China’s Inroads into Central, Eastern, and South Eastern Europe

Regional and Global Implications for Germany and the EU

23/03/2017 | by Jacopo Maria Pepe

DGAPanalyse 3 (March 2017), 11pp.

Category: European Union, Economy and Finance, Emerging Market Economies, China, Hungary, Poland, Czech Republic, Romania, Central Europe

Could China’s quiet but steadily rising penetration of Central Europe bear risks for the EU? Certainly, Beijing is using the region as a gateway to Western Europe’s markets while including the EU in its “Eurasian” integration project. But a deepening trade triangle of China, Germany, and Central European countries could put other EU countries at an economic disadvantage. Germany must address this risk, carefully balancing national interest and European cohesion.

© Reuters/Laszlo Balogh, CC BY

Viktor Orban in June 2011. Chinese investments target Hungary as the logistic and transportation hub for Central Europe

Summary

China has considerably increased its engagement in Central, Eastern, and South Eastern Europe in recent years. The creation of the “16+1 Cooperation Framework” in 2012 aroused concerns in Europe that China is pursuing a divisive strategy. Beijing’s primary goal, however, is to use the region as a gateway to Western Europe’s markets while including the EU in its own Eurasian integration project; this suggests that a strong regulatory EU is actually preferable from the Chinese perspective. Beijing’s deepening involvement in the region could nevertheless increase economic divergencies within the EU as whole – particularly in light of an emerging trade triangle involving China, Germany, and the Visegrad countries that potentially excludes countries in Atlantic and southern Europe and puts the “German-Central European manufacturing core” at an advantage. Germany should address this risk by developing a triple-edged strategy that carefully balances national interest, European cohesion, and engagement with China. This includes, first, working with the Visegrad Four, with other European countries, and with EU institutions to forge a deeper and more effective cooperation with China to enhance transport connectivity and economic, modernization, particularly in the Western and Eastern Balkans. Second, Germany should increase pressure on China within the framework of the planned EU-China investment agreement for opening up the Chinese domestic market to ensure mutual access. And third, it should promote forward-looking European industrial policy centered on the digitalization of industry, value, and supply chains for Central, Eastern, and South Eastern Europe. This would allow Germany to prevent intra-European divisions from deepening, while taking advantage of its triangular relations with China and the countries of Central, Eastern, and South Eastern Europe, and fostering mutually advantageous integration across Eurasia.

Introduction

In November 2016, China’s Prime Minister Li Keqiang attended the Fifth China-Central Eastern Europe Summit. In his remarks, he proposed the intensification of “pragmatic cooperation” between China and the countries of Central Europe, Eastern Europe, and South Eastern Europe (here CEE) to expand two-way trade, transport connectivity, industrialization, and financial cooperation. His speech reaffirmed both China’s interest in the region and its support for the European integration process.

To many European observers, however, China’s engagement in CEE remains ambiguous, and to some, it already seemed outright suspicious by the time the cooperation had gathered steam in 2012. Indeed, since then, China’s trade and investment activities in CEE have raised questions about China’s goals and strategy  toward the EU at large. For instance, shortly after the launch of the forum’s secretariat in 2012, the EU expressed its skepticism about a move that was largely seen as an attempt to further “bilateralize” relations with the EU. As the EU’s then high representative for foreign policy Catherine Ashton put it at the time, the CEE initiative bore the risk that China-EU relations could take place on two levels: at the EU level and at the bilateral level. Today, increasingly tense relations between China and individual EU member states – particularly Germany – over China’s acquisitions of high-technology assets have given new momentum to the idea that China is pursuing a “divide and conquer” strategy, one that, by engaging individual countries bilaterally, aims to acquire national technological and industrial assets while bypassing EU regulations. According to this logic, the CEE-China cooperation framework could well be considered part of this divisive strategy.

In fact, rather than aiming to divide the EU, China’s strategy in CEE has from the beginning been to pursue greater engagement with the EU as a whole using CEE as a cooperation platform.This was stressed in the Riga Declaration that concluded the Fifth China-CEE Summit in November 2016: “All participating EU Member States reaffirm that the implementation of the actions envisaged by this document must be done without prejudice to the competencies of the European Union and with respect for the obligations stemming from their membership of the European Union.

Five years after the launch of the “16+1” Initiative, China has indeed become increasingly aware that the region is too complex and inhomogeneous – and China’s experience with it not yet extensive enough – to exclude the EU, even if relations with the EU may become more complicated. This said, risks of a “division” of Europe – both across the member states and between CEE and the rest of the EU – should be taken into greater consideration today. It is possible that the EU may further prove unable to approach China in this region with a comprehensive strategy of its own that takes into consideration structural changes both inside the EU and in Eurasia at large. In fact, the impact on the EU of the 16+1 initiative (and of its Eurasian corollary, the One Belt One Road Initiative) – and the implications for Germany – will depend greatly on the counterstrategy that Germany and the EU develop in response, and particularly on the degree to which they can coordinate their efforts with the CEE countries themselves.

 
 
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