Difficulties that have cropped up in the 17+1 summit have the potential to put a spanner in China’s idea of reaping benefits via the forum.
The ninth 17+1 summit <1> between China and Central and Eastern Europe (CEE), delayed in 2020 due to the pandemic, was finally held virtually in February 2021. Beijing sought to upgrade the annual interaction with a few ‘firsts’ in this recent summit.
It was for the first time that President Xi Jinping hosted the summit himself instead of Premier Li Keqiang. He introduced a range of additional China-CEE initiatives, including agriculture exports and cloud service dialogues. By offering to double China’s food imports from Eastern Europe over the next five years, it has sought to appeal to the farm sector where poorer rural economies in Eastern Europe feel hardened and undermined by the highly protectionist farming powerhouses of Western Europe. President Xi also proposed to improve conditions for priority access to CEE countries for further dissemination of China’s COVID-19 vaccine, Sinovac, in the region, beyond Serbia and Hungary.
It is a beneficial move for some countries who had sharply criticised EU’s slow vaccine procurement program. But even as China mounts efforts to improve its standing in CEE through these measures, some signs of discontent are becoming visible. It was evident in the absence of heads of government of six European nations from the summit — Latvia, Estonia, Lithuania, Bulgaria, Slovenia, and Romania. In a departure from previous years, these countries only sent lower-level ministers. This was also reflected in the lack of a final consensus document in the 17+1 summit. This has been attributed to a growing discontent about Beijing’s undelivered economic perks as well as security concerns among some NATO members about the rising power.
Scepticism regarding cooperation with China was already visible in some countries of CEE in the past years, as investments remained limited and infrastructure projects went unfinished. The cooperation between China and CEE states has produced uneven response across the region. The Western Balkan states were most interested in dealing with China because being non-EU members; the rules evaluating environmental assessments, transparency, or market viability were lax. The unavailability of EU structural funds and cheaper loans also shifted them closer to China, whose investments in the Western Balkans (without Albania) from 2005-2019 have reached US $14.6 billion. Here, Serbia leads with US $10.3 billion, according to China Global Investment Tracker data of American Enterprise Institute making up about 20 percent of the total Foreign Direct Investment (FDI) stock in the region. But this has not been the experience of all the CEE states.
Over the years 2000 and 2019, out of US$ 129 billion worth of Chinese investments in Europe, only US$ 10 billion went to the countries of CEE. Its FDI was largely concentrated in the few big economies of western and northern Europe. The share of Chinese FDI in the eastern part compared to the rest of the continent in 2018 and 2019 was 2 percent and 3 percent respectively. Most of Chinese investments in the CEE are concentrated in V4 Countries <2> in the region. They take more than 75 percent of the total Chinese FDI in the region. But even here Beijing is far from being the key investor. Hungary, Czech Republic, Poland, and Slovakia receive bulk of their FDI stock from Netherlands, Luxembourg, and Germany. Other investors from beyond Europe include the USA, Japan and, South Korea. In contrast, the Chinese FDI is below 1 percent of total FDI in these countries.
China’s flagship Belt and Road Initiative (BRI) has also run into trouble in some of the countries in CEE such as Bosnia, Montenegro, Czech Republic, Estonia, Slovenia, Serbia, and Romania. China’s primary goal behind BRI in CEE was to increase mobility and enhance overland connectivity with Western Europe. The impoverished and resource deficient regions of the CEE allowed Beijing cheap access to European markets. Therefore, most of the projects announced concerned transport, infrastructure, motorways, ports, and the rail networks which were to be crucial for the transport of goods between Europe and Asia. It was also perceived by China as a place to bridge the investment gap by exporting products, technologies, and loans in the less developed cash-strapped countries. The 17+1 forum allows Beijing to pursue its objectives under BRI through various corresponding measures and initiatives.
The lucrative deals under the mechanism didn’t fail to impress the withering economies of CEE countries initially. The first flagship project announced was a high-speed rail link between Budapest and Belgrade. China also promised investment worth US$ 10 million in Romania’s energy infrastructure, while Montenegro was assured of the country’s first highway. Another lucrative purchase was the deal of port of Piraeus in Greece which was meant to be China’s main gateway to the continent. Its presence became more significant in Belarus which made a breakthrough with the visit of President Xi in 2015 where they’ve signed a dozen of agreements for a total amount of US$ 6 billion.
