Chinese economic interests and the threat to EU cohesion

Today, some of Europe’s poorest countries are critical to China’s global economic development strategy. Under the 16+1 sub-regional framework, which includes eleven countries from central and eastern Europe and five from the Balkans (CEEC), China is pursuing investment opportunities in infrastructure in order to enhance its connectivity with the European region.

Thus far, Chinese interests have been universally welcomed by the sixteen nations with political elites keen to boost their fragile economies in post-recessionary times. However, as economic cooperation grows between China and its former socialist allies, the political implications are becoming more apparent. As the EU strives to sustain its ‘One-Europe’ policy with China, how some of its members and potentially future members embrace China’s global ambitions could undermine EU cohesion as it continues to endure instability.

The new Silk Road

The 16+1 framework is a key component of China’s Belt and Road Initiative (BRI) to integrate the Asian country more deeply into the world economy. The initiative, launched by President Xi Jinping in 2013, underpins the Communist Party’s economic and geopolitical vision to connect China with the world. Considered as the biggest foreign investment by any one country since the US Marshall Plan, the BRI project spans 70 countries and aims to connect Central Asia with Europe, Africa, and Oceania through investment and trade in the areas of energy, infrastructure, and transformation.

Some of the projects include a railway line from Kazakhstan to Iran, a high-speed railway running from Southern China through South-East Asia, oil pipelines connecting Russia and China, a gas pipeline in Pakistan, highways in Hungary, and a railway connecting Budapest with Belgrade. Despite the estimated $4 trillion cost of the BRI, its objectives are not only economic. Enabled by positive economic relations, cultural exchanges between China and BRI participant states have increased with more opportunities for student-exchanges while foreign literature and cinema enters the Chinese market. Most significantly, the BRI is central to China’s political ambitions. Last October, it was enshrined into the Communist Party’s constitution, signalling the centrality of foreign policy to the ruling party and Xi Jinping’s desire to enhance China’s global image. As China’s global influence continues to grow, how will the West, grappling with its own challenges, react to the rising star of the East?

China sees Europe as pivotal to the revival of the old Silk Road, which launched China’s regional development over 2000 years ago. China’s strategic ambitions in Europe are underscored by its economic initiatives in Central and Eastern Europe (CEE). According to the state-owned news agency, Xinuanet, Chinese investment in the CEE has surpassed $9 billion with $1.4 billion of investment going in the opposite direction. For some of Europe’s poorest countries, Chinese investment could be critical in building and upgrading energy plants, railways, motorways, and airports. Some of the big deals in the CEE involving Chinese investment include a €3 billion expressway connecting Montenegro and Albania; a €1.4 billion linking the Bosnian municipalities of Banja Luka and Mlinište; and a €1 billion project in the Czech Republic to create a Y-shaped canal connecting the waterways of the Danube, the Oder, and the Elbe. Moreover, in November Serbia began construction of the China-funded railway from Belgrade to Budapest worth around €3.2 billion.

The Balkans and Baltic regions are especially critical to China’s Belt and Road Initiative. Two routes outline China’s historic project: The Silk Road Economic Belt, which enters Europe through the Baltic corridor, and the 21st Century Maritime Silk Road, which passes through the Southern Balkans. In 2016, the Chinese state-owned shipping company COSCO bought a majority stake in Greece’s largest port, Piraeus. Through investment worth hundreds of millions of euros, COSCO aims to strengthen the port’s capacity and trade relations with the EU. In the Baltics, states are competing with one another for Chinese investment and exportsto China have more than doubled in recent years. Chinese tourism to the Baltic region has reached record levels, rising by 57.8% in Latvia in 2016. China sees the Baltics and Balkans as the gateway to the wider EU region and are critical to China’s new Silk Road.

Political consequences

China’s influence in the CEE transcends economic interests. On the political front, diplomatic relations have strengthened between China and several European countries. In November, China promised $3 billion in investment funds to the CEE at the fifth annual summit of the 16+1 framework in Budapest as Chinese leaders were joined by the heads of the sixteen countries. Hungary, in particular, has been very welcoming to Chinese interests. Its  right-wing Eurosceptic prime minister, Victor Orban, claimed that a new world order was forming and that ”the world economy’s centre of gravity is shifting from west to east”.

In the Czech Republic, President Milos Zeman has stressed the importance of relations with China over other actors such as the EU and NATO. In 2014, Zeman travelled to Beijing to meet Chinese President Xi Jinping and in 2016, the same meeting took place in Prague, with Jinping stating that both countries should see stronger relations ”from a strategic viewpoint and long-term perspective”.

Serbia represents another country to benefit from Chinese investment and strong political ties. Serbia, one of the Balkan countries applying for accession to the EU, has welcomed Chinese investment to improve its railways, roads, and energy plants. On his visit in June 2016, Xi Jinping said that Serbia was the point where civilisations of the west and east meet, suggesting the importance of the Balkan country to China’s BRI. In addition, China is one of the few countries to support the Serbian position of not recognising Kosovo.

Although China insists that the sub-regional 16+1 framework is central to the China-EU ”strategic partnership”, the EU is concerned that China is deploying ”divide and rule” tactics to damage European cohesion. The EU has called on all its members to respect the one-Europe policy and speak with one voice to the Chinese government. German Chancellor Angela Merkel and her Foreign Minister Sigmur Gabriel conveyed concern over Chinese influence in the EU’s periphery. Merkel stated that the 16+1 group should not contain political strings, while Gabriel warned that ”China will succeed in dividing Europe” if Europe fails to develop a single strategy towards China. China has rejected the notion of a one-Europe policy on political and economic grounds, given that ”the EU is a regional organization composed of sovereign states, not a sovereign country itself”.

There is evidence to suggest that China’s perceived strategy in Europe has caused division between Brussels and some of Europe’s sovereign nations. According to Macedonian President Gjorge Ivanov, the Balkans has no alternative but to welcome Chinese investment given the EU’s neglect of the region. Moreover, in 2016, Greece and Hungary compromisedthe EU’s legal stance on China’s territorial claims in the South China Sea, while an EUstatement criticising China’s human rights record was blocked by Greece last year.

As parts of Europe continue to suffer the consequences of the financial crisis, Chinese investment is a welcomed opportunity to create jobs, upgrade infrastructure, and enhance economic competitiveness. However, the political impact of China’s economic interests in Europe is creating the most tension, especially in Brussels. For the EU, strong relations between China and the 16+1’s eleven EU members threatens the Union’s one-Europe policyvis a vis Beijing. In addition, five non-EU countries are part of the Western Balkan enlargement strategy, which aims to integrate the region into the EU by 2025. Seeing that the EU views the Balkan’s relationship with China as gaining leverage on Brussels, growing Chinese influence in the region could undermine the future of EU enlargement.

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This article was first published on Global Risk Insights.