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EU wary of China's growing ties to Eastern Europe

Srinivas Mazumdaru
July 5, 2018

As the world prepares to tackle trade tensions and tit-for-tat tariffs, the summit between leaders of China and Central and Eastern European nations offers a chance for Beijing to present itself as a free trade champion.

Ungarn China-Mittel-Ost-Europa-Gipfel
Image: Reuters/L. Balogh

Chinese Premier Li Keqiang is meeting with leaders of Central and Eastern European countries in the Bulgarian capital Sofia as part of the seventh "16+1" summit, which brings together China and 16 Central and Eastern European countries (CEEC), including 11 European Union (EU) member states.

Besides China, the 16 countries that participate in the summit include EU members Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia, as well as non-EU states Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia.

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Ever since its launch in 2012, the format has been viewed by Western critics as an instrument for Beijing to divide and undermine the EU by dangling the CEE states closer trade and investment opportunities with China.

Policymakers and analysts from China and some CEE countries, however, reject such assessment. They say that the purpose of the platform is to cultivate good relations and foster economic cooperation.

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"The cooperation between China and Central and Eastern Europe is an integral part of China-EU cooperation. It sends a positive signal on the world stage in support of free trade," Jin Ling, an expert on European affairs at the China Institute of International Studies, told DW.

Growing trade ties

Trade between the two sides has seen rapid growth over the past decade, with total commerce amounting to about $68 billion (€58 billion) in 2017. Over the past several years, China has pledged massive sums for infrastructure projects worth billions in the region, including in sectors that are critical for national security such as roads, railways and power stations.

In a bid to draw more Chinese money into the region, a special economic forum is being organized alongside this year's summit. Over 250 Chinese firms and 700 business executives from CEE nations are taking part in it. "Our main goal is to increase Chinese business presence in Bulgaria and in the whole region of Central and Eastern Europe," Bulgaria's Deputy Foreign Minister Georg Georgiev told Reuters.

This enthusiasm, however, is not shared uniformly across Europe, particularly in Brussels where Beijing's growing leverage over these countries is viewed as a threat to EU unity, norms and values.

Many European officials worry that, in exchange for Chinese investment, CEE countries would be willing to side with Beijing and hamper the EU from taking a unified stance on key global issues such as upholding the international rule of law and human rights.

Taking Beijing's side 

They point to instances such as Hungary's refusal to sign a letter in 2017 condemning the torture of detained lawyers in China. Likewise, in 2016, Greece — which is an observer in the 16+1 grouping and major beneficiary of Chinese money in recent years — blocked a strong EU declaration against Beijing's activities in the South China Sea.

In June 2017, Athens again blocked an EU statement at the UN Human Rights Council criticizing Beijing's human rights record. CEE states have since blocked similar EU statements against China.

The leaders of these countries have also embraced Beijing's Belt and Road Initiative (BRI), President Xi Jinping's ambitious plan to build and expand transport and trade links between China and countries in Asia, Europe and Africa. BRI is widely seen as helping to cement Beijing's position as a new global superpower.

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Despite the substantial rise in Chinese investment in CEE nations in recent years, the region accounts for less than 10 percent of total Chinese money inflows into Europe. Most Chinese investment still goes to Western European countries like the United Kingdom, Germany, France and Italy.

The EU and the United States, meanwhile, account for around 90 percent of investment flows to the CEE region, highlighting their far greater importance to the region.

Nevertheless, some CEE leaders like Hungarian Prime Minister Viktor Orban see closer economic ties with Beijing as an alternative to EU cooperation. "Central Europe needs capital to build new roads and pipelines. If the EU is unable to provide enough capital, we will just collect it in China," Orban said in Berlin earlier this year.

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Falling short

Despite the ambitious rhetoric about deepening partnership, some countries complain about the underwhelming results in terms of executing the announced projects.

The list of finished projects remains short, with just a bridge in Serbia and a motorway in Macedonia completed as of late 2017. "Some large-scale projects have been delayed, reflecting some of the current trust deficits between Europe and China. These should be resolved through dialogue," Chinese analyst Jin Ling said.

Some have also started to grumble about financing and contractual terms. Observers say Chinese infrastructure loans have often been linked to Chinese contractors and labor doing the work using Chinese materials, thus contributing little to local economic development.

Some Chinese investments in CEE countries could also create risks to their financial stability, they say. "Easy access to Chinese money could be particularly risky for smaller 16+1 players, where uncontrolled growth of debt could pose threats to the fiscal stability of their economies," Micha Romanowski, an expert in Eurasian affairs at the German Marshall Fund of the United States, wrote in a report published last year by YaleGlobal Online.

"When Montenegro signed a highway contract with China in 2014, it saw its public debt grew by 23 percent," he pointed out.

Additional reporting by Li Shitao.