Chinese investment levels in CEECs have been overestimated, often largely


China’s economic influence in Central and Eastern Europe is often presented as a threat to the region’s independence and security. But how big is this influence? A new study suggests it has been massively overestimated.

Since 2012, twelve EU members located in Central and Eastern Europe and the five non-EU member states in the Western Balkans have participated in the so-called “17 + 1” mechanism, a Chinese initiative aimed at promote business and investment relations between China. and the 17 countries.

It is difficult to assess the success of the initiative. While it can often seem like new Chinese investments are announced every day, it is difficult to get real, concrete data on how much money is flowing into the region from China.

A recent study by the Center for Asian Studies in Central and Eastern Europe (CEECAS) attempts to answer the question. Governments in the region tend to overstate China’s presence, the report says.

It is the result of taking into account investment plans announced but not followed up, infrastructure projects financed by loans and international mergers and acquisitions.

Examples of all three are readily found in the region. In Romania, in 2013, China General Nuclear Power Corporation signed an agreement to invest in a project to extend the country’s only nuclear power plant, in Cernavodă. By 2020, the deal was scrapped.

Last year, the Washington-based Center for Strategic and International Studies noted in a report that projects funded by Chinese loans are often presented by governments as investments. This had an effect on public opinion: in 2018, more than half of Serbs had a “positive” view of China compared to less than 30% who thought the same about the European Union.

The sums do not add up

In fact, the CEECAS report finds that in many 17 + 1 countries there is a lag between the amount of Chinese investment reported by the respective governments and central banks, with the government figures being much higher.

In Czechia, the central bank reports that the stock of Chinese FDI (foreign direct investment) amounts to 600 million euros, but according to the office of the president of the country, this figure is much higher, at more than 8, 5 billion euros.

“Economic cooperation with China was the main theme of the 17 + 1 initiative, and politicians from Central and Eastern Europe invested a lot of domestic political capital to sell the idea of ​​working with the People’s Republic. So many of these politicians were interested in underlining or even inflating the otherwise disappointing result for their own political gain, ”says Dr Tamas Matura, founder of CEECAS and associate professor at Corvinus University in Budapest.

Dr Nina Marković Khaze, from the Department of Security Studies and Criminology at Macquarie University in Sydney, also points out that Chinese investments in the region are often inflated, and particularly in the Western Balkans.

“On the periphery of the EU, namely in the candidate countries of the Western Balkans, the EU, rather than other geopolitical actors (Russia, China and Turkey), remains the most important foreign and trade policy actor and a source of politics, economics and development attraction ”, she says Emerging Europe.

“EU funding in the region is often downplayed in the official media in Western Balkan countries, while aid from Russia and China receives too much public attention. Public perceptions in the Western Balkans are therefore inaccurate as to who their nations’ main partners are, as the public most often depends on government reports which lack critical analysis, ”she adds.

As the CEECAS report notes, once infrastructure projects and mergers and acquisitions are phased out, the real value of Chinese FDI in the region drops dramatically. Typically, traditional trading partners such as Germany, other East Asian countries such as Japan and Korea and, to a lesser extent, the United States remain the main investors in fifteen of the sixteen. countries covered by the report.

The only exception in Serbia, where China has a significant presence – both in terms of infrastructure and FDI.

“The disappointing 17 + 1 results have weakened China’s reputation in many countries in the Central and Eastern European region in recent years. However, there are some countries where China still has its influence, and the EU and US should pay attention, ”says Dr Matura.

“Meanwhile, I’m sure Brussels and Washington are keenly aware of the limits of China’s economic presence in the CEECs, and they are using the narrative of the ‘dangers of Chinese investment’ simply as a communication tool.”

The debt trap

The so-called “debt trap” is often cited as a potential danger.

Recently, Montenegro was forced to ask the European Union for help to refinance nearly a billion euros that it owes the Exim Bank of China, money borrowed in 2014 for the construction of ‘a highway.

Debt to China already represents 18 percent of Montenegrin GDP. Other countries in the Western Balkans are doing the same. In Serbia it is 12%, in Bosnia and Herzegovina 10% and in North Macedonia it is 7%.

Dr Matura says that while reports show that Chinese loans do not create debt traps as a rule, examples like Sri Lanka and Montenegro can be seen as exceptions.

“However, this does not mean that some governments cannot voluntarily jump into a trap, and the countries of the Western Balkans have indeed become very indebted to China relative to the size of their economies,” he explains. “The responsibility of national governments and politicians must be emphasized. It is their responsibility to launch projects that are feasible, sustainable and serve the long-term interests of their country of origin. China is not a charity. “

Still, Dr Marković Khaze points out that authoritarian countries like China, Russia and Turkey remain interested in promoting their own interests both in the EU and in the Western Balkans.

“What is important to watch is the extent of the military-security cooperation of the Western Balkan states with China. Serbia potentially compromises its own national security and sovereignty over Beijing by adopting and adapting Chinese software in government departments without any public scrutiny, ”she said.

Last year, several human rights and digital NGOs sounded the alarm over the appearance of hundreds of facial recognition cameras in Belgrade, provided by Chinese tech giant Huawei, including the technology has been a bone of contention in the EU and the US for several years. . Many countries have omitted it from public tenders, citing security concerns. Serbia remains one of the few countries in Europe that has not yet made a direct commitment to end its collaboration with the Chinese giant.

Sweet power

Investment is of course only one means by which countries can project their power. When an Airbus A330 full of medical assistance landed in Serbia in March last year, President Aleksandar Vučić praised his Chinese counterpart Xi Jinping while criticizing the EU for its “lack of solidarity” in the face of the pandemic of Covid-19. . It was seen by many analysts as an important diplomatic victory for China.

In Hungary, a campus for the Chinese University of Fudan is slated to open by 2024. This comes after the Central European University was all but expelled from the country in 2019 after the Hungarian government refused to allow it to continue. to teach its accredited graduate in the United States. programs.

“It remains to be seen whether the Chinese Communist government will be able to translate its economic strength into major strategic gains in the Balkans,” said Dr Marković Khaze.

“But even EU members like Hungary and Greece have recently supported Beijing’s position – rather than Brussels’ – in statements and political positions from multilateral institutions seen as critical of China. .

For now, China faces a battle just to keep the 17 + 1s together.

Lithuania gave up last week, its Foreign Minister Gabrielius Landsbergis citing the need for the EU to deal with China with one voice. “27 + 1 is better than 17 + 1,” he said.

Estonia could be next.

The chairman of the foreign affairs committee of the country’s parliament, Marko Mihkelson, said over the weekend that Lithuania’s decision was a “step in the right direction” and that Estonia should do the same. “Unity matters. Estonia will follow soon. “

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