ANALYSIS CHINA CHINA'S INVESTMENT IN INFLUENCE:

THE FUTURE OF 16+1 COOPERATION

Introduction

ABOUT by Angela Stanzel

The Chinese have long been obsessed China faced hard times in 2016 – at least when it comes to with strategic culture, power balances and promoting its investment in Europe. The European Union is geopolitical shifts. Academic institutions, one of its most important economic and trading partners and think-tanks, journals and web-based debates the final destination of China’s flagship initiative, the New are growing in number and quality, giving China’s foreign policy breadth and depth. Silk Road. However, some EU member states have recently become increasingly critical of China’s push for more China Analysis introduces European investment in Europe. Beijing has invested significant effort audiences to these debates inside China’s in building a new entry point into Europe through the central expert and think-tank world and helps the and eastern European (CEE) countries – in particular, through European policy community understand how China’s leadership thinks about domestic the 16+1 framework. As reflected in Agatha Kratz’s article in and foreign policy issues. While freedom this edition of China Analysis, the CEE region is attractive of expression and information remain to China thanks to its strategic geographical position for the restricted in China’s media, these published New Silk Road project, its high-skilled yet cheap labour, and sources and debates provide an important its open trade and investment environment. way of understanding emerging trends within China. The 16+1 framework is a relatively new cooperation Each issue of China Analysis focuses on a format initiated by China with 16 CEE countries in 2012. specific theme and draws mainly on Chinese Since its formation the 16+1 has made some progress in mainland sources. However, it also monitors strengthening dialogue and cooperation between China content in Chinese-language publications from Hong Kong and Taiwan, which and CEE countries. The heads of state of the member occasionally include news and analysis that countries meet annually and each meeting results in a list is not published in the mainland and reflects of agreements. During the fifth and most recent summit, the diversity of Chinese thinking. held in Riga, Chinese premier Li Keqiang formally launched a €10 billion investment fund to finance infrastructure and production capacity projects. The 16 member countries are asked to contribute on a voluntary basis in order to raise more funds – though it remains to be seen how many are willing to support a funding structure controlled by China. December 2016 2 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? V1TS July 2016, 2 RobinEmmott,‘EU’sstatementonSouth China Seareflectsdivisions’,Reuters,15 BRIE/2016/586608/EPRS_BRI(2016)586608_EN.pdf One Road(OBOR)’,July2016, 1 Forinstance,mentionedintheEuropeanParliament Briefingon‘OneBelt, reason tobelievetheircountryhassecuredaspecialplace cooperation. China’seffortshavegiven someinSerbia the and Serbia at morefor willingness signal to undertaking is China efforts look close a takes Pavlićević Dragan year, with€6billioncommittedtoRomania.China this Serbia alsowelcomedhigh-levelbusinessdelegationsfrom presidential visittoanyoftheCEEcountries.Romaniaand to visitthecountry, butthiswasalsoXiJinping’s first Republic notonlyreceivedthefirstChinesepresident more attentiononthemthanothers.Thisyear, theCzech bilateral relationswithonlysomeofthe16andbestowing degree withinthe16+1itself, whereChinaisstrengthening Thirdly, the‘divideandrule’perceptionalsoexiststosome objected mainlyinviewoftheirownmaritimedisputes). it hasreceivedinrecentyears(SloveniaandCroatia Beijing inlightofthelargeamountChineseinvestment to criticiseunwilling more much become government has least inthecaseofHungaryandGreeceitappearsthat China Seaavoided directreferencetoChina. the EU’s statementonChina’s legaldefeatover theSouth instance, thankstotheobjectionsofsomememberstates, EU policies. Butthereisapoliticalaspecttoo: thisyear, for might notbeconformtoEUguidelinesorcouldundermine for instance, thatinvestmentdealsconcludedwithChina institutions. with ChinacouldunderminetheirrelationstheEU the EU,andthatcooperationofsomeCEEcountries that theformatcouldbeusedbyBeijingto‘divide andrule’ institutions andothermemberstates.Theyareconcerned the 16, somethingwhichhascreateduneaseamongtheEU Secondly, theformatincludes11EUmemberstatesamong implement ajointinfrastructureproject. remains cautious–PolandandChinafailedoncebeforeto to expandcooperationwithChinabutatthesametime examines thesituationinPoland, acountrywhichiskeen cautious incooperatingwithChina. JustynaSzczudlik have observed, someCEEcountrieshavebecomemore this editionauthors representedin hand, asChinese other competition amongthe16forinfluencewithChina. Onthe disappointed. Ontheonehand,thishasresultedin been leftinfrastructure projects,have for particularly member countries, whichhopedtoreceiveinvestment, have sofarbenefitedfromChineseinvestment. Other Republic, andHungary,as Poland,theCzech a few,such participants isnotconsistentfromcountrytocountry. Only Firstly, thelevel ofcooperationbetweenChinaandCEE forward. Threemainpointsemerge. government ismeetinginitseffortstotaketheformat highlighting theproblemsandchallengesthatChinese in Chinaaroundthe16+1isgenerallyfairlycritical, debateof tone the that is reflects collection new What this . http://www.reuters.com/article/us-southchinasea-ruling-eu-idUSKCN0Z 1 Clearly, thereisaneconomicaspecttothis: http://www.europarl.europa.eu/RegData/etudes/ . 2 Ofthe16, at - and theCEEparticipantsasawhole. renewed impetustothe16+1format, bothfortheEU11 real expansionofthedebateinthiswaywouldalsogive this remainsthinonthegroundinChinesedebate.A access arethekeyissues,yetsubstantivediscussionof point ofview ofEuropeanbusiness, reciprocityandmarket the EU-Chinatradeandinvestment cooperation. Fromthe from theiranalysisaresomeofthecurrentkeyissues with theCEEcountries.However, whatislargelymissing relations inparticular, wouldimproveChina’s cooperation that improvingEU-Chinarelations, andeconomic convictionthe share broadly here represented authors The of theformatasawhole. so forth),somethingwhichcallsintoquestionthenature least, theformatmightaswellbecalled1+1+1+1(and from theviewpointofcountrieswhohavebenefited only, asweshallsee, semi-jokingly–asthe15+1+1. Indeed, therefore havereferredtotheformat–within the16+1and that are emerging from the 16+1 format. There is an urgent Dividing without antagonising: need to respond to challenges and fine-tune the existing China’s 16+1 image problem cooperation mechanism. Three main points emerge.

