East-Central Europe on the New Silk Road

Recently, the relationship between the East-Central European region and China has improved rapidly, which is also symbolized by the fact that an institutional framework has been established for the cooperation. Basically, this mutual opening-up is in the interest of each party as well as the European Union. For the region, including Hungary, the One Belt, One Road initiative means that their historical position will change: they may shift from the periphery of the EU into the centre of the Eurasian continent. Recently, the relationship between the East-Central European region and China has improved rapidly, which is also symbolized by the fact that an institutional framework has been established for the cooperation. Basically, this mutual opening-up is in the interest of each party as well as the European Union. For the region, including Hungary, the One Belt, One Road initiative means that their historical position will change: they may shift from the periphery of the EU into the centre of the Eurasian continent.

China and East-Central Europe After 1989

The most important historical basis of the relationship between the People’s Republic of China and East-Central Europe is the shared socialist past. Although the good relationship between China and the European countries under the influence of the Soviet Union had soon deteriorated by the 1950’s – owing to the estrangement in the relations between China and the Soviet Union – a kind of common ideological “fraternity”-consciousness has been kept.  Therefore, the regime change in 1989 in East-Central Europe can be regarded as the greatest break-point in the relationship between the region and China.

The relationship between China and East-Central Europe can be divided into three periods.ⁱ In the first period, from 1989 to 1998, China and the region were quickly drifting from each other and most interestingly, the Western world had become a more important external partner for both parties. For the countries of East-Central Europe, a rapid economic and political transformation (shock therapy) and, as its symbolical gesture, joining the NATO and the EU as soon as possible was a priority. In the case of China, Deng Xiaoping’s “reform and opening” announced in 1978 (and his southern tour in 1992) grounded the pivot to the western states so that china should obtain market, capital and technology. Chinese leadership, however, set the short-term goal of transforming China’s economy, and as a result, such ideological conflict evolved which alienated China from the East-Central European region.  Although interstate relations weakened, numerous Chinese small companies arrived in the region in those days, because, owing to the grave crisis accompanying the economic transformation, they found an important market outlet for their cheap products.ⁱⁱ

In the period from 1999 to 2008, the position of both China and the East-Central European region consolidated in the international system. Due to its dynamic economic growth, China gradually became a major power with a global sphere of influence, the symbol of which was China’s accession to the World Trade Organization in 2001.  With this, China had completely integrated into the global economic system operating by western rules. This period was also decisive for the East-Central European region. NATO was expanded in two phases, and the first round of the EU accession of eight Central and Eastern European countries also took place. As a result, the geopolitical situation of the region consolidated, and it became an integrated part of the western world. The European tour of President Hu Jintao in 2004 indicated that China, becoming a more and more important international participant, cannot ignore the East-Central European region any more. Although most of the Member States of the region committed themselves to establishing a solid “partnership”, the East-Central European countries made contact with China within the framework provided by western institutions. Although relations intensified thanks to economic interests slowly breaking through the ideological walls, they did not become really significant to either party.ⁱⁱⁱ

The third period has been on from the financial crisis of 2008 until today. The most important characteristic of this period is that China and East-Central Europe are rapidly converging. By 2015, bilateral trade reached US$56.2 billion, which means an increase by 28 percentage points compared to 2010. The aggregate investments of Chinese companies in Central European countries exceeded US$5 billion, and were typically significant in the fields of finance, green energy, telecommunications and the chemical industry.^iv The main reason for all this is that the East-Central region, which is unilaterally dependent on Europe, was badly hit by the global financial crisis. Pivoting toward dynamically growing China can be regraded a natural phenomenon, because it increased the diversification opportunities of the relations of the region.

The significance of the East-Central region has grown for China, too. On the one hand, the level of economic development in these countries  is closer to China’s, thus it is considered appropriate pilot area for Chinese companies intending to invest in the European Union. The EU membership of the East-Central European countries enables Chinese investors to evade trade restrictions and operate their subsidiaries here as assembly centres.^v Finally, the fact that the companies of East-Central Europe mean excellent acquisition targets to Chinese companies, owing to the financial crisis, should not be underestimated, either.^vi Another advantage is cheap workforce, and the competition between small states for foreign investors, which mean considerable state subsidies for Chinese companies.

The rapid development of the relations with China is demonstrated by the increasing frequency of visits of high-level delegations into the region. In his official visit to Hungary in 2011, Prime Minister Wen Jiabao said that China was committed to developing its relationship with the region. A year later, China and the East-Central European countries established in Warsaw a political platform named “16 + 1 Cooperation”, dedicated to coordinating and establishing the institutional framework for the relations between China and 16 Central and Eastern European countries.^vii The “16+1” formation is characterized by comprehensive but loose institutionalization concerning several fields, in order to develop economic, scientific, touristic and cultural relations.^viii The meeting of the Prime Ministers of the “16+1 Cooperation” are held annually; it was hosted by Belgrade in November, 2013, by Bucharest in December, 2014, and by Suzhou in China in 2015.

