In Hungary it is hailed as the “Eastward Opening”. Serbian authorities see it as the glue in a “reliable friendship”, while the Polish government describes it as a “tremendous opportunity”. Yet the 16+1, a grouping of 16 central and eastern European countries led by China, receives more caustic reviews in leading EU capitals, with diplomats fearing it could be exploited by Beijing to undermine union rules and take advantage of growing east-west tensions in the pact itself.
The catalyst for the group is China’s ability to finance and build the roads, railways, power stations and other infrastructure that some poorer central and eastern European countries need. But the scope of its operations has spilled over into overtly political and strategic areas, breeding mistrust among some of the western European powers that dominate the EU’s agenda.
“This sub-regional [16+1] approach is meeting a great deal of suspicion not only in Brussels but also in the capitals of many member states,” says a European diplomat who declined to be identified because of the sensitive nature of the topic.
Another senior European diplomat, who also asked to remain anonymous, says: “The [16+1 is] dealing with many things. Some of them are touching on EU competences, or they are going into new areas where there are already initiatives between the EU and China. And we only see the tip of the iceberg.”
Yet as the 16 countries — Hungary, Bulgaria, Romania, Poland, Bosnia and Herzegovina, Serbia, Croatia, Slovenia, Slovakia, Albania, Macedonia, Montenegro, Czech Republic, Lithuania, Latvia and Estonia — attend an annual summit in Budapest starting today, it is clear that Beijing’s star is rising in central and eastern European nations.
“The world economy’s centre of gravity is shifting from west to east; while there is still some denial of this in the western world, that denial does not seem to be reasonable,” Viktor Orban, the Hungarian prime minister, said in October. “We see the world economy’s centre of gravity shifting from the Atlantic region to the Pacific region. This is not my opinion — this is a fact.”
The lure for central and eastern European nations is clear. Since 2012, Chinese companies, backed by state banks, have announced an estimated $15bn in investments in infrastructure and related industries, according to data collected by the Center for Strategic and International Studies, a Washington think-tank, in co-operation with the Financial Times. “To China, the 16 countries are important in their own right but also as a bridge into the EU,” says Jonathan Hillman, director of the CSIS Reconnecting Asia Project.
While modest compared with the EU’s structural funds, which amount to about €80bn for Poland alone for the 2014-20 budget round, the promised investments have been welcomed by the beneficiaries.
Serbia, with which China has a “comprehensive strategic partnership” and an “all-weather friendship”, is due an estimated $1.9bn in infrastructure investments, according to the CSIS data. Hungary, with which China officially has a “high level of mutual trust”, has been promised an estimated $1.5bn. Milos Zeman, the Czech president, last year described his country — with whom some $3bn worth of deals has been announced — as “a gateway for the People’s Republic of China to the EU”.
For some in the EU there are two main concerns. The first is that China may intensify efforts to use the influence it is building in central and eastern Europe to frustrate aspects of the EU’s common China policy. The second is that some 16+1 countries may exploit strong ties with China to buttress negotiating positions against Brussels.
European diplomats say such dynamics could undermine Brussels’ effectiveness in often fractious relations with its second-largest trade partner. One concern is that China’s push for guaranteed contracts for its companies will undermine the EU’s single market rules on public procurement. The issue is particularly relevant as Brussels pushes to implement a vetting process for inward investments against resolute opposition from Beijing, which has pumped record amounts of money into Europe in recent years.
Big deals
Albania and Montenegro
2015: China Pacific Construction Group signs a €3bn deal to build an expressway between Montenegro and Albania but gives no detail on the companies involved.
Bosnia
2014: Sinohydro, the state-owned power company, and ExIm Bank of China sign a deal to build a €1.4bn highway from Banja Luka to Mlinište.
Czech Republic
2016. China and the Czech Republic invest as much as €1bn to create a Y-shaped canal connecting the Danube, the Oder and Elbe rivers.
