/ China and the EU within the framework of «16+1»: Obstacles and Prospects
China’s interest in Central and Eastern European region has been exemplified by the “16+1” cooperation initiative. The initiative provides a framework for cooperation between the People’s Republic of China and 16 Central and Eastern European countries (CEEC).The institutionalization of cooperation is related to the implementation of the Belt and Road Initiative. In 2012, in Warsaw, at the inaugural summit of the “16+1”, Premier Wen Jiabao addressed the Poles with the term ‘great nation (weida de renmin -伟大的人民) of industrious and wise people’ and called for a friendly cooperation between China and CEEC. [i] Three years later, President Xi Jinping indicated the position of CEEC in China’s foreign policy and described the nature of Sino-CEE cooperation as new path of development relations between China and traditional friends, establishing a new platform for South-South with characteristics appropriate for North-South cooperation. [ii] In fact, China-Europe relation were hence divided into two realms: North-South division of Western countries and the post-communist CEEC, categorized by China as developing. The phrase ‘traditional friends’ may suggest that PRC hints at the communist past of the CEEC and regards the region as the political and geographical periphery of Western Europe. Despite positive and hopeful statements from the Chinese leadership, the EU’s high representatives have expressed concerns about ‘confident and outward-looking China’.[iii]
EU Position on the “16+1”
The undertone of overall debates around the “16+1” is generally critical. Obstacles and fears are reflected in three main points:
1. Cooperation level is inconsistent. As for now, the main beneficiaries of Chinese investment are Poland, the Czech Republic and Hungary, while other participant countries, have been left waiting. There is fairly valid reason to believe that a crisis in the EU can potentially provoke competition among the “16” for China’s attention.
2. The division between the EU member state and others may create disorder within the EU institutions. China tends to strengthen bilateral relations with only some states of the platform, thus, the European Parliament (EP) is concerned regarding the purpose of the “16+1” format. There is possibility that Beijing may use the strategy to divide and rule the EU. Also, the EU is worried about the possible negative impact of cooperation between China and CEEC on China’s overall relations with the EU.
3. The EP is still suspicious about investment deals and conformity to EU regulations and policies. On the other side, hesitance on the part of the EU creates an obscure picture of events – for instance, in 2016 the EU couldn’t issue a statement directly blaming Beijing for disregarding international law over the South China dispute.[iv] Reliance on Chinese investment made it difficult for such small governments as Hungary and Greece to criticize Beijing. In case of Slovenia and Croatia, their own maritime disputes make it sensitive to directly excoriate Beijing.
The region itself presents strategic significance within China’s wider foreign policy plans. China is the EU’s main trade partner while CEEC still represents a relatively small part of their bilateral relationship. At present, the main path for economic cooperation is import, export and FDI. China-CEE trade is dominated by imports from China. The main type of Chinese FDI in CEEC is ‘market-seeking investment’. Thus, by having access to CEE markets Chinese companies will have ‘keys’ not only to EU market but also to markets of CIS, Mediterranean, and EFTA. A major part of investments were made even before the “16+1” platform was established. At that time, Chinese companies had no sufficient knowledge of regulatory procedures. Considering the CEE region share, according to Eurostat[v] there is a decrease in trade flows between CEE and China in 2016, with a value of 47073.63 million Euro, of which CEE exports was of 7552.74 million Euro and import was of 39520.89 million. As for now, the CEE region is a net-importer, generating a trade deficit in the context of overall trade relations between China and the EU.
