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Economy

How Eastern Europe views China's Belt and Road Initiative

CEE eager for investment, but must reconcile new plans with current strategic deals

Central and Eastern European countries, or CEE, are currently facing a tough choice within the European Union: deeper integration led by Germany and France or political marginalization. With Western Europe and the U.S. growing apart and favoring very different global strategies, it is no wonder that the "child" of transatlantic love, the Eastern European, feels left behind.

The questions are whether a third way is possible for CEE, and how China's Belt and Road Initiative can help it escape the risks of periphery or marginalization.

The election of Emmanuel Macron as France's president has renewed debate about the future of the EU and offered hope to those for whom the European project was considered doomed. Betting on Europe's future has inspired many, putting a stop to the populist drift.

But Macron's focus is on the eurozone; on better economic, political and fiscal integration among the countries that have already adopted the common currency. Obviously, this is not good news for states that are not part of the Euro Club -- most of CEE -- and whose plan is to delay accession until their economies are strong enough to cope with the loss of monetary sovereignty.

Balancing act

On some key topics, CEE is caught between the U.S. and Western Europe. For example, on defense matters, it is not clear how compatible the recently presented EU plans are with the natural tendency of CEE states to favor pro-U.S. and pro-NATO positions. Despite periodic declarations of reassurance, Trump's personal style of politics does not encourage even staunch U.S. allies, who know a big chunk of their national prosperity depends on EU funds as well as attracting investors.

So it is hard to say CEE countries can easily choose one specific vector or bigger brother.

The American military investment in the region, which includes bases and even the anti-missile shield, is the best security guarantee these countries can get in the face of a resurgent and imperialist Russia. In parallel, different ideological and economic priorities -- as well as actual illiberal steps -- have created major tensions between Brussels and the governments of Hungary and Poland.

Still lagging behind after more than a decade of EU accession, CEE countries seem to contemplate new approaches and unorthodox economic solutions. In the first quarter of 2017, CEE economies have experienced strong growth -- six had growth rates above 3%, with Romania topping the list at 5.6%. However, these positives cannot hide a painful reality: More than 25 years after the fall of Communism, income convergence between Eastern and Western Europe appears to be a distant objective.

Poland, a positive economic example for the region and a country that has continued to grow during the crisis, managed to increase its gross domestic product per capita as a percentage of the old EU-15 average by less than 10 percentage points between 2000 and 2013, from 19.05% to 28.5%. Despite EU financing -- the region's total amount of structural and investment funds for the 2014-2020 period stands at 351.9 billion euros ($415.7 billion) and is equated to a Marshall Plan for the CEE -- more funding is needed for development to really take off.

Welcoming China

Beijing has the resources, the interest and the willingness to contribute to CEE's economic efforts. So it is no surprise that former Communist countries are after Chinese money. China's announcement last year of 10 billion euros for CEE's market of 110 million consumers is a step in the right direction.

All elements in play create a picture of a region trying to find its place on the global stage, to catch up economically through diversification, and to avoid strategic and political irrelevance. The danger is best described by an old Kenyan saying: When elephants fight, it is the grass that suffers. Therefore, it is not hard to understand why the Belt and Road Initiative -- China's aspirational grand strategy according to R. Kaplan -- has strategic and economic relevance to CEE.

A number of summit meetings between CEE and China -- known as the 16-plus-one -- have taken place over the past few years. The meetings have in a way "normalized" relations, reducing CEE fears that China seeks to create a divide between Western and Eastern Europe. A split between "new" and "old" Europe has been tried in the past by other allies, too.

From a strategic standpoint, the Chinese initiative allows CEE to escape from the periphery in terms of funding and to play a key role in connecting China to Europe. Beijing's idea to sustain its high economic growth by building and penetrating new markets can trigger, one can hope, a reassessment of how the region is perceived in Brussels, Paris and Berlin.

Willing partners

The desire to diversify and regain lost strategic ground was obvious in the approach of CEE leaders to the Belt and Road Forum for International Cooperation held in Beijing in May. Poland, the Czech Republic and Hungary -- the core of the Visegrad Group -- were represented by their heads of state or government, as was Serbia. Romania, however, a staunch U.S. ally, sent only a deputy prime minister.

Western Europe did not show the same level of interest. Only the prime ministers of countries deeply affected by the recent economic crisis -- the southern EU countries of Greece, Italy and Spain -- showed up.

All the CEE leaders talked about the importance of more Chinese investment in the region, expressing solidarity in their eagerness to see projects quickly implemented. Hungary even took advantage of the moment to establish a comprehensive strategic partnership with China, explicitly mentioning modernization of the Budapest-Belgrade-Skopje-Athens railroad with Chinese help.

This adds to the long list of projects that have been discussed in the context of the Belt and Road Initiative: investment in a factory to manufacture light-emitting diode illumination and a coal mine in Poland; investment in car components in Hungary; investment in the Belgrade airport in Serbia; construction of the Bucharest-Constanta high-speed rail or two new nuclear reactors in Romania.

Realism, pragmatism and attention to the EU public procurement rules are necessary for these ideas to materialize, but the potential is there. As regards proceeding with the Belt and Road Initiative, as always, the devil is in the details. A broad strategy and tactics have to be aligned. CEE political leaders have a great task ahead. They have to win hearts and minds, manage perceptions and, most importantly, reconcile the new plans with existent strategic arrangements.

This year's 16-plus-one meeting will tell us whether things are heading in the right direction, or if adjustments are necessary. China should make more use of local strategic expertise and building a presence in terms of communications and branding in CEE in order to succeed.

Radu Magdin is an international analyst, consultant and trainer. He is CEO of consultancy Smartlink Communications.

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