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Marcin Grabowski – CEEC and China

15.05.2015 | By Przemysław Maciejasz and Mateusz Buczek

Marcin Grabowski PhD of the Jagiellonian University gives us an insight into China’s policy toward the Central and Eastern European Countries. The situation that has been under development for the last few years is more complex than it would seem. What exactly China is ready to offer the countries of the region?

In mid-December the summit meeting of China and Central-Eastern European countries was held in Belgrade. What conclusions can we draw from this meeting? 

Belgrade summit may be recognized as a natural continuation of the so-called Warsaw Initiative, i.e. the meeting held in the 16+1 formula, i.e. 16 Central and Southern European countries (meeting attendants included Albania, Bosnia and Hercegovina, Bulgaria, Croatia, Montenegro, Czech Republic, Estonia, Lithuania, Latvia, Macedonia, Poland, Romania, Serbia, Slovakia, Slovenia and Hungary) and The People’s Republic of China.

The first meeting of the heads of governments from these countries was held in Warsaw, in April 2012, on the initiative of Polish Prime Minister Donald TUSK, during the visit of Chinese Prime Minister WEN Jiabao. The meeting offered Poland an opportunity to become a natural leader of the Central and South European countries, which in a way resulted also from the demographic and economic potential of our country. During the meeting, Chinese prime minister proposed a program of the so-called 12 steps in cooperation, including opening of the credit line amounting to USD 10 billion as well as the investment fund amounting to USD 500 million.

As a number of cooperation assumptions (included in 12 steps) were inconsistent with the EU standards, the parties made amendments adjusting them to the EU laws at the next 16+1 summit held in Bucharest in November 2013.

The Belgrade summit confirmed the assumptions made before except one – the value of Chinese investment fund was raised by Chinese Prime Minister LI Keqiang to USD 3 billion. In this respect we can say that cooperation between The People’s Republic of China and Central-European (or Central-Eastern European countries) has been continued. Its goals may include increased economic activity of PRC in this region but also, which a number of analysts are concerned about, the consolidation of PRC’s position in the negotiations with the European Union by creating a kind of the counter-balance for Western-European countries (a number of analysts  simply say about the Chinese Trojan Horse).

As regards the change, it may certainly be associated with a very meaningful absence of Polish Prime Minister Ewa KOPACZ, who was substituted by the Deputy Prime Minister and Minister of Defense Tomasz SIEMONIAK. The Chinese may find this absence an affront as they appreciate personal contacts at the highest level. Moreover, the absence of Polish prime minister may question Poland’s role as a leader in this initiative. In this context, it is worth noticing a growing role of the Euro-sceptic leaders, such Viktor ORBAN, or the leaders of EU non-member countries.

What kind of business do Chinese do in Balkans?

Responding to the previous question I highlighted the initiative of 16 Central and Southern European countries and The People’s Republic of China but actually we can say about the 11+5+1 initiative, as the situation of the EU non-member countries seems to different than that of the EU members. First of all, these countries are substantially poorer, lacking an easy access to EU structural funds either. Thus the Chinese funds and the development of infrastructure  seem to be  invaluable in this context. This particularly concerns transport and energy infrastructure.

The goals of PRC and Southern-European countries are concurrent in this respect. On the one hand, we have the Silk Road Economic Belt initiative declared by Chinese President XI Jinping, and, on the other hand, the infrastructural needs mentioned before. In this context, the contract for construction of the high-speed railway line between Budapest and Belgrade (due to be completed by 2017, which seems rather unlikely) is a logical enterprise, as the line is planned to be extended to Skopje and Athens, and, more precisely, to the Piraeus harbor partially controlled by the Chinese company COSCO Pacific (pursuant to the 35-year long leasing contract). This is a part of the land and sea Silk Road.

