A Tower of Babel Between CEE Countries & China?

By Jingjing Ning

China has long been known as the “world’s factory”, while Central and Eastern Europe has been called the “factory of Europe”. Will there be a new type of alignment between both factories? Or just as the old story said, the scene becomes chaotic as they cannot understand each other?
According to the latest statistics of Chinese Customs, the total trade amount of import and export between China and 16 CEE countries reached 67.98 billion US dollars in 2017, with the increase rate of 15.9% compared to the previous year. China’s exports amounted to 49.49 billion US dollars, with the increase rate of 13.1%, while imports amounted to 18.49 billion US dollars, with an increase rate of 24%.[1]

The 16+1 format is a new form of international cooperation between China and CEE countries, and also between the Western and Eastern worlds. This initiative, raised by China, aimed at intensifying and expanding cooperation with 11 EU Member States and 5 Balkan countries (namely Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, the Republic of Northern Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia, and Slovenia) in the fields of investments, transport, finance, science, education, and culture in 2012.
But 6 years have passed and the echoes from two sides are still strikingly different. From the Chinese government’s side, it was said that pragmatic cooperation has been expanding which brought benefits to the 17 countries. Economic and financial cooperation has steadily increased. On the other side, the European Union and Western European countries expressed concerns about this mechanism, and the Central and Eastern European countries (especially EU countries) considered that the achievement was limited.
From the Chinese side, it is seen more as an opportunity. It is shown that the dependence of Central and Eastern European countries on the United States and the European Union has gradually decreased because of the strategic eastward movement of the United States and the debt crisis in Europe. As a result, the demand for China’s economic and trade cooperation has gradually increased. Chinese enterprises have invested a number of infrastructure projects such as building bridges, power stations and highways in CEE countries, financed by Chinese loans. In addition, it is true that in these areas, China is competitive in the international market with high quality and cost-effective equipment, and sufficient foreign currency reserves.
From the CEE countries’ side, it is said that loans from China are not attractive for the 11 CEE countries that are EU members, since they have access to more favorable finance from the European Central Bank and other financial institutions. At the same time, trade imbalance between China and CEE countries is prominent as China always has been in a trade surplus. Furthermore, suspicion has aroused in individual countries that China is trying to increase its political influence by leveraging long-term debt loads.
The situation is complex especially in political terms. The differences in social system, ideology and values between these two entities are deep-rooted. Almost 3/4 of the 16 CEE countries have joined the EU and the Common Foreign and Security Policy as one pillar of the EU has great impact on their cooperation. Indeed, China should always balance the relationship with EU countries and CEE countries to avoid possible misunderstandings. But it does not mean that China is going to ‘divide and conquer’ Europe as some critics say because in a pragmatic position it makes more sense for China to increase rather than undermine European unity since the EU is its largest trade partner. It would be wiser and more realistic to find a balance between seeing China as a threat and as an opportunity.
Take the Belt and Road Initiative (henceforth BRI), for example. Despite many criticisms, BRI is generally viewed by European leaders as offering opportunities. Their attitude change, from reluctance to positive, derives from their observation of BRI’s running situation in Asia and economic benefits gained by BRI participants. The involvement of European countries in BRI is driven by economic harvests like the benefits of investments and job creations. European institutions and governments are recognizing the extensive gains of economic cooperation under BRI. Besides, a European Parliament Briefing Report issued in July 2016 argues that infrastructure construction along the land-based Silk Road Economic Belt might promote economic growth and stability in Eurasia.[2]
As Baroness Fairhead CBE, the Minister of State for Trade and Export Promotion at the Department for International Trade For the UK said, “BRI offers enormous commercial opportunities …… Both the UK and China recognize the value of globalization as already reflected in the record levels of UK-China trade ties – currently worth more than £59 billion, with UK exports to China growing by over 25% last year alone.”[3] Both evidences illustrate a prospect for future cooperation and understanding between both sides.
Even though Germany and Russia took large part of export proportion of CEE countries, analysis shows that the trade dependence towards these two countries is declining. [4] Statistics show that trade complementarity between China and CEE countries is strong in terms of equipment manufacture in infrastructure, electric power, chemical machinery. It has great potential in economic and trade cooperation between the two sides. [5]
The EU ambassadors in China have criticized the lack of transparent bidding processes and the limited market access for European businesses in China. It has also pointed out by European media that China’s refusal to tackle the dominant position of its state-owned enterprises led the EU to deny China the status of market economy. In light of this situation, it is better for China to understand local sentiments and regulations, and more transparency is needed in the process.[6] At the same time, it is undeniable that most of China’s foreign investments were dominated by large state-owned enterprises, while the Central and Eastern European countries were dominated by small and medium-sized enterprises (SMEs).

As far as I’m concerned, China should adapt its trading to small and medium-sized enterprises and reform the government-led mode of economic cooperation to promote trade with CEE countries. It is also important for China to increase import from CEE countries to alleviate trade imbalances between China and CEE countries. On the European side, it would better to understand China in a more realistic and economical stance according to the common trade interest and trade statistics. Regulatory measures concerning Chinese investment project could be taken in CEE countries to encourage further cooperation. Otherwise, it will lead to Tower of Babel if the two sides are not on the same boat and thinking of others in a traditional way.

[1]于佳欣. 中国与中东欧16国2017年贸易总额同比增长15.9%.中国政府网. http://www.gov.cn/xinwen/2018-06/02/content_5295630.htm (Yu Jiaxin. China’s Total Trade with 16 Central and Eastern European Countries Grew 15.9% in 2017. Gov.cn. http://www.gov.cn/xinwen/2018-06/02/content_5295630.htm)
[2] Liu Xinghua. Belt and Road Initiative in Europe: Reaching Beyond Asia. Europe Now.
http://www.europenowjournal.org/2018/06/04/belt-and-road-initiative-in-europe/
[3] Baroness Fairhead CBE. Why China’s Belt and Road offers the UK huge opportunities. Gov.uk. https://www.gov.uk/government/speeches/why-chinas-belt-and-road-offers-the-uk-huge-opportunities
[4] 沈子傲，韩景华.中国与中东欧贸易合作研究——基于贸易互补性和竞争性的视角.国际经济与合作，2016（8）：55-63 (Shen Ziao, Han Jinghua. The Study of Trade Cooperation between China and Central and Eastern European Countries Based on the Perspective of Trade Complementarity and Competitiveness. Journal of International Economic Cooperation,2016(8):55-63)
[5] 曲如晓，杨修. “一带一路”战略下中国与中东欧国家经贸合作的机遇与挑战.国际贸易，2016（6）：28-33.(Qu Xiaoru, Yang Xiu. Opportunities and Challenges for Economic and Trade Cooperation between China and Central and Eastern European Countries under the Belt and Road Initiative. Intertrade, 2016(6):28-33)
[6] Broer, Bart. EU counters China’s Silk Road Initiative. Euractiv. http://www.euractiv.com/section/central-asia/opinion/eu-counters-chinas-silk-road-initiative