German Concerns

Eastern Europe cozies up to China

Hungary Diplomacy
China and Hungary, a thorn in Germany's side? Source: picture alliance / AP Photo

Viktor Orban pulled out all the stops. The Hungarian prime minister even wore the same light blue tie as his Chinese counterpart, Prime Minister Li Keqiang. The fanfare was designed to signal their close relations (ties?) during a two-day summit in Budapest between China and 16 eastern and central European nations.

This week marked the sixth annual “16+1” summit, though some of the commitments got a bit more serious this year. Hungary and some of its neighbors, like Serbia, are getting promises of new infrastructure and are set to play a key role in China’s new “One Belt, One Road” initiative, a vast $900-billion infrastructure project stretching all the way from Asia to Europe.

Investment is hardly a bad thing, but the political ramifications are providing bigger headaches in other capitals. Berlin and Brussels fear that China’s economic prowess could loosen their own influence, driving a further wedge in an already-strained relationship between some western and eastern EU members. Even Washington, which has historically strong ties with eastern European nations, might look on with some concern.

The summit, hosted by Hungary on Monday and Tuesday, included 11 EU countries and 5 non-EU members. Austria, which has often sought to act as a conduit between Western and Eastern European states, has observer status, as does the European Commission, Greece, Switzerland and Belarus. Germany does not. The fact that most western European countries are not invited doesn’t mean China is intentionally trying to divide Europe into two chunks. But it is taking advantage of a weakness.

“China needs a strong EU as a partner. It’s not in China’s interest to destabilize the EU, but it is in China’s interest to use all the tools it has available,” said Janka Oertel, a Berlin-based Asia expert with the German Marshall Fund of the United States. “They are simply using the opportunities that are given. If they get a warm welcome by Viktor Orban, then that is good for them.”

“The cooperation with China gives them a chance to add an additional, willing partner.”

Kai-Olaf Lange, German Institute for International Security Affairs

Mr. Orban has some reason to cozy up to China. Unlike his EU allies to the west, where politicians have threatened more than once to cut subsidies over the Hungarian leader’s autocratic tendencies and a refusal to accept refugees, China is happier to offer billions in investment with fewer questions asked. In return, some EU diplomats in Budapest say Hungary has already begun aligning itself with Beijing on international issues. “We view that with concern,” said one such source. Similar worries have been expressed about Greece, which has lobbied for Chinese investment, and in June vetoed a joint EU statement condemning human rights violations in China in the UN Human Rights Council.

As part of this week’s summit, the China Development Bank promised $2 billion for infrastructure projects in Eastern Europe. Another €1 billion will be invested in joint projects. That includes a €2.1-billion railway line from Budapest to Belgrade. Hungary hopes the railway line will make it a hub for goods running from China to central Europe down to the Balkans. The country already imported €4.4 billion worth of goods from China in 2016. In a speech, Mr. Orban called it a “win-win” situation for both countries. And from his perspective, it doesn’t hurt that the project would allow Hungary to proclaim a measure of independence from subsidies from the European Union. Poland, helmed by another right-leaning government, has been another key beneficiary of Chinese investment, including a highway and two new power plants. There’s also plans for expanded rail connections in Slovakia.

Kai-Olaf Lange, a senior fellow with the German Institute for International Security Affairs, said some eastern and central European countries certainly have an interest in spreading their political wings farther afield to get more concessions out of the European Union. “For some countries, the US has been the classic partner to achieve that. For others, that has been Russia. The cooperation with China gives them a chance to add an additional, willing partner,” and one that perhaps doesn’t have the Cold War baggage of the US or Russia, Mr. Lange told Handelsblatt Global.

World News – September 9, 2017
A gift from China, with strings? Source: Picture alliance/ZUMA Press

From China’s perspective, the fact that Hungary and some of its European allies are looking to needle the European Union isn’t really their problem. Added to that is the European Union’s own rather ambiguous relationship with China. At the EU level, policymakers are still trying to decide whether they view the new Silk Road as an opportunity or a threat. That makes it easier for China to deal with countries bilaterally rather than dealing with Brussels, said Liu Zuojui, who heads the central and eastern European department of the Chinese Academy of Social Sciences.

That’s a problem identified by German Foreign Minister Sigmar Gabriel: “The problem isn’t that China has a strategy. It’s that we don’t have one,” he said in September. “If we can’t succeed in developing our own strategy with China, then China will succeed in dividing Europe.” It’s a concern shared by businesses. Joachim Lang, head of the German industry association BDI, told Handelsblatt the Silk Road project was allowing China to “reinforce its claim fo a global leadership role.”

But Germany itself is equally divided: On the one hand it’s playing a role in the new Silk Road, which it expects to extend to German cities and ports, and is more broadly welcoming investment from Chinese companies. On the other hand, Berlin frets about China’s growing global influence, protectionist tendencies, and poor human rights record. That ambivalence makes it hard to lecture Eastern Europe. “Every country that does business with China has to make a call on how much they want to have their economies intertwined,” said Ms. Oertel of the German Marshall Fund. “The Germans cannot say to Serbia, ‘you shouldn’t take the money.’”

But China’s influence in the region also shouldn’t be exaggerated. For one thing, many of the other 16 countries have become increasingly skeptical of the project, Ms. Oertel said. While some countries like Hungary and Serbia are being specifically targeted for investment, others have seen fewer benefits. China may have helped launch the summit to give its actions a multilateral flavor, but its actual investments have been more limited to a few countries.

That’s where the EU still has leverage. EU subsidies still dwarf what is being offered by China. Hungary, for example, will get about €38 billion in funds, including structural, agriculture and even refugee subsidies, between 2014 and 2020, according to Hungary’s EU representation. True, those funds might come with more strings attached in future, but even Mr. Orban will struggle to turn his back on those completely.

27 p9 China’s new silk road-01

Hans-Peter Siebenhaar is Handelsblatt’s correspondent for eastern and central Europe, and is based in Vienna. Chistopher Cermak is an editor for Handelsblatt Global based in Berlin. Donata Riedel, Mathias Brüggmann, Wolfgang Drechsler and Sha Hua contributed to this story. To contact the authors: cermak@handelsblatt.com and siebenhaar@handelsblatt.com

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