Angela Stanzel Firstly, enthusiasm for participating in the 16+1, as well as the OBOR initiative, has varied due to differences among The aim of the 16+1 initiative, which was set up in 2012, the economies, populations and market potential of the 16 is to intensify China’s cooperation with 11 European CEE countries. Liu differentiates groups of countries based Union member states and five Balkan countries.1 Among on the size of their economies. What he describes as large the EU institutions there have been concerns about China economies (such as Serbia) have been more able to take on institutionalising the 16+1 cooperation format, which China’s large-scale investment projects. Meanwhile, small- already consists in a permanent secretariat (at the Chinese and medium-sized economies (such as Croatia and Slovenia) foreign ministry) and several associations and organisations. had welcomed the establishment of the 16+1 cooperation The emerging cooperation with the 11 member states in the framework initially, but found it difficult to implement format has also been seen by the EU as a sign of China’s specific projects, according to Long. She sees a “cooperation ability to ‘divide and rule’ Europe. However, China’s vacuum” (合作真空, hezuo zhenkong) in countries where cooperation has not been smooth across all 16 countries enthusiasm for and expectations of the existing cooperation so far. Not all have benefited from Chinese investment as with China are gradually declining. This difference in the much as they might have hoped. This has resulted in a lack degree of participation and enthusiasm for the existing of willingness to pursue further cooperation. China’s One cooperation mechanisms has also resulted in differing Belt, One Road initiative (OBOR), also called the New Silk perception of the Road initiative, and a newly created fund, might give new Enthusiasm for OBOR initiative among momentum to the relationship. participating in the the CEE countries. 16+1 has varied due to The authors discussed in this chapter have examined differences among the Secondly, the the challenges to China’s cooperation with the 16 central economies, population willingness of the CEE and eastern European (CEE) countries, and they present and market potential of countries to cooperate recommendations to tackle them. They agree that the 16+1 the 16 CEE countries. also depends on their cooperation has moved from framing overall mechanisms different "political and operations to specifying further development, as identity" (政治身份, outlined, in particular, in the 2013 and 2014 Bucharest zhengzhi shenfen). These differences, such as whether and Belgrade Guidelines for Cooperation between China they are an EU member state and member of the eurozone, and CEE countries.2 Most see a distinct link between the have a profound effect on these countries’ strategies and construction of China’s OBOR and the development of willingness to cooperate with China. For instance, Serbia, the 16+1 format. They believe the CEE region is attractive which is not an EU member, is still more dependent on for China as it seeks to establish its OBOR network. It is support for its economic development from outside the EU a strategic territory for OBOR, and such infrastructure and therefore more willing to cooperate with China than the cooperation can improve China's relations with CEE EU member states are, Long explains.4 countries. Thirdly, the EU is concerned about China trying to use Divided perceptions its economic relations for its ‘divide and rule’ policy. In Long’s view a geopolitical doctrine and cold war mentality According to Long Jing, of the Shanghai Institutes for has emerged, which is also triggering suspicion of China’s International Studies, there are three ways in which CEE possible geopolitical intentions in establishing OBOR. This countries have responded to OBOR: high-level bilateral and suspicion further hinders cooperation between China and multilateral meetings in which support towards the strategy the CEE countries; China should proactively respond to is expressed; research and strategic planning to develop thia, Long urges. OBOR; and supporting documents outlining specific policies, such as memoranda of understanding.3 However, According to Long, the current progress within the 16+1 she notes that there are still many CEE countries that have mechanism has exposed the challenges China is facing in its not responded to China’s OBOR initiative with any specific attempt to shape a concrete framework for cooperation on commitments. In her view this illustrates the challenges OBOR. For OBOR to enter the next phase of implementation 1 EU member states: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithu- in the CEE region, she sees the need to move from government ania, Poland, Romania, Slovakia, Slovenia. Non-EU member states: Albania, Bosnia and Herzegovina, Macedonia, Montenegro, Serbia. declarations to concrete cooperation. China’s cooperation 2 For more details on these guidelines, see: http://www.fmprc.gov.cn/mfa_eng/ with the CEE countries on OBOR should prioritise stronger zxxx_662805/t1224905.shtml and http://gov.ro/en/news/the-bucharest-guidelines- for-cooperation-between-china-and-central-and-eastern-european-countries. relations with the EU in order to dispel existing concerns and 3 Long Jing, “Opportunities and Challenges of the Belt and Road Initiative in Central improve China’s relations with the CEE countries, Long says. and Eastern Europe”, (‘一带一路’倡议在中东欧地区的机遇和挑战, Yidai yilu changyi zai zhongdongou diqu de jiyu he tiaozhan), Guoji guancha, N°3, 2016, 118-130. Long 4 For more details on the Sino-Serbian relations, see Dragan Pavlicevic’s article in this Jing is assistant research fellow at Shanghai Institutes for International Studies. issue. 3 4 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? wenti 关系对策 and EasternEuropeancountriesbyusingOBOR” ( 5 FengMinandSongCaiping,“Developing the relationshipbetweenChinaandCentral on boththeirrespective to cooperate China haveagreed Russia and OBOR. Although framework of in the countries other with relations its more Chinaexpands the increase both countries’concernswould US isnecessarybecause Russia and the both with cooperation strengthening that countries. Theauthorsbelieve CEE with the cooperation and relations China’s influence also forces external these countries.In relations withitsneighbouring their view, relations, andChina's China-Russia relations, States relations, China-United of China-Europe context the with eachotheronOBOR, taking intoconsideration cooperate should countries CEE that Chinaandthe suggest and Economics, International Business of University Feng Min and Song Caiping, both affiliated to the Shanghai 16+1 aspartofthe‘SilkRoad’ , N°1,2016,pp.26-29. , yunyong ‘Yidaiyilu’fazhanZhongguoyuzhongdongou guanxiduice 运用’一带一路’发展中国与中东欧 ), Jingji 5 agenda_en.pdf 6 See China tomakefurtherefforts to allaytheseconcerns. requires and part EU’s on the concerns more trigger could This significant. strategically and deeper much cooperation to makeChina-CEE plan, cooperation whichisbelieved a medium-term formulating countries arecurrently CEE the EU’s concerns. assuage China 2020 Agenda for Strategic cooperation in order to EU- the onimplementing focus In particular,Chinashould countries. CEE the with into cooperation EU’s concerns the integrate to need the and Songhighlight Similar toLong,Feng oppose USinterests. network could and transportation China’s energy that concerned is US the believe they operational. Meanwhile, authors expect difficulties to resurface once OBOR becomes initiatives, OBOR and theEurasianEconomicUnion, the http://eeas.europa.eu/archives/docs/china/docs/eu-china_2020_strategic_ . 6 TheynotethatChina and the The authors also identify differences between the CEE two million yuan each year for a ‘China-Central and Eastern countries as one of the major challenges to further European Relations Research Fund’ to support academic deepening China’s cooperation in the region. Due to the exchanges and cooperation on both sides. However, it is different conditions across the CEE, it is difficult for China undeniable in their view that those academic exchanges to carry out the same type of activity in each country. They between China and the CEE countries started late, and that call on China to respect the differences and to consider quantity, quality, scale and influence are still weak. China’s relevant policies formulated by the CEE countries in order OBOR initiative could to better inform the intended cooperation. In particular, In Long’s view further improve these with regard to its OBOR initiative, China should pay a geopolitical exchanges, they believe, attention to the economic and trade differences in the CEE doctrine and cold and thereby also overall countries as well as their strengths and weaknesses in order war mentality has relations between China to avoid investment risks. emerged, which and the CEE countries. is also triggering Building China’s image in Europe suspicion of China’s These three authors pay possible geopolitical significant attention to Furthermore, Long suggests that China should establish intentions in China’s image not only cooperation on OBOR with the 16 CEE countries in establishing OBOR. in the 16 CEE countries non-economic areas to balance the lack of economic but also in Europe as a cooperation. For instance, cooperation with the small- whole. They see an urgent and medium-sized CEE countries in the areas of law, need to improve this image and deepen understanding culture, education and science might not only win over of China’s policies. In this context a fourth author should these countries for further cooperation with China but also be mentioned, Liu Zuokui, of the Chinese Academy increase the visibility of OBOR. Long suggests that China of Social Sciences, who also finds that there is lack of should consider establishing a special financing fund for mutual understanding and research within the 16+1.7 Liu cultural and educational exchanges. She also suggests identifies unfavourable public opinion and prejudice in strengthening think-tank exchanges, joint conferences and Europe towards China’s cooperation format and the OBOR research projects to improve understanding of OBOR in initiative. He urges that negative reports (for instance, the CEE countries. In addition, there is a need for China warning of China’s geopolitical intentions) by European to promote its foreign policy rationale and practices, she intellectuals and think-tanks should not be ignored by believes, as well as China’s stance towards global issues. China – such as ECFR’s “Connectivity Wars” publication.8 This would help to create an objective public opinion in the CEE countries on China, he argues. The 16 CEE countries might indeed benefit more from the 16+1 format than previously, now that China has set up a On the official level, the Communist Party of China, €10 billion investment fund to finance projects. Whether which has maintained relations with almost all political increased academic and think-tank exchanges will help to parties in the CEE countries, should strengthen inter- improve China’s image in the EU remains to be seen – but party exchanges. But Feng and Song also highlight the there would no doubt be enough content to discuss. importance of the civil and cultural level. They criticise the lack of understanding of China in the CEE countries, which is mainly formed through the Western media, and is therefore often one-sided. In the future, the focus should be on enhancing public understanding of Chinese culture and values, eliminating prejudices among the public, and enhancing China's cultural soft power in the CEE countries. They emphasise that, only by engaging in such efforts, can China gradually eliminate the negative perception many have of it.