While analyzing the guidelines, documents and agreements between China and CEEC, possible factors were found which make the region a favorable investment destination for China, and the cost of labor is to be considered first. In the CEE region, labor costs are lower than the EU average.[vi] According to Eurostat, unit labor costs are cheaper in Bulgaria and Romania than in Hungary, the Czech Republic and Poland, however, these differences don’t influence Chinese investors as there is more investment in Hungary, Poland and the Czech Republic than in other CEE partners. This tendency could also be explained in terms of the size of population, as Eurostat’s Demography Report for 2016 indicates Poland and Romania as the biggest markets in terms of the size of population.[vii]
China’s focus on the CEE region is mainly related to its geographic location and logistic potential which may be converted to trade benefits and expansion into Eastern and Western European countries. Since the 1978’s opening up reform initiated by Deng Xiaoping, China’s eastern coastal region was given a priority in attracting foreign investments. Xi Jinping introduced the Belt and Road Initiative to boost China’s less developed western and central Chinese provinces, cities and autonomous regions. Therefore, infrastructure-related economic orientation of the Belt and Road might be considered as one of China’s strategies – outward extension of ‘Xibu da kaifa’ (西部大开发 – open-up the West/ Great western development).[viii] An important factor of this strategy is the geographical proximity of China’s west and countries situated along the New Silk Road – geographically suitable regions with a potential for trade.
In the context of the “16+1” relations, Sichuan Province is an example for outward development of China’s western provincial-level unit, having attracted the attention of the Czech Republic and Poland. In 2013, the centrally located Polish city of Lodz and Chengdu city opened their economic relations based on a freight railway line, as a part of the China-Europe railway line. In 2016 a memorandum was signed between Sichuan and Europe to build a logistic and transport base in the Central Bohemian Region (the Czech Republic) in order to import goods from Sichuan.[ix] Nevertheless, the European Think tank Network on China reports that the experiences of both the Lodz-Chengdu and Warsaw-Suzhou cargo freights reflect only Chinese interests, as ‘the connection’ mostly imports from China, what only secures its own exports.[x] In 2016, China’s Ocean Shipping Company (COSCO), the one holding 67% of shares in Greek port of Piraeus, additionally expressed the intent to buy the Greek rail company, TRAINOSE.[xi] If this plan will turn out to be successful, China would acquire access to the Suez Canal, that allows connecting with the Balkans and the whole CEE region through railway.
In this case, China-Latvia relations deserve special attention. Latvia, as a transit country, both for land and maritime transport, is a logistic point for Baltic-Adriatic-Black Sea project, the goal of which is to connect the ports found in the North, South and Southwest Europe by rail.[xii] The Latvian interest prior to the Riga Summit was to establish a direct aviation route to China, however, there has been no concrete development or any practical cooperation in this regard. Strategically, a significant statement during the Forum in Riga was addressing Russia being the Baltics’ neighbor. The Chinese authorities are concerned whether the political instability in the region will result in alienating and antagonizing Russia – the main link of cross-continental transport networks.[xiii]
At the same time, Greece and the Czech Republic are gradually becoming the main strongholds in the strategy of the Chinese ‘abduction of Europe’. Loud statements by leaders are backed up by demonstrative gestures, such as the visit by the Czech president Miloš Zeman to a military parade in Beijing in 2015 celebrating the 70th anniversary of China’s victory over Japan in WWII. While Zeman decided to meet with Xi Jinping, heads of other EU countries boycotted the military parade that is seen as a provocation towards Japan.
By investing in countries rich in natural resources, China also plans to expand its energy security and ensure the present and future demand for commodities. China is investing in the hydropower sector in Albania, Montenegro and Bosnia and Herzegovina, as well as the wind energy sector in Macedonia, Serbia and Croatia. In 2014, China signed an agreement to build a large coal-fired power plant in Romania with an investment of about $1billion USD, as well as the construction of 3, 4 facilities of the Romanian nuclear power plant.[xiv] One of the strategic goals of Chinese investment is to enhance the interaction with research groups in European countries. To some extent, China still depends on the technologies of Europe and the US, remaining a major importer of innovations, as about 90% of Chinese exports of high-tech products are based on foreign developments.
The root of all fears steams from the uncertainty about China and the project itself. If China is only interested in the relatively cheap labor and more free regulation of business activities, the CEEC should start questioning its future prospects in the cooperation. China’s strengthening in Southeast Europe and in Europe as a whole, can be seen as an instrument of pressure on the US – China is investing in major projects in the sectors of the European strategic industry, as well as in the real estate market, gradually increasing the presence on the territories of the US allies.