Passions are already running high. In September, Sigmar Gabriel, the German vice-chancellor and foreign minister, called on Beijing to respect the concept of “one Europe” adding: “If we do not succeed for example in developing a single strategy towards China, then China will succeed in dividing Europe.”
Beijing’s foreign ministry declared itself “shocked” by the Gabriel statement. Cui Hongjian, a director in the foreign ministry’s think-tank, the China Institute of International Studies, wrote in the Global Times, a state-owned newspaper, that Mr Gabriel’s concept of “one Europe” was misplaced and his concerns over 16+1 unfounded. “Gabriel asked China to develop a ‘one Europe’ stance,” Mr Cui wrote. “One Europe is feasible geographically, [but] not in terms of politics and the economy.”
At its launch, Beijing described the co-operation between China and central and eastern European countries, to give the project its official name, as an initiative to boost relations. But while it stressed commercial opportunities, its diplomatic intent was evident. The organisation is run by a secretariat in Beijing headed by the foreign ministry. And although it appears multilateral in structure, like the EU, the group is bilateral in practice with directives from Beijing relayed to the 16 European members. All ranking officials are Chinese. European participation is through “national co-ordinators”.
For Beijing, the grouping embraces a mix of commercial and strategic aims. China wants to boost trade and investment ties with former socialist allies. It also sees the 16 countries as a gateway to western Europe and one that is critical to Beijing’s Belt and Road Initiative, which seeks to win markets and diplomatic allies in 64 countries between Asia and Europe — a priority for Xi Jinping, China’s powerful leader.
In addition to its avowed commercial motivations, Beijing is using its ties for political ends. At last year’s 16+1 summit in Riga, for instance, Li Keqiang, the Chinese premier, called on the 16 governments to “properly resolve hot issues and maintain world peace and regional stability”, according to Xinhua, the official Chinese news agency.
That was interpreted by some European diplomats as a call for the 16 countries to support China’s position on the disputed South China Sea and other geopolitical issues close to Beijing’s heart, such as countering the Dalai Lama, the exiled Tibetan spiritual leader, and opposing any move by Taiwan toward independence from mainland China.
The potential fruits of Beijing’s influence became clear last year when the EU debated how to respond to an international court ruling that China’s claims to maritime rights and resources in the South China Sea were incompatible with international law. According to European diplomats after three days of difficult talks among the EU’s 28 members, opposition — primarily from Hungary and Greece — succeeded in weakening the statement to the extent that it did not directly mention China.
Big deals
Hungary
2013. Hungary’s failure to hold an open tender for its section of a $2.9bn, 350km high-speed railway link with Serbia triggers a European Commission investigation into whether it breached EU law.
Serbia
2014: China Machinery Engineering Corporation agree a deal to build a 350MW unit at the Kostolac thermal power plant at a cost of $715m.
The latest flashpoint is an investment screening process proposed by Jean-Claude Juncker, president of the European Commission, in September on the grounds that the EU needed to “protect its collective security”. He insisted that acquisitions of key infrastructure projects or military technology companies should only happen “in transparency, with scrutiny and debate”.
The plan reflects a deep division among member states over how open the EU’s trade policy should be. Countries including Finland, the Netherlands and Portugal have expressed concerns about the EU intervening in an area seen as an exclusive national competence.
But, according to diplomats and policy experts, China’s lobbying has already proved effective in diluting the proposed review process, which Beijing views as a “little brother” to the Committee on Foreign Investment in the United States. The CFIUS has blocked several Chinese deals in recent years. The draft European proposal falls short of giving Brussels the power to force countries to block and revise the terms of corporate takeovers. Instead it provides a legal basis for requesting details on takeovers taking place and allows EU institutions to give guidance to member states, say diplomats.
Jan Gaspers, head of the European China Policy Unit at Merics, a think-tank in Berlin, says some 16+1 nations in the talks sided with China. “Over the summer, several of the 16+1 EU member states already had a hand in watering down what was originally supposed to be a much more ambitious EU investment screening scheme that would have given genuine screening competencies to Brussels,” he says.