But not all promises have been fulfilled. The flagship projects like the Cernavoda Nuclear Power Plant or the Budapest-Belgrade railway, which could have brought influence and political and image gains for China, have been either abandoned after cumbersome negotiations or repeatedly delayed. A nuclear power plant and hydropower plant in Romania are yet to be completed. Montenegro highway project too fell into Beijing debt-trap diplomacy. Even the landmark the Budapest-Belgrade railway, has not proceeded very smoothly; it took more than six years to start the project, and it is only being constructed in Serbia and is still under negotiation in Hungary. In overall trade terms, China today constitutes less than 2 percent of the regional exports and less than 9 percent of the regional imports.
These developments have come at a time of rising concerns among some CEE states about participation of Beijing in critical digital technologies in the region. This was visible in several CEE countries signing up for the Prague Proposals that call for scrutiny of 5G vendors and their home governments and supporting the US “Clean Network” campaign. In fact, Romania was the first to join the US’s Clean network initiative by restricting Huawei from building its 5G infrastructure. Poland, Estonia, Latvia, Czech Republic, Slovenia, Albania, Lithuania, Greece, Bulgaria, Slovakia, and North Macedonia have followed its lead. NATO membership of CEE countries is proving to be a major obstacle for China’s digital silk road, as seen in the case of the region blocking Huawei’s ambitions.
The Romanian government announced that it is considering banning Chinese companies from participating in infrastructure tenures after abandoning the Cernavoda Nuclear Power Plant deal with China General Nuclear Energy Group (CGN) citing security reasons and cost concerns. Czech Republic also kicked out CGN from taking part in the public tender to build the Dukovany Nuclear Power Plant on the grounds of national security.
Now, Romania not only plans to restrict Chinese companies from its transport infrastructure, but also from its digital infrastructure. Prague’s new mayor ignored One China policy in a friendly gesture with Taiwan. On a similar note, Lithuania’s President supported Taiwan’s involvement in the WHO. Moreover, Lithuanian Parliament has recently agreed to exit the 17+1 group arguing that the forum divides Europe and has not brought any benefits to the country. With the second-largest economy amongst 17 nations, Poland is now increasingly against Chinese investments in strategic infrastructure including ports and airports which was communicated by the President, Andrzej Duda, himself. Poland has been seeking to further US military presence in the country driven by its security concerns over Russia, focusing more its alliance with the West.
The rising concern in CEE over China is also reflective of the broader criticism within the EU during the pandemic over its wolf warrior diplomacy, faulty medical supplies, and pandemic-related misinformation. Even with regard to BRI, the EU has expressed concern regarding it running contrary to its policies of liberalising trade.
Europe as a whole is divided on its views about China but despite concerns emerging within some countries of the group, it is not a region wide phenomenon as of now. However, the difficulties that have cropped up in the 17+1 summit have the potential to put a ner in China’s idea of reaping benefits via the forum. The implementation of this mechanism has already been quite slow and its focus on continuously marred by scepticism and criticism. China has struggled to establish a cohesive foothold in the region. The undue delays, cancellations, and procrastinated negotiations have made the investments look hollow. This mechanism has overall failed to generate the promised outcomes. It is largely turning into a ‘zombie mechanism.’
In order to benefit from Chinese presence in infrastructure development and trade, the CEE states must work towards negotiating a framework that emphasises growth based on capacity building, rule of law, structural reforms, sustainable connectivity, and overall development. They should enhance cooperation among themselves to reap greater benefits of 17+1 mechanism as a multilateral forum.
<1>The 17 countries in the format include 12 EU members — Bulgaria, Croatia, Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia — and five Western Balkan states namely Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia.
<2> Visegrad Four or V4 is a political and cultural alliance of four Central European countries namely Hungary, Poland, Czech Republic, and Slovakia.
The author is a research intern at ORF.
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