The absence of a coherent EU policy towards non-member countries of CEE and increased diplomatic visits, may also benefit China to gain political and economic ties with the region and use the ‘charm offensive’ policy – changing perceptions from an economic threat to a potential partner. More room for thought is provided by the relationship between China and the EU through the eleven member states that participate in the “16+1” format. Political relationship with CEEC would assist in developing a broader relationship with the EU or, in another case, increase Beijing’s influence in the EU’s decision-making process.
At the same time, the V4-China cooperation is becoming an interesting issue. Visegrad group or V4 is a loose organization of four Central European states, including the Czech Republic, Hungary, Poland and Slovakia. The purpose of their alliance is to further European integration among these states as well as advance military, economic and energy cooperation between the members. These countries have different cultures, but they share a perception of themselves as a bridge between the East and the West. China has only recently discovered the possibilities of the V4. Hungary is China’s most stable partner in the region, hosting the biggest amount of investment and having the largest Chinese community. Slovakia gained attention of China after the presidential visit of Hu Jintao in 2009. Poland, on the other hand, as the biggest economy in the region is a strategic partner with huge economic and political potential. The Czech Republic is still recovering from recent diplomatic clashes with China as the Dalai Lama was welcomed in 2009 and had a meeting with the Czech Premier Jan Fischer. In the light of the project, strained relationship has forced the Czech Republic to change its attitude towards China to a more friendly one. Nevertheless, the Czech foreign minister Lubomír Zaorálek stated he doesn’t see any of Chinese investment that directly benefits the Czech budget.[xv] Considering different standpoints of the four countries in relation to China, it is hard to develop a strong united front. Although they are in the same region, differences in market size, culture, traditions, language, currency, national interests should be taken into account. In addition, the operational mechanism of V4 has its challenges – the four members are building a comprehensive meeting mechanism on the basis of equal political consultation, which means that they lack efficient decision-making and governance.[xvi] The Ukrainian crises actually showed the divergence of interests, as Poland and the Czech Republic insisted on the severe sanctions against Russia, while Hungary opposed this.[xvii]
Despite high indicators of imports from China into V4, the level of Chinese presence should not be exaggerated. Economically, China is in a number of aspects behind Japan, South Korea and Taiwan – its neighbor countries of the East Asian region. Much of the Chinese influence comes from the expectations of a massive increase in economic interaction. However, so far, such an increase of economic activities or new investments has not been observed.
Belt and Road – extended view of the «16+1»
The Silk Road Economic Belt project was named as the most significant and far-reaching, not only because it would run straight through Central Asia (by land) – the region named ‘the Russian backyard’, but because of a Chinese government-published document titled Vision and Actions on Jointly Building the Silk Road Economic Belt and 21st– Century Maritime Silk Road [xviii] – considered to be a grand strategy coming directly from the Xi Jinping administration. Among the most ambitious statements concerning economic policy coordination, was that the countries of the project jointly cooperate to provide policy support and work together to elaborate plans and measures for regional cooperation. Analyzing the document, a priority of the Vision and Action is identified: to improve the ‘division of labor and distribution of industrial chains’. Nevertheless, the Initiative is aimed at a positive result, positions and preferences that reflect the national interests of countries in the region may differ or contradict each other.
In March 2017, the Government Work Report to the National People’s Congress stressed the importance of the ‘Belt and Road’ as a priority of China’s external action.[xix] Premier Li Keqiang indicated that the project continues to be the focus of Chinese diplomacy in 2017 and that it would lead to the rejuvenation of the Eurasian continent. Along with this, the term ‘rejuvenation of the Chinese nation’ is used very commonly. Ye Zicheng – author of a treatise on Chinese grand strategy, perceives the concept of ‘rejuvenation’ as China’s ambition to become a world power. [xx] Therefore, if China doesn’t achieve this goal, the process of rejuvenation will be incomplete. The ‘Belt and Road’ initiative (BRI) suits the Xi Jinping’s ‘China Dream’ well, as it expresses China’s confidence and may give rise to a sense of ‘common destiny’ in the framework of regional economic community.
