The cooperation between China and its sixteen Central and Eastern European partners has attracted a lot of attention and created suspicions ever since it was born in 2011. The so-called 16 + 1 initiative has raised many questions around the European Union, about the true nature of the project, the intentions of the Chinese side and its potential impact on the integrity of the Union. Two years later, in 2013 President Xi Jinping introduced a new, comprehensive initiative, the ‘One Belt, One Road’ project, or the Belt and Road Initiative (BRI) as we know it nowadays. This latter idea is even more complex than 16 + 1 itself. Dozens of conferences and hundreds of articles attempt to find out and to articulate the meaning and substance of the new Silk Road project on a global scale.

When Beijing introduced the outlines of the cooperation between the Middle Kingdom and its sixteen Central and Eastern European partners in 2011–2012, most observers believed that China had a well-prepared and detailed plan in the background. The exclusion of Belarus, Ukraine and Moldova from the 16 + 1 project signals that Beijing regards these countries achievements take time. Indeed, governments on both sides have done a lot to make business circles aware of mutual opportunities, the legal and political framework has been well established, the gates are open. Now it is up to entrepreneurs, tourists, students and scholars to walk through the gate, and people-to-people and business-to-business relations tend to develop slowly and will bear fruits over several years. According to the Chinese way of thinking, friendship is to be established first, to facilitate good business relations later.

As it was mentioned before, the China–CEE cooperation has attracted a substantial amount of criticism and high levels of suspicions among Western members of the European Union. It is indeed true that the crisis of the EU and the subsequent financial vacuum in the CEE region offered potential business opportunities to China. Even though these opportunities are modest compared to the usual Chinese appetite, given its own domestic economic challenges, Beijing has to grab every possible chance to find business projects for the overcapacity of its companies and for its abundant financial assets.

The cooperation has to face some problems and major structural contradictions when it comes to the future and progress of the China–CEE cooperation. These structural issues may explain the relatively low number of successful businesses and projects. First of all, the difference in the size of the parties involved is obvious and cannot be changed. When China created the 16 + 1 cooperation, it invited all countries between the traditional ‘West’ and ‘East’ from the Baltic to the Balkans (Except Belarus, Ukraine, Kosovo and Moldova). China has established a framework to reduce transaction costs of cooperation with the countries of the so-called “New Europe” and with those to join the club in the upcoming decades. Since the CEE region represents altogether more than a hundred million people and a trillion-dollar economy it did make sense from the Chinese point of view to invite these countries to a table, and to forge major business plans across the region. Individual countries of the region cannot offer projects big enough to Chinese multinational companies, so Beijing expected the countries involved to cooperate and to put joint projects on the table. This expectation has never been met, however, as CEE countries rather compete than cooperate with each other.

Second, another fundamental issue is the divergent investment interests of the parties: while China is mostly looking for infrastructure investment opportunities (preferably through governmental public procurements), most CEE countries are more eager to attract greenfield investments to create jobs and industrial production. However, China has barely set up any new production facilities in the region; companies of the East Asian giant typically enter the CEE markets through acquisitions, or pursued infrastructure construction opportunities. Furthermore, Central and Eastern European member states of the EU are entitled to apply for non-refundable financial support for infrastructure development. Consequently, Chinese loans are not attractive, while any attempts to pay off Chinese construction companies from European funds might likely provoke political turbulences across the Union, as Croatia experienced it when a Chinese company won a tender to build Pelješac Bridge financed by the EU up to 85% of its cost. That is, both Beijing and the CEE countries seek for a different achievement, which is a fundamental problem, and cannot be sorted out in the short or medium run.

Third, when it comes to merchandise trade issues, the role played by CEE countries and their respective governments is very modest. In the case of the Czech Republic, Hungary and Slovakia, approximately 90% of exports to China is produced by foreign owned multinational companies, that is, politicians in Budapest, Bratislava or Prague cannot really influence such trade relations, no matter how good their political connections are to Beijing. The more developed CEE countries are integral parts of global value chains; thus, the majority of their foreign trade is conducted my multinational and not domestically owned companies. Consequently, national governments have a very limited impact on the development of trade relations. One sector where they seem to be successful is the export of food and agricultural products to China. Hungary increased its agricultural export sevenfold between 2012 and 2017, which is a great achievement, though the sector represents only 3% in the total export of the country to China. In other fields of the economy, however, Central and Eastern European SMEs are usually too weak to start and facilitate their own business relations in China, or the product they have is not interesting to the Chinese side.

[…]

The text above is an excerpt from the book China and Central Europe: Success or failure? and it was written by Tamas Matura, the editor of the book.

Disclaimer: The conclusions and recommendations included in the report do not necessarily represent the position of RISAP, which was not institutionally involved in this project.