China targets EU economy with Belt and Road investments

b_179_129_16777215_00_images_Xi_Jinping_March_2017.jpegWARSAW – China's massive, trillion-dollar Belt and Road initiative has taken Central Asia and Africa by storm as developing countries line up for the funds to break ground on pricey, Chinese-backed infrastructure projects.

But analysts say the European Union and its prized single market, the second-largest economy in the world in terms of purchasing power, is China's real endgame.

As Beijing courts Eastern and Central European states in order to better access lucrative Western European markets, the European Union's standard bearers – France and Germany – fear Chinese investment in the bloc's more vulnerable states will increase Beijing's influence in the region and only widen the ideological rift already present in the bloc between East and West.

"The main aim is not Central or Eastern Europe, but it's completing the Belt and Road infrastructure via these countries," said Stefan Meister, who heads the Robert Bosch Center for Central and Eastern Europe, Russia and Central Asia at the German Council for Foreign Relations in Berlin. "The side-effect is that you can use all of the weak spots to block other decisions which are linked to China."

Launched in 2013, China's Belt and Road initiative has sought to develop modern transportation links throughout some 64 countries, coming into contact with 60 percent of the world's population and a third of its economy along the way.

In 2017 alone, China invested $81 billion into Europe in foreign direct investments, up 76 percent from 2016, according to a recent report by law firm Baker McKenzie.

According to the report, the UK, the Netherlands and Switzerland received the most Chinese capital last year, but $9 billion has already flowed through the bloc's eastern and central states as part of the Belt and Road initiative. Last year, China established an $11-billion investment fund for the region and promised an additional $3 billion in funding in November.

The fruits of Chinese largesse in the region aren't quite as visible as elsewhere in the world, but notable projects have already drawn attention.

Seen as the "dragon head" of its Belt and Road initiative in Europe, in 2016, China's state-owned shipping firm, the China Ocean Shipping Company, agreed to invest some $1.24 billion into Piraeus, Greece's largest port. At the time of the announcement, the firm bought a 67 percent stake in Piraeus for $457.5 million and pledged $620.9 million to modernize shipping facilities over the course of time, according to reports.

With Piraeus as China's gateway to the continent, goods will be shipped from the south through Central and Eastern Europe via an upcoming high-speed railway between Belgrade and Budapest estimated to cost some $3.8 billion. Construction on the project broke ground in Belgrade in November thanks to a $297.6 million loan from China's Exim Bank, with construction on the Hungarian portion expected to start in 2020. Exim is providing 85 percent of the credit needed to fund the project.

Such projects have been welcomed by Eastern and Central European states, where the infrastructure gap between the European Union's western members is expansive and the EU hasn't acted fast enough to bridge the divide, said Angela Stanzel, a policy fellow in the Asia and China program with the European Council on Foreign Relations in Berlin.

Poland and Hungary and particular hungry for investment and opportunity, officials say.

"We are ready to be the gate to the West, first of all, from the economic viewpoint – this also includes China's One Belt, One Road initiative," said Poland's Prime Minister Mateusz Morawiecki in October during an economic cooperation summit in Belarus, when he was still Poland's minister of economic development and finance. "Here, we can develop mutually beneficial cooperation for our countries and nations."

Even in countries like Romania, where Chinese dollars have yet to significantly land due to weak diplomacy and economic policy, links between former communist states and China "can still be exploited" for both countries' benefit, said Aurelian Dochia, a Romanian economist.

"Romania didn’t make enough efforts and did not find the best way to convince the Chinese that their presence in Romania would be interesting," he said. "I think it shows a weakness in Romania's diplomacy and economic policy."

Even so, Romanians have been wary of the Chinese: Former Prime Minister Victor Ponta was heavily criticized in 2014 for a visit in China in an attempt to move closer to Beijing instead of focusing solely on Western Europe. 
Meanwhile, Beijing's growing investments in the region have already put pressure on recipients to get in line with Chinese policy initiatives, said Stanzel, even though Brussels has for the time being managed to piece together unity within the bloc on most economic and sociopolitical issues involving China.

"On the sensitive issues, the member states are already divided," said Stanzel, citing the fact that both Greece and Hungary objected to strong language from the EU condemning China's island building in the South China Sea, and that a veto by Hungary last year stymied a common EU statement on China's human rights abuses.

"Now it seems as if there are very few countries, such as Germany and France, that keep sticking to mentioning the sensitive issues such as human rights, whereas all the others just don't do that anymore," she said.

Such strife over a third party's policy goals is only adding fodder to divides in the bloc, said Meister.

Hungary and Greece, recipients of Belt and Road dollars, have long been seen as troublemakers within the EU: Greece for its economic woes, and Hungary for it's rightward political swing with Prime Minister Viktor Orban. Meanwhile, the Czech Republic and Poland, strong European economies and benefactors of lucrative Chinese trade deals, have also shifted to practicing right-wing politicking in recent years.

Chinese investments are being used by these countries to say that "they're sovereign states, that they have alternatives [to the EU]," said Meister. "In this way, it plays more into this narrative that these are problematic countries, that these are troublemakers, and now they're even doing deals with China and even voting for China inside of the EU."

Jakub Jakobowski with the Center of Eastern Studies at the University of Warsaw, however, says instead that it's Western European member states who have more incentive to cozy up to China.

"In Western Europe, they say big Chinese investment appeared in Eastern Europe and this makes the region more dependent on China, but this is not true," he said. "Maybe this opinion stemmed from the fact they expected bigger capital to come to their region."

"Presence of Chinese capital in the region…is even smaller, as we receive only a fraction of the investment which comes to France or Germany, for example," Jakobowski added.

Both Germany and France are huge recipients of Chinese investment, and their respective leaders have made numerous personal visits to China to attract business during their tenures. Even so, both countries have remained steadfast in condemning unsavory global policies out of Beijing.

"Mutual dependencies are increasing and sometimes the balance of power shifts," German Chancellor Angela Merkel told German weekly WirtschaftsWoche. "Europe must work hard to defend its influence, and above all, it should speak with one voice to China."

China's push in Eastern European member states threatens to upset Franco-German economic and political dominance in the bloc at a time of heightened instability on the continent, said Meister.

"Germany is only very slowly understanding what is going on here and at the same time, China is so important as a market also now for Germany that we have no interest in a huge conflict with the Chinese," he said.

But European standard bearers can't afford to dawdle on the issue, Meister added.

"This is about the future of Europe," he said. "This is the future of our industries, our technology, and we're already really too late. The Chinese are already in many areas."

An alternative version of this story can be found here.








 
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