During the last BRI summit in May 2017, China insisted on it’s desire to share ‘growth, development and connectivity’ and ‘collaborate on concrete projects’[xxi] with the EU, however the European Commission expressed a different view. EC’s vice president Jyrki Katainen stated in his speech in Beijing that any scheme connecting European and Asia must follow principles, market rules and international standards. [xxii] Conversations behind China’s back came down to the decision of the EU lawmakers to vote against recognizing China’s market economy status under WTO law[xxiii] that would reduce possible penalties in anti-dumping cases. The problem is connected with China’s huge production capacity that has almost flooded world markets and threatens the industrial base the EC considers essential for jobs, growth and competitiveness.
Since the initiation of the project, China has made active moves to integrate the EU into its pattern. Beijing may ask Europe to take even greater interest in the BRI in exchange for investments. In his interview, China’s ambassador to the EU, Yang Yanyi, expressed China’s aspiration to build up synergies between the Belt and Road initiative and the European Fund.[xxiv] However, the Fund is relaying mainly on private investors and a big Chinese investment may raise questions about the governance.[xxv]
Considering geopolitical opportunity for the EU, incorporating BRI into a wider European Security Strategy may establish the EU as a contributor to a Eurasian security network. In its attempts to create a new Asian security mechanism, China constructs regional security platforms: the Conference on Interaction and Confidence-Building Measures in Asia (CICA), the Shanghai Cooperation Organization (SCO) and the ASEAN Regional Forum (ARF). In 2016, India and Pakistan have joined the SCO, what made the organization a capable stage for security and economic cooperation via multiple regions in Asia. Thus, being a member of the ARF, the EU might regard applying for observer status in the SCO.[xxvi] The next step for the EU would be the cooperation with China in Europe’s greater neighborhood, as inter alia, the European Neighborhood Policy (ENP), the EU Partnership Instrument (PI) and the EU Maritime Security Strategy (EUMSS) share an inherent compatibility with the Silk Road drive.
Despite all mistrust in relation to BRI, the EU and European governments recognized the initiative as a vision that will add a new dimension to EU-China relations. China’s strategy fits in with the EU connectivity policies. China intents to improve connectivity among 70 countries in Europe, Africa and Asia, while the EU has connectivity policies such as NP, the Central Asia Strategy and the Trans-European Transport Network policy. For the EU, Central Asia may serve as a bridge to China, Afghanistan and to the Middle East. Central Asian region has not only geostrategic importance to the EU but also is a source of significant energy imports. Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan benefit from favorable access to the EU’s market through Generalized System of Preferences (GSP). As for the 2017 year, the EU trade with Central Asia has grown and the EU is now the second-main trading partner of the region after China.[xxvii] Under the EU Central Asia Strategy initiated in 2007, the EU strives to impose its presence beside much more prominent actors like China and Russia, by strengthening bilateral trade relations under PCA and working on the accession of the entire region to the WTO.[xxviii] Russia pursues a holistic approach, including military might and Eurasian narrative; China promotes its Silk Road ideas and has no equal in trade and energy. Thus, what should the EU regional approach look like? Although it is known that EU interests in Central Asia are mainly promotion of human rights, civil society and the rule of law, at the same time, energy and security interests have a greater say. However, analyzing the EU strategy on Central Asia and Council Conclusions of 2015, the documents are largely silent on relations the EU sees to pursue with key external players: Russia, the US and China. Considering Central Asia as its backyard, the Kremlin pursues more direct interest in the region. As well as China, Russia questions the EU’s policy of democratization in the region, the EU human rights agenda and the U.S democracy promotion approach, which are perceived as a threat to the stability in the region.[xxix] The reason for this is strong support of regional elites by Beijing and Moscow. Therefore political chaos is a very unprofitable status.
The EU and Chinese interests in the region are quite divergent. While Brussels tries to transform the region through the values agenda, China pays all its attention to investment and development of hard infrastructure. Touching upon rooms for cooperation in the region, Beijing controls part of Central Asia’s hydrocarbons and welcoming other player would be reluctant; the EU has no access to Turkmen gas, the majority of which is imported by China. Thus, collaboration between China and the EU could possibly happen in management skills from the EU side and capital investment from the Chinese. At the same time, exist conflicting perceptions of MSs’ interests in the regions. Germany, Italy and France advocate a utilitarian view, while the UK and Nordic countries support the value agenda, what makes it hard to collaborate with China.