States of the “16+1 cooperation” and some of the main economic indicators of the relations^ix

It is argued that “16+1 Cooperation” is one of the most important diplomatic achievement of China’s European policy, which may be exemplary for others as well.^x But others question the feasibility of the cooperation, due to the different pasts and the different political situations of the 16 countries (some are NATO and EU members while others are not).^xi In addition, not all major international participants are happy about the rapprochement between China and East Europe. The deepening of the relations was interpreted by the western half of the EU as China’s attempt to drive a wedge within Europe and, by applying the principle of “divide and rule”, to unravel it.^xii Some extremist opinions regard the “16+1 Cooperation” the Trojan horse of China.^xiii However, its role is actually overestimated.  The small states of East-Central Europe are still relatively divided and are rarely able to form one unified block within the EU. Furthermore, Est-Central Europe still firmly supports the western world order and its relations within Europe are incomparably closer than that with China.

The East-Central European Region and One Belt One Road

For China, maybe the most important reason why the East-Central European region has acquired such significance is its key role in Beijing’s large-scale vision of foreign policy, One Belt, One Road.^xiv The region is involved in three of the Europe-bound and mainly railway-based economic corridors which are intended to decrease the excessive sea-dependency of China’s foreign trade. The China-Mongolia-Russia (Eurasian Land Bridge) Economic Corridor connects China’s northern and northeastern regions and the Far Eastern regions of Russia with Poland and Western Europe via the Trans-Siberian Railway.

The New Eurasian Land Bridge Economic Corridor (also called as the Second Eurasian Continental Bridge) connects China’s eastern provinces with Europe via Xinjiang, Kazakhstan, Russia and Ukraine. The partially finished railway link joins the Trans-Siberian Railway at the moment.  According to plans, it will reach the EU across Ukraine in the long term, via Hungary (Záhony) and Poland. Because of Ukraine’s situation, the development of this line is not on the agenda now.^xv

The Central-Asia Western-Asia Economic Corridor would connect the eastern coast of China (primarily Guangdong province) with the EU via Xinjiang province, Central Asia, Iran, Turkey, the Balkan and Hungary. Plans are ready for creating the appropriate-level railway link (between Iran and Turkey, and in Central Asia). China hopes that by 2030 a completely connected high-speed railway connection will have been created between China and Europe, on which passenger trains will be able to run at a top speed of over 250 to 300 km/h and freight trains at more than 120 km/h.

Economic Corridors of the One Belt One Road Initiative in Europe^xvi

Currently, the New Eurasian Land Bridge Corridor fulfils a central role in the relations between China and East-Central Europe. In October, 2011 the first “Chongqing-Xinjiang-Europe” freight train left from Chongqing and arrived in Duisburg, Germany via Eastern Europe. In October, 2012, the first “Wuhan-Xinjiang-Europe” freight train started its regular transportation of goods to Prague. In April, 2013 regular transportation of goods commenced from the city of Chengdu to Lodz, named “Chengdu-Europe Express”. In July, 2013 a regular freight train started its operation from Zhengzhou to Hamburg. The competitiveness of rail freight transport is reflected by the fact that the abovementioned trains run regularly, even several times a week.^xvii

In the past years, it has been a frequently voiced view that East-Central European states compete with each other for Chinese investments.^xviii One Belt, One Road designates the most important states on a physical geographical basis. In the north, Poland plays a key role, since its location is of key importance both for the China-Mongolia-Russia Economic Corridor and the New Eurasian Land Bridge Economic Corridor. Hungary and Serbia are also located at strategic points, lying on the natural transport lines of goods arriving from the direction of the Balkan. East-Central European countries are complementary and not competitors in implementing One Belt, One Road.

Hungary’s Position in the One Belt One Road Initiative

At least one of the economic corridors involving Europe – the Central Asia-West Asia Economic Corridor – but in the long term (when the situation in Ukraine improves) even two economic corridors may include Hungary, owing to its central position filled in the southern part of the region. The Central Asia-West Asia Economic Corridor can be expected to be built only in the long term, but through a half continental, half maritime connection, it may reach our country earlier. From the port of Piraeus, the majority stake of which is owned by China, the goods can arrive in Hungary via Macedonia and Serbia by rail, and then can go to the most important economic centres of Europe across Hungary. Upgrading the Belgrade-Budapest railway line is a key element of this segment, on which a decision was made in the summit of the “16+1 Cooperation” in Bucharest, at the suggestion of the Chinese party. The distance of nearly 350 km is currently covered by trains in 8 hours. After the modernization –  thanks to the electrified, double-track line suitable for a top speed of 160 km/h – the journey time is expected to drop to 2 hours and 40 minutes. 159.4 km of the line to be refurbished are in Hungary (line 150). The entire cost of refurbishment amounts to about US$3 billion, 85%of the investment would be funded from a Chinese interstate loan. The Hungarian segment is anticipated to cost HUF 472 billion, for which the Chinese Export-Import Bank would provide a loan. Under the agreement, the main contractor would operate as a non-profit joint venture:  Hungarian State Railways would have a stake of 15%, while China Railway International Corporation would have a stake of 85%.^xix

