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International relations

Taiwan visit shows Czech Republic can resist China retaliation

China's economic clout in European country dampened by failed promises

TAIPEI -- The Czech Senate speaker's visit to Taiwan last week predictably angered China, but Milos Vystrcil's trip carried little economic risk for the central European nation even if Beijing retaliates as expected.

Vystrcil declared in a speech in Taipei that "I am Taiwanese." This led Chinese Foreign Minister Wang Yi to accuse him of "crossing a red line," saying he should "pay a high price for his shortsighted behavior."

"This may prove counterproductive for China," said Filip Sebok, an analyst at the Prague-based Association for International Affairs, a foreign policy think tank.

"It may definitely embolden similarly minded politicians to also consider moves on Taiwan," added Sebok, a member of MapInfluenCE, a research project focused on Chinese influence in central Europe. "Other countries might also try to increase the profile of their relationships with Taiwan, without abandoning the 'One China policy'."

In another development, German Foreign Minister Heiko Maas told Wang at a joint news conference in Berlin that "threats don't fit in here." Maas later gained the support of counterparts in countries such as France and Slovakia. The strong words from both sides might indicate that Europe's attitude toward Beijing is hardening.

Czech entrepreneurs in Vystrcil's delegation returned home with a number of deals sealed with Taiwanese business partners, and Prague and Taipei are considering a direct flight agreement.

Since Vystrcil's visit, Petrof, a Czech piano maker, had a 5.3 million Czech crown sale to China canceled. But economists say such Chinese retaliation will have minimal impact on the Czech economy.

Around 80% of Czech exports go to the European Union. China accounts for 1.3% of Czech merchandise exports and 2.3% of service exports, according to Vilem Semerak, senior lecturer at the Institute of Economic Studies of Charles University in Prague, citing data from the Czech central bank.

Semerak said the Czech gross domestic product would decrease by about 1% if all of the country's exports to China were halted.

China is more important to the Czech Republic in terms of imports. In 2019, the European nation received more than 15% of its merchandise imports from China, including equipment and parts for its computer manufacturing and electronics industry.

Europe is also the main source of the foreign direct investment that the Czech Republic receives, accounting for over 94.2% as of the end of 2018. Total FDI from Asia was 4.3%. From China, it was 0.4%.

Taiwan actually has more economic clout in the Czech Republic than China in relative terms, Semerak said, adding that the composition of investment also matters.

Chinese investments from the likes of CEFC China Energy and CITIC are financial acquisitions of existing assets, such as a football club and real estate, or attempts to gain control of banks to enable a deeper expansion into the EU.

By contrast, several Taiwanese companies in the Czech Republic -- Foxconn repeatedly tops the enterprise ranking -- have helped with technology transfer expertise and in creating local job opportunities.

Taiwanese companies first ventured into the Czech Republic in the mid-1990s, and around 35 Taiwanese tech companies, including Foxconn, Asus, Acer and AU Optronics, now operate in the country.

Foxconn's Czech operations are the country's second-largest exporter, after Skoda Auto. They also make up one of the republic's largest companies in terms of revenue, according to Richard Turcsanyi, program director at the Central European Institute of Asian Studies at Palacky University Olomouc in the Czech Republic.

Meanwhile, China's economic clout in the Czech Republic has been dampened by failed investment promises and other issues.

After Chinese President Xi Jinping's visit in 2016, President Zeman said planned investment from China would reach 95 billion Czech crowns ($4.2 billion) that year and 232 billion crowns within five years. But in 2017 and 2018, net Chinese investment was negative, Czech National Bank data showed.

Meanwhile, as China plans to make the Czech Republic a gateway for Xi's flagship Belt and Road infrastructure initiative, doubt is being cast on what gains the country might reap.

''Czech's macroeconomic situation has been rather stable ... and it has been quite successful in attracting foreign investors," Semerak, the Prague lecturer, said. "It isn't true that the Czech economy desperately needed Chinese investments and would be willing to sacrifice anything in order to get them.

"To my knowledge, there aren't any actual infrastructure projects under the [Belt and Road] initiative that have been directly implemented in the Czech Republic already," Semerak said.

Chinese reaction will follow a familiar pattern, with the first phase of verbal condemnation having already taken place, he said, adding that China might now marginalize the Czech Republic in the 17+1 format, ignore Czech diplomats in Beijing or oppose Czech nominations for high-ranking posts in international organizations, according to Turcsanyi.

17+1 is an initiative by the Chinese Ministry of Foreign Affairs to promote business and investment relations between China and 17 central and eastern European countries.

Meanwhile, Vystrcil's official visit to Taiwan might help him score political points in the Czech Republic's opposition coalition.

"There has been lots of discussion about a possible presidential run for Vystrcil in 2023," Sebok, the MapInfluenCE researcher, said, "and it seems quite likely in the current circumstances. Vystrcil is definitely the most prominent politician of the opposition ODS party now, although he was relatively unknown just a few months ago.

"There is still quite a long time before the 2023 election campaign, and lots of changes can happen. If he decides to run, the issue of principled foreign policy, following in steps of former President Vaclav Havel, would surely be his main message."

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