If we look from geopolitical point of view, BRI cannot be successful without Russia, as it poses influence in Central Asia. Thus, Beijing tries to develop a symbiotic relationship in which Russia realizes its political influence by providing security, and China exercises it by providing investment.[xxx] At the same time, in Eastern Europe, China decided to abstain from confronting Russia directly by not taking a side with Russia over the annexation of Crimea thus becoming an important economic partner for Ukraine. In 2016, as a part of China’s strategy to expand routes to Europe, it has supported a Ukrainian plan to send goods by train and ship across the Black Sea, via Georgia and Azerbaijan, across the Caspian Sea and through Kazakhstan to China. [xxxi] The route will significantly reduce transit time from Ukraine to China from 40 days by ship to 14 days, thus, making it possible to send Ukrainian perishable agricultural goods by the route. The main point would be, that a route is entirely outside Russia’s control. Considering China-Russia collaboration, the EU has not built a firm line with Moscow. Invasion in eastern Ukraine, and Crimean crisis undoubtedly challenge the norms of European security. However, both the EU and China found a common ground to work together along the Silk Road without a shadow of Russian influence. Nevertheless, EU-Russia problematic relations are definitely a hard case to deal taking into account China’s ambitions for BRI and work process through multilateral organizations. There are also geopolitical considerations that the EU should consider. Associated with the Belt, investment and trade relations between China and African countries, Central and Eastern Europe and the Middle East may potentially lead to increased political and economic lever of China in these countries that can be used as an instrument against the EU. Therefore, in addition to interaction with China, the EU should also more actively participate in the target countries on the Belt and to form more strategic and coherent vision. Beyond the economic realm, there have been limited internal reflection within the EU on the Belt and Road Initiative and has not been developed any coherent stance at the level of foreign policy.
Theoretically, the Belt and Road matches EU’s sub-regional strategies and country-specific programs that promote human security through socio-economic development. Nevertheless, the EU institutions are being suspicious of China’s attempts to outsmart EU rules and regulations by establishing the “16+1” format. At the same time, Brussels understands that member states strive to secure Chinese investment. Thus, the EU initiated a connectivity platform to search for win-win cooperation. The EU side expects a sufficient level of transparency from BRI, especially those projects that involve EU finance, and full compliance with EU, WTP and OECD guidelines. Brussels realizes BRI’s main objective, which is to develop China’s industries and exports in key sectors such as energy, transport and telecommunications. However, overall, there has been no common formulated EU approach on BRI, as some of the members show enthusiasm and others are reluctant, while the EU institutions have taken supportive but at the same time cautious approach.
The “16+1” remains a useful instrument for gaining knowledge about the region, obtaining investment opportunities, and leveraging political support on international issues. China has been recently promoting the “16+1” as ‘open’, thus giving a change for more countries to join the project. As a result, China will have opportunity to make allies to pursue its interests and enjoy greater international status. The 16 countries will certainly continue to use the format as a possibility for strengthening bilateral relations with China and securing their own interests.
Evaluating the “16+1” platform in a broader understanding of the future prospects for cooperation between the EU and China, plans regarding BRI should not be left aside. The ongoing Belt and Road project is not only an area for the EU to engage with China, but also a chance for the individual member states that play different roles in China’s broader global strategic initiative. We are witnessing the reconfiguration of existing international institutions and global course that draws from projects like BRI. China’s AIIB already serves as an alternative to the traditional Western-institution-led development. And as a perfect representative of Western institutions, the EU has met with some difficulty in engaging with the very Chinese-style ‘Belt and Road’. The EU’s core values, which emphasize civil laws and human security, are still very different from the Chinese government’s emphasis on regime stability and state-centric security. The EU’s insistence on regulations and procedures sometimes conflicts with the flexible pragmatism of Chinese capitalism. There are many challenges for Brussels to face and one of them are the issues of reciprocity and access to the Chinese market for European companies. Under such narrow limits European companies find it difficult to do business in China. Thus, the question arises: Will Chinese projects result in ‘one-sided-benefits’ ?
