Investing in the Future
China is focused foremost on trade and investment initiatives on the Continent; the two, after all, already have strong trade ties. In Southern Europe, China has set its sights on privatization opportunities, particularly in energy and port infrastructure. Its interests in Western Europe, by contrast, lie primarily in the acquisition of strategic assets, along with research and development. Deals with German companies such as robotics firm KUKA AG
, semiconductor equipment maker Aixtron and pharmaceuticals firm Stada, as well as Swiss agribusiness giant Syngenta, provide Beijing a chance to gain technological know-how. Other agreements are designed to help established Chinese brands and distribution channels expand their access to the European market.
Regardless, China’s Belt and Road ventures in developed EU countries largely stop at financing
, which the participating states find more appealing than the sorts of massive infrastructure projects Beijing has undertaken elsewhere
. These financing agreements, however limited in scope, will enable China to learn the ropes of working with Western institutions and build on its experiences with countries in the region down the line, including with the United Kingdom post-Brexit
. The British government recently described Beijing as a “natural partner” in trade and investment, and China could use its good standing with London to lobby for eased regulations on Chinese investment and increased access to global financial markets.
That doesn’t mean that China has abandoned its vision for infrastructure connectivity with Europe, though. China relies on maritime shipping to transport the majority of its exports. With that in mind, Beijing has pursued port projects in countries along the Mediterranean to afford it alternatives to Northern European ports such as Rotterdam and Antwerp. Chinese companies have invested in or begun building ports in Italy and Spain. They have also expressed interest in Portugal’s Port of Sines and floated a scheme to link the ports of the Adriatic Sea.
But the Greek port of Piraeus is far and away the most important part of Beijing’s maritime connectivity strategy in Europe. China’s COSCO has operated the port since 2010, when it signed a $4.3 billion, 35-year management lease. As the first major container port in the Mediterranean Sea, Piraeus offers Chinese companies delivery times that are 10 days shorter than routes to Northern European ports. Beijing made subsequent investments to boost the port’s container handling capacity and to build logistic centers there. China’s focus on Piraeus has stoked concern in Germany and the Netherlands that Mediterranean ports could eventually seriously challenge those in Hamburg and Rotterdam. Unlike the Northern European ports, however, full use of Piraeus, where Beijing hopes to expand its exports to Southeast and Central Europe, hinges in large part on China’s development of transportation links across the Balkans.
That’s where rail comes in. To connect Piraeus with Central Europe and beyond, China has proposed a project, now under probe in the European Union, to modernize a 350-kilometer (about 217-mile) stretch of railway between Belgrade and Budapest. (China has also financed road, energy and trade projects throughout the Balkans.) In addition, Beijing has plans to increase traffic on the existing freight railway lines that connect several industrial cities in coastal and interior China with Hamburg, Warsaw and Rotterdam by way of Russia and Central Asia. China hopes that 5,000 freight trains will travel these routes annually by 2020, up from around 1,800 trains in 2016. Compared with sea transport, rail is significantly more expensive, with less capacity, more cumbersome logistics and customs restrictions in certain countries, to say nothing of the sheer distance that overland travel entails. But it offers a much quicker way to send auto parts and consumer electronics produced in inland China by domestic and foreign manufacturing companies, including Hewlett Packard, Foxconn and TCL Corp., to the Continent — and to receive shipments of vehicles, foodstuffs and Scotch whisky in return (even if in lesser quantities).
Progress in Central and Eastern Europe
Getting the European Union on board with these initiatives hasn’t always been easy for Beijing. Early on, its overtures met with skepticism, and sometimes suspicion, from some EU members. Heavily indebted Southern European countries such as Greece, on the other hand, gladly accepted China’s funding as a complement to the money it receives through its stringent bailout plan
. Hungary and Poland, too, campaigned for the Belt and Road, which fit in with their efforts to distance themselves from Brussels
. For Warsaw, the influx of Chinese investment that the Belt and Road Initiative promised represented a chance to make progress in its own reindustrialization and infrastructure endeavors. Similarly, Budapest welcomed Beijing’s interest, becoming the first European state to participate in the Belt and Road Initiative in 2015. China’s collaboration with states in Central and Eastern Europe eventually grew to the point that it started a subregional platform, the so-called CEE 16+1, in 2012 for participants in its Belt and Road Initiative projects. The transport infrastructure in Eastern European countries especially pales in comparison with that on the western part of the Continent because of their underperforming economies and budgetary constraints.
Whether Beijing’s signature policy project will help alleviate these problems is unclear, however, since resolving them is less a priority for China than for its partners in Eastern Europe. China’s investment in Eastern Europe has never exceeded 1 percent of a target country’s gross domestic product, with the exception of Hungary. (Its investment level in the region trails even those of Japan and South Korea.) Furthermore, Beijing prefers mergers and acquisitions, employing its own management teams rather than building local teams from the ground up, undermining host countries’ desires to boost employment and gain experience with high-end technology. China, meanwhile, still receives just a fraction of these countries’ total exports, despite their best efforts to increase their share of the Chinese market. In fact, for Poland, the Czech Republic and Romania, the trade deficit with China has grown over the past three years. And as Beijing keeps pushing domestic-branded vehicles, electronics and machinery onto the European market, the Central and Eastern European states’ domestic industries stand to lose more ground to their Chinese counterparts.
But given Beijing’s eagerness to promote the Belt and Road Initiative in Eastern and Central Europe, some countries in the region could be in a good position to negotiate. China has already compromised with Serbia over the Belgrade-Budapest project, agreeing to build a cheaper, and slower, rail system instead of the high-speed line it wanted. By conceding to Belgrade — which has long aspired to upgrade its transport infrastructure to expedite its EU accession process and draw foreign investment to its cash-strapped economy
— Beijing has given the Serbians further incentive to collaborate on future projects.
Confronting the Center
Beijing’s efforts to galvanize support for the Belt and Road Initiative in Europe’s periphery stand in stark contrast to its lax approach with Germany and France. The countries are the European Union’s core powers, as well as China’s biggest trade partners and top investment destinations in the bloc. But by focusing on Southern, Central and Eastern Europe, Beijing has managed not only to capitalize on the European Union’s weakness to increase its presence on the Continent but also to avoid Brussels’ scrutiny. The European Union is often suspicious of China’s state-owned enterprises and their methods of financing infrastructure projects.