Much more than Long, they stress the importance of think- tank exchanges, or what they call “intellectual navigation” (智力导航, zhili daohang). The authors view think-tanks as a combination of power and knowledge that play an important role in informal exchanges between China and the EU, which official channels cannot replace. They note 7 Liu Zuokui, “The One Belt One Road initiative in the context of the 16+1 Cooperation”, that China and the CEE countries have increased think-tank (一带一路倡议背景下的”16+1合作”, Yidai yilu changyi beijing xia de 16+1 hezuo), Dangdai Shijie Yu Shihui Zhuyi, n°3, 2016. Liu Zuokui is director of the Department exchanges in recent years, and held a think-tank roundtable of Central and Eastern European Studies in the Institute of European Studies, Chinese Academy of Social Sciences (CASS) and director of the Secretariat Office of the “16+1 in Beijing September 2012 and in Warsaw in May 2013. Think-Tank Network” in CASS. Since 2012, the Chinese government has provided around 8 Mark Leonard (ed), "Connectivity Wars: Why migration, finance and trade are the geo- economic battlegrounds of the future", ECFR, 2016 5 6 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? Think-Tank Network”inCASS. Academy ofSocialSciences(CASS)anddirector oftheSecretariatOffice“16+1 of CentralandEasternEuropeanStudiesin the InstituteofEuropeanStudies,Chinese Dangdai ShijieYuShihuiZhuyi ( 3 LiuZuokui,“TheOneBeltRoadinitiative inthecontextof16+1Cooperation” fazhan qianjingyanjiu 现状及发展前景研究 development prospectsbetweenChinaandCEEcountries”,( 2 YaoLing,“Backgroundresearchonthecurrentstateoftradecooperationand central-and-eastern-european-countries-and-china see: 1 FormoreinformationontheSummitandsubsequentdeclarations/announcement, reinvigorate anddevelopbilateralexchanges.This, Liu meeting, China andCEEcountriesjointlysetupgrandplansto 16+1 first the with Warsaw in 2012 in Starting Europe, BeijinggraduallytilteditsattentiontoCEE. debt crisis. European subsequent and crisis financial global 2008 the of China’s effortstodealwiththefalloutforitseconomyof explains thatthisincreaseis,toalargeextent,theresult Liu Zuokui oftheChineseAcademySocialSciences double almost to 2014, the 91percentincreaseinexportsfromEUtoChina. years five the over percent 173 staggeringa by grew China to exports CEE illustrate, To between ChinaandthewholeofEuropeoverperiod. between CEEandChinainfactgrewmuchfasterthantrade Trade suggest. first appearances than more means growth percent in2009. When putinperspective, thisone-point percent ofChina’stradewithEuropein2014–upfrom9 cooperation, showthatCEEcountriesgrewtorepresent10 and economictrade research instituteoninternational Yao Ling, diplomatic focustowardsEurope. Figuresprovidedby focus ofChina’s economicinitiativesandoverall relationship. YetCEEcountrieshavebecomeanincreasing still representingarelatively smallpartofthisbilateral CEE countries11 yearsinarow, with trade partnerfor By 2015, theEuropeanUnionhadbeenChina’s main A brighter spotin Europe proved challenging. implementation ofBeijing’s China-CEEpolicyhasattimes foreign policyplans. Yet, despiteChina’sacuteinterest, wider China’s within significance strategic has and market economic potentialinanotherwisedepressedEuropean central andeasternEurope(CEE)regionrepresentsbright on theforum’sagenda. as ifany reminder wereneeded, thateconomicitemsstillrankhigh showed, These projects. investment financial list ofannouncementsoninfrastructure,industrialand held inRigaon5November2016,endedwithalong This year,asonprevious occasions,the16+1summit, 一带一路倡议背景下的”16+1合作” Agatha Kratz economic relations CEE’s placeinChina-Europe The bestofbothworlds? http://www.mfa.gov.lv/en/policy/multilateral-relations/cooperation-between- 2 aresearcherfortheMinistryofCommerce’s 3 Faced with depressed demand from westernfrom depressed demand Facedwith , Zhongguo yuzhongdongouguojiajingmao hezuo xianzhuangji ), Guoji Maoyi , n°3,2016.LiuZuokuiisdirectoroftheDepartment 1 FromaChineseperspective, the , , n°3,2016. Yidai yiluchangyibeijingxiade16+1hezuo . 中国与中东欧国家经贸合作 ), Chinese investmentintotheregionhasalsoincreased these exchanges. Slovakia andRomania–constitutedabout80percentof five just Yao, countries outofthe16–Poland, CzechRepublic,Hungary, to According uneven. geographically also grew byabout34percentovertheperiod. Thetrendwas China with deficit trade CEE annual the result, a As value. meanwhile, increased,buttoasmallerextentinabsolute and rawmaterials, accordingtoYao). CEEtradetoChina, exports totheregion(mostlymachinerygoods, textiles chart). MostoftheincreasecamefromasurgeinChinese bar(see imbalanced been trade has uptick in this that it – Liu andYaobothacknowledgeand – denying is no There billion setinWarsaw2012. China andCEEcountrieshadreachedthetargetof$100 different datacitedbyLiu, by2015bilateraltradebetween higher thanin2009, saysYao. Accordingtoslightly quickly paidoff. In2014, CEE-Chinatradewas86percent market onwhichtheyhadlongdepended. Theseefforts CEEcountries, by openingupopportunitiesoutsideofthetroubledEU also but Beijing only not benefited says, in Hungary, taskedwithlendingtolocalcompanieshoping country. In 2014, the Bank of China opened its first branch of Chinasigneda10billion yuan currencyswapwiththe internationalisation. InSeptember2013, thePeople’sBank China workedcloselywithHungary topromoterenminbi beyond classictradeandinvestment patterns. Forexample, Of late, China’s economicengagementhasalsogone clean energy, andtourism. of industrialandservicesectors,includingmanufacturing, that China’s investment isalsoconcernedwithawiderange quickly, especiallyintheBalkanpeninsula. ButLiu notes lines, highways, ports, orotherinfrastructurehavegrown projects involvingtheconstructionorupgradeofrailway support toitsOneBelt, OneRoad(OBOR)initiative, China’s of result a As presence. China’s of diversification construction projectshave alsomultiplied, markinga andIPOs acquisitions, and of mergers that thenumber large partofChina’sinvestmentsintheregion,Liu notes in aforeigncountryfromthegroundup–stillrepresent direct offoreign operationsits builds company parent a which in investment aform – investment greenfield While 95 percentofthetotalin2014(seepiechart). Republic, Hungary, Poland,RomaniaandSlovakia taking were geographicallyconcentrated,withBulgaria, theCzech prove somewhat One barrieris misaligned. CEE countries that theinterests of Chinaand can attimes financial crisis. According crisis. financial global the since significantly (see Annex). Here again, flows to about$1.7billionin2014 about $400millionin2009 16 CEEcountriesrosefrom direct investmentsintothe China’s outwardforeign to datapresentedbyLiu, Trade composition between China and 16 CEE countries

