The Strategist

The soft power of Chinese money in Eastern Europe

04/17/2018 - 14:37

China is actively investing in the countries of Central and Eastern Europe, while the European Union refuses to subsidize the region. In exchange for investing in the infrastructure and economy of Eastern European countries, Beijing receives a tacit approval of its actions as the EU is apparently unable to come to an agreement.

Nagyman via flickr
Nagyman via flickr
"Our goal is to see a prosperous Europe," said Prime Minister Li Keqiang during the sixth summit of the 16 + 1 group, which was held in Budapest at the end of November last year.

The idea of creating an economic program for cooperation between China and the countries of Central and Eastern Europe (CEE) was born in 2011 and was called "16 + 1". In 2012, the first summit on the Chinese initiative was held in Warsaw. Besides China itself, the meeting was attended by 11 members of the European Union - Bulgaria, Croatia, Slovenia, Czech Republic, Slovakia, Latvia, Estonia, Lithuania, Hungary, Poland, Romania, and also also five non-EU states: Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia.

The format "16 + 1" can be considered an integral part of the One Belt One Road Initiative promoted by Beijing. China is investing its funds in development of infrastructure and high-tech projects abroad, strengthens the value of the renminbi as an international currency, and uses soft power tools through humanitarian exchanges. One of China's recent projects under the "16 + 1" initiative is creation of the Interbank Association of China and the states of Central and Eastern Europe to finance major strategic projects in the region.

China Development Bank promised to provide to the countries of Eastern and Central Europe € 2 billion only at the first stage of this program.

The assistance from China comes to these countries at the right time as the EU's subsidizing program to the countries of Eastern Europe ends in 2018. In Poland, more than half of all investments from 2014 to 2017 actually constituted subsidies of the European Union, while in Romania this aid amounted to about 60% of the total investment. The funds received from the EU were significantly higher than the amount received from the countries of the Eastern European bloc.

In 2017, European subsidies prompted fast economic growth of 6.4% per year in Romania in 2017. Poland, the Czech Republic and Hungary also showed more intensive growth than the countries of Western Europe, and the unemployment rates there were rather low.

Now the leaders of the countries of Central and Eastern Europe rightly believe that the situation will change radically soon. According to Hungarian Prime Minister Viktor Orban, by 2030 "the EU will be financed mainly by Germany and the countries of the Visegrád Group".

The development of ties between the CEE countries and China coincides with the growing tension between these countries and the EU as a whole. A vivid example is a conflict between Brussels and Warsaw and Budapest. It aroused due to the reforms of the judicial system conducted by the governments of both countries, which the European Union considers an attempt to subordinate the executive to the judicial. Another reason for discontent is the legislative initiatives of many eastern countries regarding the reception of refugees. The European Union believes that such a policy is nothing more than a violation of human rights.

Countries such as Hungary and Poland can use their new friendship with Beijing to strengthen their positions in disputes with the European Union. As for China, already now it is receiving pleasant dividends in the international arena.

For example, in 2016, a dispute between China and the Philippines arose on the ground of ownership of the water area of the South China Sea. China claimed 80% of these waters, but the International Court of Justice in The Hague sided with the Philippines. The European Union, which takes all decisions and resolutions only with the consent of all its members, issued a resolution on this issue where, thanks to the efforts of the CEE countries, China was not mentioned at all.

Similarly, Beijing will be able to use its newly converted influence in Europe and to promote its other interests around the world. Last year, the Financial Times quoted sources in diplomatic circles as saying: Hungary and Greece told EU partners that they would not support decisions that would contain critical remarks about respect for human rights in China.

This is of concern to a number of leading European countries, such as Germany and France.

At the same time, Beijing does not seek to support the euro skepticism of certain Eastern European states, since such sentiments do not contribute to China's interests in the framework of the 16 + 1 project. CEE is interested in China in the role of economic partners precisely because many of the countries of the region are members of the European Union, which, in turn, represents a common market with a single currency and rules.