Concrete proposals are still veiled by general concepts of possible prospects for the EU. ‘Belt and Road‘ is a Chinese project and it will help China to expand its influence over Eurasia. A disturbing sign is the fact that it is not clear what level of control the ‘partners’ of China will have.
Touching upon rooms for cooperation in the region, Beijing controls part of Central Asia’s hydrocarbons and welcoming other player would be reluctant; the EU has no access to Turkmen gas, the majority of which is imported by China. Thus, collaboration between China and the EU could possibly happen in management skills from the EU side and capital investment from the Chinese. Associated with the Belt, investment and trade relations between China and African countries, Central and Eastern Europe and the Middle East may potentially lead to increased political and economic lever of China in these countries that can be used as an instrument against the EU. Therefore, in addition to interaction with China, the EU should also more actively participate in the target countries on the Belt and to form more strategic and coherent vision.
The root of all fears steams from the uncertainty about China and the project itself, that is neither bilateral nor fully European. There are many concerns regarding the “16+1”, the division between the EU member state and others may create disorder within the EU institutions. China tends to strengthen bilateral relations with only some states of the platform, thus, the questions arise regarding the purpose of the “16+1” format. There is possibility that Beijing may use the strategy to divide and rule the EU while cooperating with CEEC – this could possibly a negative impact on China’s overall relations with the EU. The region itself presents strategic significance within China’s wider foreign policy plans. China is the EU’s main trade partner while CEEC still represents a relatively small part of their bilateral relationship. As for now, the CEE region is a net-importer, generating a trade deficit in the context of overall trade relations between China and the EU. If China is only interested in the relatively cheap labor and more free regulation of business activities, the CEEC should start questioning its future prospects in the cooperation.
Nevertheless, it is too early to tell if China weaves threads to affect European norms and policies, from human rights to labor laws. In the light of the “16+1” Initiative, Brussels urges China to provide a more transparent approach and more coordinated plan that may result in an easily recognizable interlocutor, understood by all the parties concerned. Even so, the EU and China share similar aims: preserving jobs, maintaining social stability and promote economic growth. However, the ways to achieve these goals can be completely different.
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[ii] President Xi Jinping speech at the 4th China-CEEC leaders meeting. Renmin Ribao. 2015.
[iii] Speech by the High Representative/Vice President, Federica Mogherini at the Chinese Academy of Social Sciences in Beijing. 2016. European Commission.
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[xviii] Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road. Beijing. 2015. Ministry of Foreign Affairs of the People’s Republic of China.
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[xxi] H.E. Ambassador Yang Yanyi, Head of the Chinese mission to the EU. Closer China and EU cooperation vital for global prosperity. Brussels. 15 May 2017. Available at EU Observer.
[xxii] Speech by Jyrki Katainen, Vice President of the European Commission at the Leader’s Roundtable of the Belt and Road Forum for International Cooperation. Brussels. 15 May. 2017.
[xxiii] EU lawmakers vote against recognizing China’s market economy status. China Daily. 2016. http://www.chinadaily.com.cn/world/2016-05/13/content_25265018.htm last access 27.07.2017
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[xxvi] Montesano Francesco S. Togt Tony. Kozak Iaroslav. From Competition to Compatibility: Striking a Eurasian Balance in EU-Russia Relations. Clingendael Report. 2015. P. 73
[xxvii] Central Asia. European Commission Special Report. 2017. Available online at http://ec.europa.eu/trade/policy/countries-and-regions/regions/central-asia/ last access 14.07.17
[xxviii] The EU and Central Asia: Strategy for a New Partnership. Council of the European Union. Brussels 2007/10113.
[xxix] The EU in Central Asia: The Regional Context. Directorate-general for External Policies. Policy Department of EP. AFET. 2016. Page 10
[xxx] Ian Bond. The EU, the Eurasian Economic Union and One Belt, One Road: Can they work together? Centre for European Reform. March 2017.
[xxxi] Feature: Ukraine-China cargo train on Silk Road opens up prospects for trade promotion. Xinhua. February 2016. Available online at http://news.xinhuanet.com/english/2016-02/01/c_135062009.htm last access 14.07.17