Source: Yao Ling’s compilation based on data from the National Statistics Bureau and Chinese customs to trade with and invest in China (potentially directly in Describing the increase in China-CEE exchanges, Liu renminbi). And, in 2015, Hungary purchased Chinese concludes that it cannot be disconnected from China’s sovereign debt. These types of agreement have pushed flagship foreign policy endeavour, OBOR. Indeed, CEE cooperation with China one step further, and onto an fits nicely into China’s grand plan for enhanced Eurasian institutional level.4 connectivity. For Liu, it represents a hub, and a pathway between Asia’s dynamism and Europe’s high level of A natural hub in China’s European policy development. CEE sits right between the Mediterranean end of the ‘21st Century Maritime Silk Road’ (practically, On the whole, Liu notes that the CEE region has become the 51 percent Chinese-owned port of Piraeus in Greece) more important and more strategic within the EU-China and Europe’s highly attractive inland market. relationship, and will likely continue to grow as such. Both Yao and Liu explain that China’s CEE investment and This, Liu says, explains why Chinese premier Li Keqiang, trade rationale is clear: the region displays a perfect mix of visiting Europe in December 2014, pushed for a multi- strategic geographical positioning, high-skilled yet cheap party agreement with Macedonia, Serbia and Hungary labour, open trade and investment attitudes, good logistics to set up a ‘China-Europe Land-Sea Express’ (中欧陆海 platforms, and positive capital and industrial investment 快线, Zhong’ou luhai kuaixian), the objective of which opportunities. Besides, it is just one step away from the would be to facilitate the shipping of goods from Greece high-tech and lucrative western EU market. As such, it to Hungary (and further on to western Europe) through presents an attractive prospect for Chinese companies. infrastructure development. Since then, many other large infrastructure projects have been championed, such as the 4 Gao Chao, “The Hungarian investment opportunity within ‘One Belt, One Road’s establishment” (“一带一路” 建设中匈牙利的投资机遇, “Yidai yilu” jianshe zhong ‘three-sea harbour district cooperation initiative’ proposed Xiongyali de touzi jiyu), Zhongguo Duiwai Maoyi, January 2016. 7 8 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? Statistics Bureau of CommerceandtheNational based ondatafromtheMinistry Source: LiuZuokui’s compilation and easingofcustomsprocedures, orthecreationofa simplification a example, for through, exchanges, China done tobalancethebilateraltrade relation,andboostCEE- in greatdemandChina. Yethebelievesmorecouldbe areproducts suchasbeefandlamb,wine dairyproducts, or foodand agricultural regional qualitynotes, he example, the given beneficial, mutually promising natureofCEEexportpotentialtoChina. For be can relationship the particularly intheareaoftrade. Yaoneverthelessbelieves in therelationship,imbalances create objectives can increasing tradewithEuropeasawhole. Pursuingthese the partofChina, suchasreducingexcesscapacityand countries respondstocleardomesticimperativeson and connectivity, China’scharmoffensivetowardsCEE example,notes, thatbeyondmutualdevelopment for can attimesprovesomewhatmisaligned. Liucountries One barrieristhattheinterestsofChinaandCEE remaining barrierstoChina’s plansfortheCEEregion. gongxiang jointly shared”( in particularisa“jointlydiscussed,jointlyestablishedand China’s interestintheregionisgenuine,Liu says, andOBOR A hard-wonpieceoftheEuropeancake throughout thewholeregion. cooperation intheconstructionofportsandlogisticsparks by thepremierinSuzhou, aimedatfosteringSino-CEE ) initiative. But he acknowledgesanumberof) initiative. But 共商，共建，共享 , gongshang, gongjian, controversially, Liu callstheongoing‘Berlinprocess’, a to incompatibilities relates between China’sinitiativesandEUregulations. Quite difficulties of set further A continuous eagernesstointegrateChina’sinitiatives. the region,GaoChaoexplainsthatHungaryhasshown on thepartofPolandtowardsChina’s endeavours in country. WhileLiu pointstothehighlydefensiveattitude These divergences,ofcourse,varydependingonthetarget cooperation andintegrationofglobaleconomicresources. view ofdevelopmentisratheramattereconomic and democraticgovernance. Ontheotherhand, China’s emphasis isonsustainableemployment, socialsafeguards projects. greenfield favour Besides, intheirowndevelopmentpath, thesecountries’ thus might and economies, are moreconcernedwithboostinglocalemploymentand countriesCEE economy), China’s of upgrade the towards and assimilateadvancedmanagementskills(allworking technologies,acquiremarket, penetrate theEuropean usually interestedinbuyingoutcompaniesorderto investments intheregion.WhileChinesecompaniesare Another barriercitedbyLiu pertainstoChinese within theChinesemarket. region-wide appellationthatwouldhelpbuildaCEEbrand in thisissue. 5 OnthequestionofChina’simagebranding intheregion,seeAngelaStanzel’sarticle particular roletoplay.AsLiu explains, itinstitutionalises China and CEEcountries. Inthisprocess, the16+1forumhasa both benefit would rapprochement further and – reconciledbe certainly can say, they sides, both on Interests cooperation betweenthetwopartiesthanthereiscurrently. Nevertheless, allauthorscallforeven moreeconomic Forging aheadwith the16+1,andwith Brussels a strongerandmorepositivebrandimageintheregion. in hostcountries. HethusrecognisesChina’sneedtobuild security uneasethatsomeChineseinvestmentcanprovoke (Russia, theEU,Germany). Healsoacknowledgesthe interest own their for fighting are powers countless where China isdepictedastryingtodivideandrulearegion engagement withCEEcountries. Often, Liu explains, from thenegativeperceptionthatoftensurroundsChinese comes cooperation economic increased to obstacle final A subscribe tosuchChina-dedicatedfinancing schemes. indebtedness. Asaresult, anumberofEUcountriescannot low) limitsonmemberstates’ overalllevelofpublic often runcounterto(whatLiu considersexaggeratedly preferential creditfor guarantees sovereign for demands parts oftheEU’sstabilityandgrowthpact.Indeed, Chinese by restricted remains by China scheme financing billion runs upagainstEUrules. Forexample, aproposed$10 Chinese financing for large projects in the CEE region often generally, more But region. Balkan the in – influence EU’s restrict Chinesepresenceandactions–preservethe toregulation EU using of way a process, integration EU German-led intergovernmental initiativetosupportthe 5 a new form of Chinese cooperation with the world, namely Interestingly, in both Yao’s and Liu’s view, the EU has “a regional model of cooperation” (区域合作模式, quyu an important role to play in the CEE-China relationship. hezuo moshi). It complements and reinforces China-EU Thanks to its own competitive advantage, China can cooperation and relations, while providing a consultation respond to the European Commission’s Investment Plan, mechanism for China’s economic projects for the region. and the EU’s wider objective of boosting economic growth To be successful, says Liu, the 16+1 should thus be an open and employment, by providing its operational experience platform on the same model as OBOR, and as diverse a in building and financing infrastructure, or by investing in mechanism as possible, including initiatives at the national equipment manufacturing or distribution channels in the and local, official and business-oriented level. CEE region.