The Hungarian section is especially important for the Chinese party because it would be the first time that Chinese companies build a railway track in an EU Member State, which later could be used as a reference in the case of other European infrastructural developments. Thus, it is rather obvious that the Belgrade- Budapest railway is important to China. However, the question arises:  why is it a worthwhile enterprise for Hungary? The investment is clearly not risk-free. First, costs are extremely high, and the return of the construction is very doubtful. Second, the failure or any delay in the construction other (Serbin, Bulgarian, Greek) sections of the corridor would jeopardize the construction in Hungary. However, the modernization of the railway segment has significant advantages.  First and foremost, the two capitals could be reached more easily after the modernization of the segment. In addition, sooner or later its refurbishment will be inevitable, although the line is not included in the European core railway network. The hopes that Hungary may become a European-level logistics centre would most probably reinforce its central role in the region. The developed railway link will increase Hungary’s ability to attract capital, which, combined with cheap workforce, may attract Chinese assembly plants into Hungary.^xx There might be a fair chance of that in the future if Chinese wages continue to increase and transport costs can be reduced. Furthermore, with the help of the railway link, not only Chinese goods could arrive in Hungary but it would provide more opportunities to export domestic products. One should not consider the Chinese market only; by One Belt, One Road other regions (e.g. the Middle East, the Caucasus, Central Asia, etc.) can be reached more easily. In terms of economy, participation in One Belt, One Road may open new prospects for Hungary, decrease its unilateral dependency and increase its role as a bridge.

Sources

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References

[i] Kong Tianping: 16+1 Cooperation Framework: Genesis, Characteristics and Prospect, China-CEEC Think Tanks Network,3 December 2015.

[ii] u.o.

[iii] Chen Xin: Trade and Economic Cooperation Between China and CEE countries, China-CEEC Think Tanks Network, 23 November 2015.

[iv] The Ministry of Commerce Holds the 2nd Press Conference on China-CEEC Ministerial Meeting on Promoting Economy and Trade Cooperation and China-CEEC Investment and Trade Expo, Ministry of Commerce, The People’s Republic of China, 3 june 2016.

[v] Liu Zuokui: Analysis of China’s Investment in CEECs under the New Situation, China-CEEC Think Tanks Network,11 January 2016.

[vi] Matura Tamás: Kína Gazdasági Térnyerése Közép-Európában in: Hamberger Judit, Matura Tamás & Szilágyi Imre: Kína és Közép-Európa, Magyar Külügyi Intézet MKI-tanulmányok, 2012. 81-82.

[vii] A 16 közép- és kelet-európai országok: Albánia, Bosznia-Hercegovina, Horvátország, Macedónia, Montenegró, Szerbia, Szlovénia, Bulgária, Románia, Csehország, Magyarország, Lengyelország és Szlovákia.

[viii] Simurina, Jurica: China’s Approach to the CEE-16, Europe China Research and Advice Network (ECRAN) Short Term Policy Brief 85. January 2014.

[ix] An Baijie & Li Xiaokun: Premier Li outlines $1 trillion goal, The State Council, The  People’s Republic of China, 25 November 2015.

[x] Kong Tianping: The 16+1 Framework and Economic Relations Between China and the Central and Eastern European Countries, Council for European Studies, 14 December 2015.

[xi] Pavlićević, Dragan: China in Central and Eastern Europe: 4 Myths, The Diplomat, June 16, 2016.

[xii] Bolzen, Stefanie & Erling, Johnny: Divide, Conquer, Aim East: China Has A Sharp New European Trade Strategy, World Crunch, 11 November, 2012.

Keith Johnson: China’s New Silk Road Into Europe Is About More Than Money, Foreign Policy, 1 June 2016.

[xiii] Turcsányi, Richard: Central and Eastern Europe’s courtship with China: Trojan horse within the EU?, European Institute for Asian Studies, January 2014.

[xiv] Liu Zuokui: The Role of Central and Eastern Europe in the Building of Silk Road Economic Belt, China-CEEC Think Tanks Network,11 January 2016.

[xv] Liu Zuokui: The Analysis of the Relationship between China and Ukraine, China-CEEC Think Tanks Network,11 January 2016.

[xvi] Iron Silk Road: a Russian Dream, Window to Russia, 14 November 2013.

[xvii]   Liu Zuokui: The Role of Central and Eastern Europe in the Building of Silk Road Economic Belt, China-CEEC Think Tanks Network,11 January 2016.

[xviii] Turcsanyi, Richard: Is the Czech Republic China’s New ‘Bridge to Europe’?, The Diplomat, 12 September 2015.

[xix] Seszták Miklós: T/9787. számú törvényjavaslat a Magyarország Kormánya és a Kínai Népköztársaság Kormánya között a Budapest-Belgrád vasútvonal újjáépítési beruházás magyarországi szakaszának fejlesztése, kivitelezése és finanszírozása kapcsán született Egyezmény kihirdetéséről, Magyarország Kormánya, Budapest, 2016. március.

[xx] Matura Tamás: A kínai selyemút és a magyar szál, Magyar idők, 2016. április 22.