Some argue that China’s record in central and eastern Europe has made the need for a review process all the more necessary. Hungary’s failure to open its section of a $2.9bn, 350km high-speed rail line from Belgrade to Budapest to competitive tender has triggered an investigation by the commission into whether the project violated EU laws.
Other projects in 16+1 countries are also mired in controversy. In Macedonia, the transport and communication ministry has blocked the completion of a China-financed 57km, €373m highway amid allegations of losses to the state budget of €155m. The project was financed mainly by a loan from the ExIm Bank of China and executed by Sinohydro, a state-owned Chinese construction company. Montenegro signed an €800m deal with ExIm Bank in 2014 to finance a road from Bar port to Serbia, even after the International Monetary Fund warned that the loan-based agreement threatened fiscal stability.
Another concern in some capitals is the potential of 16+1 initiatives to shape future EU votes. The union requires unanimity on most matters of common foreign and security policy, including sanctions — effectively giving every member veto power. If the group took on two more EU members, the block of 13 would be enough to defeat EU measures decided under qualified majority voting, which is used in about 80 per cent of legislation.
A diplomat from one of the 16+1 countries defends the group as an “economic tool” working with “full transparency”. “I know there are people who feel uneasy about this,” the diplomat says. “But we are saying among the 16+1, and also to the Chinese, that we are a member of the EU and we follow all the common EU positions on China.”
In Serbia, which is a candidate to join the EU, the lure of China on one side and the tug of the EU on the other is creating a division of loyalties. The threat of an EU screening process could repel the Chinese investment that Serbia requires to develop sufficiently for EU accession, Vladimir Krulj, special economic adviser to Belgrade, wrote in the FT.
Some sceptics acknowledge that the friction over the 16+1 reflects wider tensions in the EU, particularly between some eastern and western member states. Brussels has been in conflict with both Hungary and Poland over claimed breaches of EU rules and values.
“We should expect China to leverage the 16+1 to pursue its own interests within the EU,” says Mr Hillman. “That’s strategic diplomacy: building relations where you have more leverage and applying those new relationships where you have less leverage. If China is winning friends, why wouldn’t it also influence people?”
Additional reporting: Andrew Byrne in Budapest, James Shotter in Warsaw and Charles Clover in Beijing
Global powers: Beijing draws parallel lines in battle for influence
The theory of a “Thucydides trap” holds that when one rising power threatens to displace another, war is almost always the result. But one aspect of China’s rise thus far has been the extent to which it aims not so much to displace existing power structures but to move in parallel to them, rejecting the theory popularised by Harvard professor Graham Allison.
“Right now I would describe the modus vivendi that the world has found as being parallel play,” said Lawrence Summers, the former US Treasury secretary, earlier this month. “The west does its thing; China does its thing. Countries get a bunch of money from China and they do it China’s way. Countries get a bunch of money from us and they do it our way.”
The 16+1 grouping of 16 central and eastern European countries plus China is a case in point. It does not seek to displace the EU but to establish a structure that is in some senses — such as financing and nascent diplomatic cohesion — parallel to it. It is far from the only example.
The Beijing-led Asian Infrastructure Investment Bank, for instance, replicates some of the work of the Asian Development Bank and the World Bank. The Shanghai Cooperation Organisation — which unites China with Russia, four Central Asian republics, India and Pakistan — overlaps the Russian-led Eurasian Economic Union. The Belt and Road initiative, through which China intends to boost commerce with more than 64 countries between Asia and Europe, offers a partial alternative both to the EEU and to Asean, the group of 10 Southeast Asian nations.
“These are parallel institutions with Beijing at the centre,” says Jonathan Hillman, director of the Reconnecting Asia Project at the Center for Strategic and International Studies. “Under both the 16+1 and the Belt and Road, China is the common denominator. To shift from balancing against existing institutions to effectively competing with them, [Beijing] will need to deepen these parallel structures.”
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