Chinese investment in 16 CEE countries in 2009 and 2014 (stock/USD m) 2009 2010 2011 2012 2013 2014 2009-2014 Share growth of total Chinese investment in CEE (2014) Hungary 97.41 465.70 475.35 507.41 532.35 556.35 471.14% 32.79%

Poland 120.30 140.31 201.26 208.11 257.04 329.35 173.77% 19.41%

Czech 49.34 52.33 66.83 202.45 204.68 242.69 391.87% 14.31% Republic Romania 93.34 124.95 125.83 161.09 145.13 191.37 105.02% 11.28%

Bulgaria 2.31 18.60 72.56 126.74 149.85 170.27 7271.00% 10.04%

Slovakia 9.36 9.82 25.78 86.01 82.77 127.79 1265.28% 7.53%

Serbia 2.68 4.84 5.05 6.57 18.54 29.71 1008.58% 1.75%

Lithuania 3.93 3.93 3.93 6.97 12.48 12.48 217.56% 0.74%

Croatia 8.10 8.13 8.18 8.63 8.31 11.87 46.54% 0.70%

Albania 4.35 4.43 4.43 4.43 7.03 7.03 61.61% 0.41%

Bosnia- 5.92 5.98 6.01 6.07 6.13 6.13 3.55% 0.36% Herzegovina Slovenia 5.00 5.00 5.00 5.00 5.00 5.00 0.00% 0.29%

Estonia 7.50 7.50 7.50 3.50 3.50 3.50 -53.33% 0.21%

Macedonia 0.20 0.20 0.20 0.26 2.09 2.11 955.00% 0.12%

Latvia 0.54 0.54 0.54 0.54 0.54 0.54 0.00% 0.03%

Montenegro 0.32 0.32 0.32 0.32 0.32 0.32 0.00% 0.02%

Total 410.60 852.58 1008.77 1334.00 1435.76 1696.51 3.13 100%

Source: Liu Zuokui’s compilation based on data from the Ministry of Commerce and the National Statistics Bureau

9 10 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? Language andCulture,GuangdongUniversity ofForeignStudies. 2016. MaoYinhuiisdirectorofthePolishLanguage Department,FacultyofEuropean duiwai guanxidebianhuajizhongbojuyu yutiaozhan lenges inPoland-ChinaTies”( 2 MaoYinhui,“ChangesinPoland’sForeign RelationsandOpportunitiesChal Network” inCASS. Social Sciences(CASS)anddirectoroftheSecretariat Officeofthe“16+1Think-Tank Eastern EuropeanStudiesintheInstituteof EuropeanStudies,ChineseAcademyof Zhongguo yushijie 的外交政策走向与中波关系 1 LiuZuokui,“DirectionsofPolishForeignPolicyandPoland-ChinaRelations”( to takeabiggerroleinitsbilateralrelationswithPoland. for China potential is mean there neighbourhood and the Union European as crisesinthe aswell agenda diplomatic in Poland’s ongoing changes that argue such. Experts as Poland’s Chinapolicy not onlyto relates assessment 台阶 xinde shidai era ( jiji 度显得更为积极 China( towards policy a moreactive pursued Both LiuandMaoarguethatthePolishgovernmenthas partnership’. of ‘comprehensivestrategic level to the ties elevation of June, and the following visit toPolandthe Jinping’s Xi China inNovember2015, visit toPresident saw intensive which in the formofPresidentAndrzej Duda’s dialogue political in office, year first government’s Polish new the by assuaged were concerns These communist approach. party advocates ananti- the pointthat Liu emphasises in Poland. evident periodically of the‘Chinathreat’isstill idea party, andsaysthatthe nationalistic andEurosceptic pro-Catholic, populist, a right-wing, as Law andJustice describes of theGuangdongUniversityForeignStudies Yinhui Mao continue. would policy partnership strategic previous the around whether question appeared indirect of Sino-Polish relations.An future the about of uncertainty an element introduced For China, the electionssupposedly bilateral tieswereupgradedtothe‘strategicpartnership’. minister, term asprime Tusk’s second Donald during noticeable especially was this argues, Social Sciences of Academy Chinese Liu Zuokuiofthe Platform, relations withChinaimprovedremarkably. As Civic liberal andcentrist by the previous governmentled the a non-coalitiongovernment.Under and established majority an absolute secured party, LawandJustice, conservative opposition The winner, the elections. general and presidential Poland's through that tookplace guard In 2015, the changingof China certainlynoticed Poland-China Relations? the EU:towards aneweraof When theSilkRoadmeets Justyna Szczudlik ) and that Sino-Polish relations have entered into anew Sino-Polish relationshaveentered ) andthat , 中波关系步入了新的时代 zhongbo hezuo maixiangxindetaijie , 2016.LiuZuokuiisdirectoroftheDepartmentCentraland ) or level of cooperation( ) orlevel , dui zhongguo dui de taiduxiandegeng wei , Bolan dewaijiaozhengcezouxiangyuzhongboguanxi 波兰对外关系的变化及中波关系的机遇与挑战 , zhongbo guanxi rujinle ), Xiandai GuojiGuanxi 中波合作迈向新的 1 while in 2011 while ). Thispositive 对中国的态 , Bolan 波兰 , - ), 2

3 LiuZuokui,“DirectionsofPolishForeign Policy andPoland-ChinaRelations” Liu argues that Poland's foreign policy priorities havenot that Poland'sforeignpolicy Liu argues an opportunityforChina Polish foreignpolicyadjustment– The firstsummitwasheldinWarsaw. central andeasternEuropeancountrieswasestablished. Poland inApril2012,the16+1groupingofChinaand16 format. DuringChinesepremierWenJiabao’svisitto relations butalsosettingupanewregionalcooperation acknowledged Poland’ssuccessbystrengtheningbilateral 的力量 seen asconfirmationofPoland’sdecisiverole( as presidentoftheEuropeanCouncil,adevelopment become aG20member.LiualsocitesTusk’sappointment between twocountries)thatencouragedPolandtotry Ukraine, highlightingthehugedevelopmentdiscrepancies the globalfinancialcrisis(andhecomparesPolandwith economic growththatPolandhasenjoyedinspiteof and economic‘star’( story. LiuarguesthatPolandisanewEuropeanpolitical In China,Poland’sdevelopmentisviewedasasuccess Poland asanewEuropean‘star’ approach may help Poland overcome the influence exerted influence the overcome Poland help may approach and transatlanticrelations. This Europe beyond ties closer Warsaw isseeking sense and inthat EU, in the position like togainastronger crisis. Whatismore,Polandwould Ukrainian ongoing (Poland, GermanyandFrance),the member states,theweakerroleof‘Weimar triangle’ new andexistingproblemsfacing turn include this eastward east” ( the Poland’s Liu foreign policyas“leaningtowards describes Polish relations. Sino- for Chinaandcloser more space creates approach clear ( been that, since2015, has a changeinPolishforeignpolicy ( adjusting isprogressively to changeasPolishforeignpolicy agenda. Butthisapproachislikely Polish diplomatic in the priority a top to be are blossoming,Chinaisnotconsidered the factthatPoland-China relations points outthat,despite internationally. Liualso Poland’s status and upgrading a securityguarantor; amicable relationswithneighbours; NATO as of role and the on transatlanticrelations focus priorities are: These astrongPolandwithinEurope; changed underthenewLaw and Justicegovernment. Liu describes Poland’s foreign policy as “leaning as “leaning policy towards theeast” 调整 , tiaozheng , juzu qingzhongdeliliang “东向”倾斜 明显 , ). Mao Yinhui shares Liu’s opinion,saying shares Yinhui ). Mao mingxian 明星 , “dong xiang” qingxie , mingxing ). Both experts believe that this believe ). Bothexperts diverge fromthsoeofother migration crisiswhich on the Polish government’s views the court, Poland’s constitutional to warning overchanges official its after EU the with tensions to Poland. Liupoints ) inEurope.Chinahas ). Hecitesthe