Regarding the power industry, Chinese see a considerable potential in the renewable energy in particular – Albania, Bosnia and Hercegovina or Montenegro represent a large hydro energy potential; Croatia, Macedonia or Serbia represent a large wind-energy potential – but also nuclear energy and participate in the extension of  thermal energy plant in Kostolac (Serbia) or modernization of the coal energy plant in Tuzla (BaH).

It is also worth highlighting the fact that the EU non-member countries do not have to apply regulations hindering the entry of Chinese companies into the local market. When they become local market players they will have an easy access to the EU market when these countries become the EU members. Moreover, the declaration made by Jean-Claude JUNCKER that these countries have no chances for the EU membership before 2020 will consolidate the PRC’s position in the region.

 

Which countries are the Chinese particularly interested in? May Poland anticipate any new infrastructural Chinese projects?

I have already answered this question partially but a number of elements may be added. China is interested in all the countries where satisfactory profits can be generated, i.e. high rate of return from the capital invested. Most frequently, the European countries, those in Western, Central or Southern Europe, do not meet these assumptions compared to Africa or Latin America.

Potential exporters are also welcomed. Yet, any processed products manufactured in Central or Southern Europe are less competitive than those manufactured in China (which results from higher labor costs). Optionally, they may be high-tech products, which, however, are rather not manufactured in this part of Europe (German export to China is a perfect example and may be a source of inspiration). Chinese investments may be addressed to the companies providing an access to technology (90 per cent of high-tech products exported to China are manufactured by foreign companies). To be precise, we also do not have substantial deposits of raw materials (noteworthily, however, the main product exported from Poland to China is  copper and its derivatives).

Regarding Chinese infrastructural investments in Poland, it is worth considering whether they are necessary. Poland is able to independently finance development of infrastructure provided that own capital is managed reasonably and the EU funds supplied. This consolidates Polish or European construction industry (this is more extensively discussed below). Chinese are interested in entering the EU market, including Polish market, but it turns out that the barriers are hard to overcome. The projects that China finds interesting nowadays, are associated with the geo-economic strategy and include development of transport corridors to the European Union, such as the railway connection between Lodz and Chengdu (which, however, is problematic due to the fact that this is mostly one-way trade, which demonstrates Polish huge trade deficit with China).

Hungarian government established a special department for the cooperation with China. Should other countries of our region follow this example?

The Chinese Ministry of Foreign Affairs has also established a permanent secretariat for cooperation with Central and Eastern European countries, headed by WANG Chao. Yet, this does not mean that each country of our region should follow the Chinese example (the largest (GDP by PPP) or second largest (nominal GDP) economy in the world and a global economic player) or Hungary, where along with economic also political factors play crucial role. Given the current level of investments or trading turnover, such departments should be set up for a large number of regions. Moreover, which is already demonstrated by the 16+1 formula, even the diplomatic service at such level poses a challenge for many countries in our region, which results from their limited resources.

Certainly, the Permanent Secretariat of Central-Eastern European countries and China for investments, established in Warsaw in November 2014, owing to the considerable contribution of the Polish Information and Foreign Investment Agency and personal contribution of Sławomir MAJMAN, President of Agency is a good solution. It seems that an attempt to devise a collective strategy toward China is the only solution for the majority of countries of our region (noteworthily, the total population of 16 countries amounts to nearly160 million).

Are Chinese companies able to compete with the European companies in terms of the quality of products and services? The countries from our region seem to be particularly interested in the investments in transport infrastructure, while Polish experience  with the Chinese company COVEC suggests a sceptic approach to similar projects. Is the PRC able to cover over the bad impression from recent years and develop a kind of a new brand that will lead China to Europe?

We have to consider a number of factors. Firstly, it is hard to assess the quality of all Chinese products. Western companies operating in China (nearly 60 per cent of the Chinese export volume is generated by foreign companies operating there, including nearly 90 per cent of the high-tech export), manufacture goods of very high quality. Yet, there are industries which actually are absent in China, such as automotive industry – it is difficult to find the high quality Chinese car producers’ brands (except those manufactured under the Volvo make, which was taken over by Chinese but is definitely not Chinese).

