When words are more than deeds – the overvalued interest of China in the Visegrad countries

The Visegrad countries are considered to be part of the Central and Eastern Europe (CEE) region, which appeared to be high on the Chinese political agenda in the recent few years. But the interest of China seems overvalued.

The Chinese cooperation with the Visegrad group is conducted under the so called 16 +1 format. This initiative presented by China in 2012 is aimed at the intensification and expansion of the mutual cooperation between the 11 EU Member States and the 5 Balkan countries (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia) in the areas of investment, finance, science, transportation, education as well as culture.

The V4 countries could present an attractive investment opportunity for China for several reasons, the four countries dispose with a suitable strategic position and also the ability to reduce transportation costs for the delivery of Chinese goods to Western European markets. Further, as labor costs are becoming less convenient in China, it may be a cheaper solution to locate production facilities closer to the EU destination markets. Even though the Chinese interest is present, and the country is showing efforts to increase its political influence in the region, the country has only pursued a limited amount of middle to large scale investments within the Visegrad. The reason for this is a combination of several factors. First, the mutual relationship is facing difficulties stemming from the uneasy relations of China and the EU, as Brussels is expressing a distanced attitude in fear that the Chinese interest might undermine the Union rules and increase the East-West divide within Europe. Chinese investments vis a vis Central Europe were also put into question by the EU Parliament, which showed major distrust towards the Chinese activities in Europe and is taking steps to counter their trade breakthrough. As a matter of fact, it is also planned to extend the powers of the European Commission to investigate foreign investment in regard to the increasing concern over Chinese acquisitions in Europe. Secondly, due to the aforementioned approach of Brussels, Chinese cooperation is easier to conduct with the non-EU members. Therefore, the Balkan States are increasingly receiving more attention from Beijing, which is turning its course towards the south. The reason for this is, that in an area regulated by Brussels, trade rules are being set by the European Union. Thus, the Balkan States, being countries outside of the European Union are more appealing to China, as EU rules can be avoided, and cooperation is achieved more smoothly.

Nevertheless, the European Union in general could notably benefit from increased Chinese investments and therefore should realize that there is no need to worry about the truthfulness of the Chinese intentions as these are very likely to be in line with the general foreign interests of Beijing and pose no threat to the stability of the European Union. The most probable answer of the Chinese increased presence in Central Europe is, that instead of trying to politically destabilize the region, the Chinese view it as an entry point to Western Europe and its markets and if it doesn’t succeed it will try its luck elsewhere.

Much Ado about Nothing”

The V4 are viewed as small countries and even though there is a high potential for investments within this group there has been a neglectable increase of the economic activities since 2012. As a matter of fact, Korea, Japan and Taiwan invest notably more in the region. The opportunities arising in the V4 are modest when compared to business projects in different regions, as the SMEs of the Visegrad are too small to facilitate business with the large Chinese companies. There also seems to be a conflict of interest when it comes to the mutual relations between China and the V4, as China seeks for infrastructure and investment opportunities whereas the Visegrad is in need to attract greenfield investments in order to create more jobs.

China´s total trade is the highest with Poland amounting to 17,778 milion US dollars, followed by the Czech Republic with 11,002, Hungary’s and Slovakia’s trade with China amounting to 8,887 and 5,275 respectively in 2016. The countries are facing several disappointments in regard to the Chinese projects and investments. When it comes to Poland, this country established a strategic partnership with China in 2011. After President’s Xi Jinping´s visit to Poland and the adoption of a comprehensive strategic partnership format in 2016, it was hoping to receive a massive contribution from the Chinese investors, creating thousands of jobs, however the reality is notably diverged from these expectations. Chinese investments in Poland are described as mediocre and according to the Rhodium Group and MERICS number are around 1 billion euro for the end of 2017.

As to Czech Republic, it enjoys close relations with China, however this has not always been the case. The Czech-Chinese relations saw a re-launch after the 16+1 format was presented. Before, Prague was a big critic of China but now is a great supporter of Beijing and Chinese diplomats are warmly welcomed in the country. The biggest Chinese investor in the country is currently the CEFC China energy giant, which has run up debts and therefore the CITIC group (China International Trust and Investment Corporation) had to take over CEFC’s assets in the Czech Republic and pay 450 million euro to the Czech finance and banking group J&T. The two companies signed a document establishing a joint venture after CEFC has been in difficulties with the Chairman Ye Jianming being investigated for suspected economic crimes.  All in all, Prague had too high expectation in regard to the amount of Chinese investments, but the claim of President Zeman estimating to receive 95 billion crowns from China in 2016 remained unfulfilled, as the FDI only amounted to 17 billion in the end. Even two years on, the number is still not close to the expected, amounting to 23 billion crowns in 2017 according to the National Bank.

When it comes to Slovakia, it improved its relations with China in the last few years by increasing diplomatic personnel in the country and by approving a 37-page long strategy for the Development of Economic relations with China 2017-2020. There was recently a lot of media attention on the possible purchase of US-Steel Kosice based plant by China, due to facing financial troubles, however this purchase did not happen as currently reports show record profits of US Steel Kosice, the highest since the year 2000. The Slovak steel plant thus denied the rumors about its sale to the Chinese He Steel Group, which failed the potential chance. It was also reported in the Slovak media earlier this year that the Chinese producer of electric cars Zhi Dou, owned by the Zhejiang Geely Holding Group, showed interest in building a new manufacturing plant in Slovakia, however this scenario is unlikely to be met, as Romania offered subsidies of up to 50% of the investment and Slovakia 35%, and with this offer Slovakia seems to get the short end of the stick.

In regard to Chinese relations with Hungary, a mutual Memorandum of understanding was signed, with Budapest starting its eastern opening in 2000. Hungary is the No. 1 FDI destination for China within the CEE, with the biggest Chinese companies in Hungary being Lenovo, Huawei, Orient Solar. The most value-added Chinese project in Hungary is considered to be the Budapest-Belgrade Railway-line expected to be completed in 2023. However, this process has also been facing major difficulties and has been slowed down after the start of the infringement procedure by the European Commission due to lack of transparency on the Hungarian side.

Based on the above provided facts, the challenge remains in place, for the Visegrad group to do their best in attracting the Chinese attention. In order to do so, the Visegrad countries could offer more transparency and educated labor force in order to enhance Chinese investments as well as a joint approach.

As for now despite the increase in political activities in the Visegrad there is no significant to that corresponding economic development and this is likely to remain so, in case of no change in the efforts is made. However, despite of how the V4 potential will live up to its expectations, the already developed well-functioning diplomatic relations are of use for both sides in political and economic spheres. It also has to be acknowledged that if China is not to be lost to the Balkan countries it is inevitable for Brussels to hold an adequate approach towards the Chinese project. But Brussels doesn’t seem to bother and still lacks such a comprehensive vision and does not have a unanimous strategic answer.

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