). Reasons for 举足轻重 3 by the bigger and older EU members which set the tone Mao quotes – stressed that Poland seeks good relations in the EU. In the case of the economy, Mao argues that with the world’s second biggest economy and that it 60 percent of Polish trade is conducted within Europe. is conscious of the shift to Asia of the global economic But due to the EU's recent economic travails, Poland is activity which will requires Polish foreign policy to concerned about economic overdependence on Europe. adjust. Liu also presents cooperation platforms and For this reason the Polish government is looking for mechanisms in bilateral relations as a vindication of the new markets and sources of capital, such as in Asia. In multidimensional character of Poland-China relations (多 this context, Liu highlights the sanctions that Russia has 种合作平台和机制, duozhong hezuo pingtai he jizhi). He imposed on Poland, which have seriously limited Polish mentions bilateral levels of cooperation, including at the exports. local tier such as cooperation between local government, at subregional level through the 16+1, and the EU level. Mao Yinhui presents similar arguments to Liu’s. She emphasises the domestic and foreign rationales behind Although relations are flourishing, Chinese experts raise changes to Polish foreign policy. Domestic ones include several challenges. Liu Zuokui lists three of them. The Law and Justice’s Eurosceptic mindset (疑欧主义, yi’ou first includes barriers erected by the US and the domestic zhuyi), which, she says, manifests itself in advocacy for opposition. He calls this approach Poland’s “twofold EU reforms which would decrease role of Germany and policy towards China” (波兰对华政策存在两面性, bolan France as the main forces in the EU. She also argues duihua zhengce cunzai that Polish foreign policy changes have been driven by Some hold the view liangmianxing). This three crises: debt in the EU, the situation in Ukraine, that the Silk Road means that the Polish and the migration crisis. She indicates that the EU crises is just a beautiful or government on the one raised doubts in Poland about the EU project, resulted gorgeous “package” hand strives for close in weaker relations with Brussels, and specifically with while its real goal is relations with China but Germany and France, and reinvigorated Visegrád Group political. at the same time needs cooperation. While the situation in Ukraine has enhanced to deal with constraints Poland’s concerns about security, namely the threat from from the US and domestic Russia, aforementioned circumstances have seen the opposition to closer ties with China. Second, a serious Polish government focus on security and strengthening limit also comes from ideology or differences in values. As relations with the United States and NATO. Both Liu and a result of Poland trying to maintain this sort of balance, Mao believe these factors may lead Poland to forge closer its policy is sometimes inconsistent. The second negative relations with China. factor is a huge negative trade balance on Polish side. He says that in 2015 China was Poland’s biggest source of a trade deficit (2015年波兰第一大逆差来源地是中国, 2015 Challenges for Sino-Polish ties nian bolan diyi da niche laiyuandi shi zhongguo). He also mentions the biggest problems with Polish exports Both experts outline the motivations behind Poland’s to China, such as a Chinese ban on Polish pork, problems active policy towards China. They argue that Poland as with obtaining export certificates for food or agricultural a big country seeks closer cooperation with another big projects (eg. apples), and an export structure which is not country – China. Better relations with China may upgrade beneficial for Poland. The third negative factor indicates Poland’s position in the EU and globally. But economic strategic differences (战略对接, zhanlüe duijie) between reasons are at the core. Mao presents three main Polish the two sides. China is not the focus of Polish foreign policy. interests in strengthening relations with China: expanding Instead, Poland pays more attention to the situation in exports, narrowing a huge trade deficit, and attracting the region such as the migration crisis, cooperation with investment. These rationales lie behind Poland’s active eastern partners and Visegrád countries. Under these participation in the One Belt, One Road (OBOR) initiative circumstances it is difficult to find commonalities (难有交 and the Asian Infrastructure Investment Bank (Mao 集, nanyou jiaoji) between the two countries. underscores that Poland is the only founding AIIB member from central and eastern Europe), and cooperation in the A slightly different set of challenges is raised by Mao. She 16+1 framework. points to the concerns in Poland about the real reasons for OBOR. She says that some hold the view that the Silk Liu underlines the Polish government’s very positive Road is just a beautiful or gorgeous “package” (华丽的“包 mindset about relations with China. Apart from the visits 装”, huali de “baozhuang”) while its real goal is political of the two presidents in 2015-16, Liu quotes Polish minister – to raise China to superpower status (超级大国, chaoji of foreign affairs, Witold Waszczykowski’s speech, daguo), and build a new China-led international order. delivered in January, in which he explicitly mentioned the Mao also indicates that Poland is concerned about the OBOR initiative and the AIIB as opportunities for Poland. lack of benefit coming from OBOR due to rivalry between While visiting China in April 2016, Waszczykowski – as states for Chinese attention. The second challenge includes 11 12 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? 持中国南海立场 Wang Yi.Thetitlewas“PolandsupportsChina’s stanceontheSouthChinaSea”( given byXinhuaagencytothearticleabout meetingbetweenWaszczykowskiand 4 TheincorrectpopularconvictioninChina aboutPoland’sopinionstemsfromthetitle enhance mutualtrustandunderstanding. of diversification to means mayhelp those that believes power. She soft contact, use ofChinese information channelsandbetter exchange people-to-people more ( fazhan kuaisu xincun xianmu 波兰对中国的快速发展心存羡慕 ( improved andPolandenviesChina’s rapid development thefactthatChina’s image in says that, Poland has despite relations willbeharmfulforPolishinterests.Finally,Mao China-Russia There arealsoconcernsinPolandthatclose US. the with relations undermining about concerns with do in partto issue, in Polandoverthis opinions range of zhengyi de zhengce duihua xieshang heping jiejue youguan Nansha daojiao 关南沙岛礁争议的政策 ( consultations” and dialogue through dispute ofthe solutions peaceful for “Poland calls that April 2016.only said In reality,he during his visitin China Sea South on the China’s stance for Poland’s support that Waszczykowskideclared relates Mao wrongfully On theSouthChina Sea disputes, zhongbo guanxiweilaifazhandailaibuquedingxing ( relations Sino-Polish for uncertainty China. This creates of from that different and Russiaisquite US the to attitude Poland's US. But the with tensions emerging and many existing are there and Russia relations with China hasgood powers. great those xinli 理 and Russia( US China, the Poland’s relationswith contradictions between 不无警惕 , bolan dui zhong,bolan dui mei, edaguoguanxicunzaimaodun ) taking into account the context of China’s ties with of China’sties context the ) takingintoaccount , , bolan zhichiZhongguoNanhailichang buwu jingti 兰中 美 俄大国关系存在矛盾心 美, 波兰对中, 波方支持中方通过对话协商和平解决有 ). 4 However, Mao notes that there is a there that notes However,Mao , ) aboutChina. Mao recommends bolan zhichi zhongfang tongguo 中波关系未来发展带来不确定性 ), Warsawremainscautious , bolan dui zhongguo de bolan dui ). ). 波兰支 , Southern Weekly 塞战略伙伴关系推向新高度 2 clanak/367192/Li-Mancang-Najvise-sporazuma-sa-Srbijom-drugi-ljubomorni Ljubomorni), countries [within16+1]arejealous”(LiMančang: NajvišeSporazumasaSrbijom,Drugi 1 LiManchang“[Serbiahasreached]Highest numberofagreementswithChina,other its kindforanyEuropeancountry. of first the is China with regime visa The two. the between in Summit ties strong the 2016, illustrated Riga inNovember also Europe Eastern and China-Central fifth the during agreements bilateral other among araftof signed visa-free entryregimeforvisitslastinguptoonemonth, a bilateral of introduction partnership. Therecent strategic comprehensive of status to the relationship their elevated countries two Serbia inJune2016, Jinping’s visitto the years. Serbia overrecent China and by upon andimplemented agreed and projects agreements number of high the to as 15+1+1, due to jokingly, referred 16+1 platform hasbeenoccasionally, and onlysemi- to Li Manchang,ambassadortoSerbia, the the Chinese (CEE). According countries ofcentralandeasternEurope 16+1, so-called China’s mechanismwith16 multilateral Europe, playingaparticularlyprominentrolewithinthe partners in one ofChina’sleading Serbia haslongbeen 连 ( united been have always peoples two years, the Politika for Serbiannewspaper an op-ed of hisvisittoSerbiawith each other. towards peoples two of Serbian relationshipisbasedonthemutualaffection in the One editorial governmentsandpeoples. two the between the commentators, and a traditional friendship is relationship the of basis officials Chinese to According Serbia hasChina’sback and ‘Goingout’initiatives. 16+1, the ‘One Belt,OneRoad’, schemes: foreign policy partner forChina’skey as animportantandwilling is seen Serbia finally, And, other. the on diplomacy economic its in the onehandandChina’sitsobjectives resources on needs Serbia’s development match between perceived Third, is a as its“coreinterests”. there Beijing perceives which issues on severalforeignpolicy China’s stance of historical relationship.Second,Serbiaissupportive on asolid rests China inSerbia,which of perception positive Serbia. First,isthe thinkingtowards Chinese shape clear, severalconsiderations become As will “PushingtheSino-SerbianStrategic Partnershiptonewheights”( Dragan The viewfrom China Sino-Serbian relations: The geoeconomicsof , xinshouxianglian Southern Weekly Southern , President Xi argued that: “Over the last 60 that: “Overthe , PresidentXiargued Politika Pavlicevic , 20June2016. , 5November2016.Availableat: , ba zhongsaizhanluehuobanguanxituixiang xingaodu ) in each other’s special feelings for feelings special other’s in each ) this year argued that the Sino- the that argued year this 2 Marking the occasion Markingthe http://www.politika.rs/scc/ 1 During President Xi DuringPresident