Secondly, Chinese companies are significant players on the global infrastructure market, which is also visible in this part of Europe – a new bridge over Danube river, opened on the occasion of the Belgrade summit and financed by Chinese, or the Macedonian motorway connecting Adriatic Sea and Serbia, also constructed and financed by Chinese. Yet, the cost of Chinese capital is – as I already mentioned – higher than that coming from other sources so such investments are less profitable in the EU member countries.

Thirdly, in the period when COVEC failed to fulfill the order also a large number of Polish construction companies went bankrupt and analysts remark that it was not only the Chinese company that should be blamed but rather complicated regulations, particularly those about public procurement. In my opinion, it is interesting that COVEC did not get sufficient public assistance (given all the allegations about dishonest market practices in China) to complete this contract and open the EU market for other Chinese companies. A number of political and economic  premises might have played crucial role.

Divergent points of view caused by the question of respecting human rights led to problems in the international contacts of China.  A large number of countries decided to abandon this question in the name of business and own interests. Prior to the summit held in Serbia, over ten activists of Falun Gong were arrested as they planned protests in defense of human rights in China. How much are the Central and Southern European countries ready to “forget” about human rights in the name of business relations with PRC?           

Shortly speaking, this is rather typical for Serbia but not for other countries in this region if we remember the visit Prime Minister WEN Jiabao paid in April 2012 or the protest staged by the human right defenders in front of the Royal Castle in Warsaw during the first 16+1 summit.

From a wider perspective, this question seems to be, paradoxically, more controversial. Violations of human rights in China spark huge emotions, which seems to be right. At the same time, Chinese authorities highlight that they focus on providing their citizens with economic rights, which allows them to avoid hunger and extreme poverty. Indeed, the PRC’s largest success is freeing millions of people from extreme poverty (defined as living on  1, 1.25 or 2 dollars a day). To achieve this, it is necessary to keep order, which means, in Chinese conditions, the authoritarian system of power. From the European or American people living in the post-modern world this is utterly incomprehensible logic but  many Asians find it a reasonable argumentation.

.           On the other hand, political or civil rights in Europe are related to taking the control over resources by different social groups and not people ruling countries (noteworthily, Magna Charta Libertatum was developed during the reign of king John the Lackland, in 1215). Certainly, this process should be accompanied by the development of political and civil awareness. In Europe this process took as long as several centuries, while in China it actually began along with the economic transformations initiated in 1978 by DENG Xiaoping.

            In such context we may anticipate the development of Chinese, increasingly aware, middle class that will contribute to the growth of civil liberties in the People’s Republic of China (which is already happening if we compare the current situation with that from the late 1970s) and the spillover effect, i.e. proliferation of specific values from the relatively liberal economy into other spheres of life (including commercial judiciary system or membership in international organizations). Given this situation, the development of the economic relations with open-to-world China facilitates improvement of the human rights protection standards in this country.

About Author

Marcin Grabowski

Marcin Grabowski, Ph.D. is an Assistant Professor at the Institute of Political Science and International Relations of the Jagiellonian University of Krakow. Marcin has graduated in International Relations from the Jagiellonian University in Krakow. He studied at Columbia University in the City of New York (School of International and Public Affairs), George Washington University in Washington (Sigur Center for Asian Studies), and University of California, San Diego, where he completed the Global Leadership Institute program. Marcin’s research interests focus on the Asia-Pacific Rim, especially institutional arrangements of the region (APEC, ASEM, ASEAN, EAS, ARF, SAARC), U.S. and Chinese foreign policies and the International Economics. Marcin authored numerous scholarly journals’ articles, edited three books and authored a monograph: Wiek Pacyfiku: Polityka Stanów Zjednoczonych wobec regionu Azji i Pacyfiku po 1989 r. (The Pacific Century: U.S. Policy towards the Asia-Pacific since 1989).

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