Economy-Business-Markets

China Is Forced to Reconsider Its Route Into Eastern Europe

China’s efforts to make inroads in eastern Europe are being hindered by what nations see as failed promises on money materializing and the strings attached to investments.
The so-called 16+1 framework was established by China as a means to deepen its footprint in eastern Europe. Its members -- 11 European Union countries, from Poland to Hungary and Estonia, plus five Balkan states -- saw the annual forum as a means to attract Chinese investment in infrastructure like roads and rail networks to boost their economies.
China’s involvement with eastern Europe

But many of those states are disenchanted with the lack of investment from China, according to people with direct knowledge of the forum. Members are also unhappy at Beijing’s preference to provide loans rather than cash, and now recognize that better deals are available within the EU framework, such as via the European Bank for Reconstruction and Development, the bloc’s development bank.
Some of those projects that have materialized with Chinese help have attracted unwelcome attention. Mounting costs for a highway development in Montenegro prompted the Washington-based Center for Global Development to single out the country as “at particular risk of debt distress,” while the tender for an as-yet unfinished high-speed rail link between Budapest and Belgrade prompted an EU commission probe.

Growing Unease

“Some feeling of unease about the whole scheme has been brewing for some time,” said Jan Weidenfeld, head of European affairs for the Mercator Institute for China Studies in Berlin. The conditions attached to projects are seen by 16+1 members as similar to those offered to African states, meaning that some countries “even feel insulted,” he said. “The package just isn’t quite as attractive as China would make believe it is.”
Trade and investment links between China and central and eastern Europe have improved over the past decade, yet growth “has not hit declared values and did not meet the expectations” of some countries, Erste Group noted in a report in May. Chinese Premier Li Keqiang will have an opportunity to raise the matter when he meets European leaders in Brussels on Friday during an EU-Asia summit.
The 16+1 has been controversial from its inception in 2012. Armed with its own secretariat staffed by Chinese diplomats, the forum features an annual summit of member state leaders, offering them the chance of bilateral talks with the Chinese premier. The focus is on projects that fall under the umbrella of China’s vast Belt and Road infrastructure initiative.
From the outset, EU officials were concerned that it was an attempt by China to split off the bloc’s poorer east rather than deal with Brussels. A December 2017 report on EU-China ties by the European Council on Foreign Relations concluded there was “no doubt that the 16+1 is part of a broad ‘divide and rule’ practice.”

Skipping Sofia

The troubles surrounding the forum may be welcomed by Brussels as well as by core member states such as Germany and France, which have been at the forefront of efforts to tighten up screening of Chinese investments in critical infrastructure and companies in the bloc. Germany in particular has been increasingly vocal in its criticism of the 16+1.
Germany is fine with countries in eastern Europe pursuing closer economic ties with Beijing, but not at the cost of undermining joint EU policy on China, according to a senior government official in Berlin. There’s an implied risk that Chinese investment assumes political favors in return, the official added.
Li is due in Brussels along with some 50 fellow leaders including German Chancellor Angela Merkel, French President Emmanuel Macron and Polish Prime Minister Mateusz Morawiecki, who leads the largest European nation in the 16+1.
Yet Morawiecki skipped this year’s 16+1 summit in the Bulgarian capital Sofia and sent his deputy instead. Among the eastern framework’s members, Poland has been key in leading skepticism, two of the people familiar with the deliberations said. Hungary under EU-baiting Prime Minister Viktor Orban remains doggedly stuck to China, the people said.

Polish Mismatch

“There was a mismatch of expectations,” said Piotr Buras, head of the Warsaw bureau of the European Council on Foreign Relations. Poland wanted Chinese direct investment and involvement in greenfield projects, whereas the Chinese were more interested in public contracts for infrastructure, preferential terms and purchases of high-tech companies.
He also cited a conflict among some east Europeans at being seen to choose China as a strategic partner over the U.S. Poland, said Buras, “has chosen the U.S. and it’s tough for them to go into bed with both.”
Inefficiency and needless state interference are among other complaints expressed by forum members. The central bureaucracy means it’s often easier to deal directly with Chinese provincial governments than with Beijing, said one official from an eastern EU government.
“It’s like stories my grandfather told me about milk production” in communist times, the official said, asking not to be named discussing the forum since it remains politically sensitive. The upshot is a lot of effort with little to show for it, the official said.

Looking East

China still feels that former Soviet bloc countries in eastern Europe are closer to them, but those diplomatic ties often don’t translate to today, according to an official from another European government.
For all the disappointment, the 16+1 is unlikely to be scrapped, the official said. Countries still see value in the guarantee of an annual audience with the Chinese premier, and find that the 16+1 raises their profile in China’s investment-rich provinces. That’s an especially important benefit for the forum’s smallest nations, the official said.
“This is not about dividing Europe,” said Wang Yiwei, a professor of international affairs at Renmin University in Beijing. “Eastern and central European countries are second-class citizens in Europe even if they join the European Union -- now they are looking east.”
A former Chinese diplomat in Brussels, Wang said some of the forum’s members are concerned the Belt and Road program might “dilute” the initiative, but that the 16+1 remains a promising model.
“Problems and difficulties are very natural,” he said.