心手相 . 把中 ), each other and true friendship across time and space”3 Liu – one of the most authoritative sources on what China – words highlighted by journalist Wan Peng, writing thinks about Serbia – places the Sino-Serbian relationship in International Development Cooperation (国际援助, firmly in the context of the global shift of power. In 2009, Guoji yuanzhu). The traumatic experience of the United reacting to the changes taking place in the 21st century States’ bombardment of the Chinese embassy in Belgrade and the rise of China as the future economic leader in the during the NATO campaign against Serbia in 1999 further world, Serbia established the development of a strategic strengthened the relationship.4 relationship with China as one of the main goals of its diplomacy. According to Liu, the global financial crisis laid the ground for further deepening of the Sino-Serbian Liu Zuokui, of the Chinese Academy of Social Sciences, adds ties, as it impelled Serbia to look for alternative ways to that Serbia admires China's development achievements, assist its economy. While in 2014 trade and investment development ideas and development path, and intends inflows from the EU still accounted for 63.8 percent and to draw on the successful experience of China's reform 90 percent respectively of Serbia’s total, the EU’s own and development. An important facet of this friendship economic resources have been strained in the aftermath is also the two countries’ sustained respect for what the of the crisis. Hence, Serbia views China as a responsible other regards as its core interests. Liu argues that on daguo (大国) – a responsible big country – which at a issues such as human rights, the South China Sea, capacity time of difficulty for the Serbian economy gives hope of cooperation and market economy status, Serbia’s position recovery. is to support China's stance and interests.5 He adds that in the light of some EU member states’ differences with China on these issues, Serbia's position is particularly valuable Opportunities and challenges for Chinese to Beijing. Liu also notes investment in Serbia that on the issues related to Taiwan, Xinjiang Liu argues that on Gao Chao, a journalist at China Foreign Trade (中国对外 and Tibet, Serbia “also issues such as human 贸易, Zhongguo duiwai maoyi), identifies the economic resolutely safeguards rights, the South opportunities on the Chinese side. According to Gao, China’s position”.6 This China Sea, capacity Serbia occupies a geographically important position, at is mirrored by China’s cooperation and the crossroads of the EU, south-east Europe and Asia, support to Serbia in market economy making it a key logistics node for air, rail, road, and water relation to its own “core status, Serbia’s transportation. This also makes Serbia a potentially interests” and objectives, position is to support valuable component of China’s One Belt, One Road including the diplomatic China's stance and initiative (OBOR).7 Liu echoes this assessment, noting battle to protect its interests. Serbia’s enthusiasm to participate actively in the scheme.8 sovereignty over Kosovo. China can further capitalise on this advantageous geographical position by taking part in the delivery of a Both Liu and Wan stress the importance of the 16+1 number of planned projects. These include developing the framework for the Sino-Serbian relationship, and as an network of transport links that will not only connect Serbia important platform for further deepening of bilateral to various logistic and commercial centres in central and ties. Wan states that China and the CEE region are both south-east Europe but which will also facilitate transport similar and complementary, the former being the biggest and trade flows from and to western Asia and North Africa. developing country in the world and the latter amounting to an important and growing emerging market. He also Excellent opportunities await Chinese investors in notes that the developing China-CEE relations have the infrastructure, energy, agriculture, communication potential to advance the state of the Sino-EU relations, of technologies, and tourism, suggests Gao. The opening which they, of course, form an important part. for Chinese enterprises lies particularly in the perceived lack of finance and expertise within Serbia to develop these sectors all while the country “energetically pushes forward developmental projects”. Zhu Lianqi, counsellor 3 Wan Peng, “Looking at how to draw the blueprint for the ‘16+1’ on the basis of Xi for economic affairs at the Chinese embassy in Belgrade, Jinping’s op-ed articles in Serbia and Poland” (从习近平在塞波两国署名文章看 “16+1 合作”蓝图如何绘就, cong Xi Jinping zai sai bo liang guo zhuming wenzhang kan “16+1 notes that the combined value of four joint infrastructure hezuo” lantu ruhe huijiu), Guoji Yuanzhu, July 2016, pp. 22-23. Wan Peng is a journalist for the People’s Daily website. projects in Serbia is already higher than with any other 4 Liu Zuokui, “Serbia’s domestic trends, foreign policy direction and Sino-Serbian CEE country. He sees the development of the high-speed relations” (塞尔维亚国内形势、外交政策走向与中塞关系, Saierweiya guonei xingshi, waijiao zhengce zouxiang yu zhongsai guanxi), Dangdai Shijie, September 2016, pp. railway line between Serbia and Hungary as an important 32-35. Hereafter, Liu, “Serbia’s domestic trends, foreign policy direction and Sino- Serbian relations.” step forward in the relationship. Zhu makes the same 5 For capacity cooperation, please see: Qiu Zhibo, “The ‘Triple Win’: Beijing’s Blueprint assessment of the recent acquisition of Smederevo steel for International Industrial Capacity Cooperation”, China Brief, Volume 15, Issue 18 (September 2015). Available at: https://jamestown.org/program/the-triple-win- 7 Gao Chao, “Constructing “One Belt, One Road” bring about investment opportunities beijings-blueprint-for-international-industrial-capacity-cooperation/#sthash.6PsUzf15. in Serbia” (‘一带一路‘建设中塞尔维亚投资机遇,“Yi dai, yi lu” jianshe zhong saier- dpuf. weiya touzi jiyu), Zhongguo duiwai maoyi, February 2016, pp. 78-79. 6 Liu, “Serbia’s domestic trends, foreign policy direction and Sino-Serbian relations.” 8 Liu, “Serbia’s domestic trends, foreign policy direction and Sino-Serbian relations.” 13 14 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? bianzhang 合作新篇章 the Sino-Serbianeconomicandtradecooperation” ( 11 ZhuLianqi,“Timelyinnovativethinkingwrites newchapterinthecooperation 10 Pleaseseefootnote5onpage13formore oncapacitycooperation. 9 Liu,“Serbia’sdomestictrends,foreignpolicy directionandSino-Serbianrelations.” well as conditions associated with the EU membership EU with the as conditionsassociated well to due as constraints levels, debt public and debt foreign deficits, fiscal high financial to subject is government Serbian the that that Zhu notes projects, infrastructure of in Serbia. projects deliver and jointly expertise and finances as such resources together pool would EU cooperation in capacity interest China’s reflects This parties. third even and parties, both for cooperation win-win achieve and resources, financial equipment,constructionand the existingtechnology, how to find the best model of cooperation to pool together according toZhu, is development, for business enterprises for Chinese Thekeychallenge Serbian economy. the enterprises’ activityin all ofwhichhinderChinese guarantees, returns, andnocorresponding investment market, low a rangeofissues,includinganunstable face that Chineseinvestorsin Zhu Serbia currently states Serbia accountingfor$420million. to exports 2015, Chinese and heavilyunbalanced,with moderate, at$550millionin trade, whichisstill bilateral of volume andstructure withthe dissatisfaction expresses but to“makemoney”.Healso Serbia notto“help” engages labour, andareundertheimpressionthatChina on cheap modelanditsbasis favourably onChina’s development which donotlook ofSerbiansociety are segments there that notes failures. Liu further investment to prevent to investmentrisks in order research andpayattention market China tostrengthen standards”. Heurges EU that manystandardsarenot“asstrictandclearasthe ( perfect” “not still are regulations and laws Serbia’s domestic that out risks. points Liu However, Chineseobserversalsopayattentiontothe enterprises. for Chinese opportunity as anexcellent 800 millionpeople identifies this tax-free access to a market of approximately EU, Russia, Belarus, Kazakhstan andTurkey, Zhu further countries, the neighbouring the with trade agreements in Serbia. And, thanks toSerbiaenjoyingpreferential to setuptheirmanufacturingandcommercialoperations foreign investors which encourage policies preferential of sorts and other subsidies low, andgovernment costs arecomparatively labour, of skilled whose supply high the investors include Further incentivestoChinese its basicinfrastructure. next 10 €9-10 billionovertheyearstoimprove estimated of an that Serbiaisinneed Gao particularlyemphasises context, same In the conglomerate. manufacturing steel iron and Chinese – amajorstate-owned by Hesteel of Serbia’smostimportantindustrialassets, mill, one ), , chuangxin siweiyushijujinzaipuzhongzhongsai jingmaohezuoxin Guoji Yuanzhu , July2016,pp.90-91. 10 创新思维与时俱进再谱中塞经贸 where China andthe where 9 健全 , jianquan 11 Interms ), and study_of_chinese_7188 http://www.ecfr.eu/article/commentary_belgrade_budapest_via_beijing_a_case_ Beijing: AcasestudyofChineseinvestment in Europe”(ECFR).Itcanbeaccessedhere: 12 Formoredetails,see:AgathaKratzandDragan Pavlićević,“Belgrade-Budapestvia objectives thoughclosercooperationwithChina. and international domestic own its pursue to wants of Kosovo–and secession of the issue on the support China’s by Serbiawhich,foritspart,appreciates received enthusiastically be to is likely approach through, this cooperation. Iffollowed extend and further momentum maintain to exchange people-to-people of a deepening and practices; risk management sound with combined entrepreneurialism 16+1 andOBORplatforms); the (namely, partnership strategic existing the of foundations to basetheiractivityon: and Chineseenterprises the government Chinese the Liu andZhuurge Taken together, projects inSerbiaaretobesecured. if further be explored and directinvestmentshould Serbia. Alternative models,suchasfranchising, leasing, in projects potential approaching of ways new exploring actively enterprises Chinese to loans state on Chinese from areliance away from amove come to need will companies toadapt.AccordingZhu, this adaptation require Chinese will which years, something few next the over guarantees financial and lending sovereign new control accession process.Thegovernmentwillstrictly . 12 About the authors

