish overt, immediate influence in CEEC that would pose a clear and present threat to European integrity, or to drive the V4 away from the European Union, as some critics have suggested. The risk of CEE nations becoming overly reliant on Chinese investment and the benefits bestowed by the BRI is hard to quantify in the long-term, but in the short-term appears to be overblown.

It is more likely, given China’s historic foreign policy, that China’s investment expansionism aims simply to increase China’s political stature in Central and Eastern Europe, and provide a ‘soft power’ base for influencing future developments – in the V4, in Central Europe, and ultimately in Western Europe – to China’s own long-term benefit. The long-term impact of such a policy may ultimately  capitalise upon existing divisions between the V4 and Europe – but for the moment, it does not appear to foment them.

Categories: Europe, Politics

About Author

Louis Cox-Brusseau

Louis is a political analyst and researcher currently based in Prague, Czech Republic. After graduating from the University of Cambridge, Louis pursued postgraduate studies in International Relations at King’s College London, focussing on conflict simulation and international norms of human security. He has worked previously as political advisor in one of the major political groups in the European Parliament, assigned to the Foreign Affairs, Security and Defense and Human Rights committees.