From the Far East to the East: China’s Investments in Eastern Europe

12/08/2019

The set of Chinese initiatives in Eastern Europe is called “an era of infrastructural alliances.” Chinese investments now target Hungary, Ukraine, and the East to pave the way for the realization of the New Silk Road infrastructural project

 

The ongoing trade war with the United States is driving even more Chinese capital to Europe. Under President Donald Trump’s protectionist policy, in fact, Chinese investors are losing their confidence in the US market but they have found in Europe a more welcoming market and better investment environment. Especially in Eastern Europe.

According to the data analyzed by the law firm Baker McKenzie and the Rhodium Group, the value of mergers and acquisitions of new Chinese companies in Europe in the first half of 2018 reached 22 billion dollars, almost nine times higher than the amount in North America, which was $2.5 billion.

Trade with China has been growing dynamically in the past decade. China is the largest trading nation in the world and one of the EU most important trade partner. The People’s Republic wants to gain the European market and to reach this goal, it starts from the closer countries: the East European countries.

 

China’s Investments in Eastern Europe - dubrovnik - croatia - cifnews

© Pixabay. Dubrovnik, Croatia. Last April, Li Keqiang attended the meeting of China and CEECs in Dubrovnik with the aim to make the cooperation mechanism an important platform for synergizing the BRI.

 

The United States has always considered Eastern Europe as the object of the challenge first with the Soviet Union and now with Russia. With the fall of the USSR and the expansion to the east of NATO and the European Union, the West seemed destined to incorporate this area. But if Russia has seen itself surrounded by this advance, the Middle Kingdom has entered the East with strong commercial agreements.

The financial crisis that has hit European states and the political impasse of the European Community has made it possible for China to be included in the fragile East European context. Not only in non-EU countries, but also in those already within the EU system.

In Eastern Europe, Chinese investments have focused mainly on infrastructure and services, as part of the development of the so-called New Silk Road, a land and sea transport and services system, made up of infrastructure and social projects which runs through Pakistan, Kazakhstan, India, and Russia and connects China with Europe.

 

In particular, Hungary, Ukraine, and Belarus are particularly strategic for Beijing because they represent the terrestrial access to the European market, as well as a source of mineral resources and agricultural products.

 

But China’s main interest is in infrastructures. In recent years, a Chinese company finished upgrading the Ukrainian port of Južne, on the Black Sea, and now similar projects are being implemented for the port of Odessa and Ornomors’k. Then, the China Pacific Construction Group has signed a $2 billion Memorandum of Understanding to build the fourth line of the Kiev metro.

But Beijing has also launched very ambitious development projects in Belarus, including the Great Stone Industrial Park, which will become the largest Chinese industrial area outside of China.

Nevertheless, one of the key projects to understand the Chinese policy in Eastern Europe is that of a 350-km high-speed railway linking the capital cities of Hungary and Serbia. Here, the Celestial Empire has invested more than three billion dollars as part of its Belt and Road Initiative (BRI).

 

The “Three B”: from Beijing to Brussels trough Budapest. Hungary wants to be a strategic partner in the heart of Europe.

 

As a champion of Chinese investment in Central and Eastern Europe (CEE), Hungary has long been an important partner for China in the latter’s “going-out” strategy. Budapest was home to the first renminbi (RMB) clearing center in CEE, a fact that, along with the launch of the first Chinese RMB and Hungarian forint debit card in Europe, serves to highlight the country’s preeminent role in RMB internationalization.

Hungary was also the first European country to develop bilateral relations on Belt and Road co-operation with the Chinese mainland, an indicator of the strong Asian orientation of its policies on trade and international affairs. The hallmark project of China’s BRI – the high-speed railway linking Budapest and Belgrad – will also improve Hungary’s land-sea connectivity.

 

China’s Investments in Eastern Europe - hungary - budapest - cifnews

© Unsplash. As a champion of Chinese investment in CEE, Hungary has long been an important partner for China in the latter’s “going-out” strategy.

 

Hungary is by far the largest incubator of Chinese outbound direct investment among the CEE members of the “16+1” cooperation framework, which is the commercial formula that links to Beijing 11 members of the EU and 5 other countries still outside the Union. A formula that has effectively become Eastern Europe’s platform for the implementation of the BRI.

The “Opening to the East Strategy”, started in 2010 by the Hungarian Prime Minister Viktor Orbán as a way of opening new markets in Asia after the European financial crisis, coincided rather fortuitously with China’s “going-out” strategy. Indeed, the Dragon’s economic and cultural exchanges with Hungary have been considerably enhanced ever since the official launch of the “16+1” framework in 2012 and the BRI in 2013.

But another symbol of Chinese penetration in Eastern Europe is the acquisition of the port of Piraeus, in Greece. The China Ocean Shipping Company (COSCO) has already invested more than $600 million for the modernization of the port. A historic opportunity for Greece, which, amid the debt crisis, is receiving the financing of those infrastructure projects that will bring Athens to the center of Mediterranean trade.

 

Last April, during the meeting between China and CEE countries in Dubrovnik, Chinese Premier Li Keqiang said China expects to work with the 16 CEE countries, under the principles of equality and consultation, mutual benefits, openness and inclusiveness to make the cooperation mechanism an important platform for synergizing the BRI, as well as the EU strategy on Connecting Europe and Asia.

 

The Chinese state-owned COSCO has now obtained control of the port of Piraeus for 35 years. Since the Chinese acquisition in 2008, the port has experienced unprecedented growth thanks to the contribution of new technologies and improvements in collateral infrastructures. In six years, port traffic has grown by 300%, becoming one of the most important harbors in Europe and an access point for what the Chinese call Land-Sea Express Route, a network of railway connections that should connect the port to the Western Balkans and Northern Europe

For what concerns the Czech Republic, the Chinese investments in the country have experienced a strong increase in the last two years. In particular, the CEFC China Energy has acquired significant and diversified shareholdings in various sectors of the Czech economy.

Meanwhile, Prague was able to demonstrate its friendship to Beijing by trying to weaken the extent of the European Council’s new regulation for the control of foreign direct investment in the EU, where for “foreign” Brussels substantially means “coming from China”.

 

China’s Investments in Eastern Europe - containers - cifnews

© Unsplash. To date, no Mediterranean harbor is among the 10 busiest maritime hubs in the world. Accession to the BRI would bring the EU back to the center of international trade.

 

Until now, in the European Union, the Chinese government signed agreements mainly in Hungary and the Visegrad group, which is a cultural and political alliance of four Central European countries.

Therefore, the Chinese investments in the Southeastern region of the Old Continent, which is laboriously entering the European Union, are now the symbol of Beijing’s desire to enter the European context starting from the countries where the penetration process is simpler. Here, China offers capital and investments in the port, road, and rail network, enriching the European market with its involvement.

The numerous Chinese infrastructure initiatives set up in Eastern Europe so far has been defined as “an era of infrastructural alliances.” But now, the Dragon is already looking beyond.

With almost a billion and a half inhabitants and over 800 million internet users, Beijing is already working on new “infrastructural alliances” to start that new globalization that would see the PRC overtake the US and become the new international superpower.

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