Angela Stanzel is a policy fellow for ECFR's Asia & China Programme. She can be reached at [email protected].

Agatha Kratz is an associate policy fellow for ECFR’s Asia & China Programme, and a PhD candidate at King’s College, London. She can be reached at [email protected].

Justyna Szczudlik is a China analyst at the Polish Institute of International Affairs. Her research focuses on China’s foreign policy, especially China-central and eastern Europe relations including China-Poland relations. She can be reached at [email protected]

Dragan Pavlićević is lecturer at the Department of China Studies, Xi'an Jiaotong – Liverpool University in Suzhou, People’s Republic of China. He researches China's domestic and foreign affairs and is particularly interested in participatory politics, China's relations with Europe, and the politics of China's overseas infrastructure projects. He can be reached at [email protected].

Jérôme Doyon is the editor-in-chief of China Analysis, and an associate policy fellow for ECFR's Asia & China Programme. He can be reached at [email protected].

This paper does not represent the collective views of ECFR, but only the views of its authors.

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15 16 ECFR/199 December 2016 www.ecfr.eu CHINA ANALYSIS: 16+1: CHINA INVESTING IN INFLUENCE? Wissenschaft. of Daimler-Fonds fürdieDeutsche imStifterverband This issueofChinaAnalysiswasproducedwiththesupport www.ecfr.eu to individualsorinstitutions. other think-tanksandorganisationsbutdoesnotmakegrants values-based EUforeignpolicy. ECFRworksinpartnershipwith These donorsallowustopublishourideasandadvocatefora national governments,companiesandprivateindividuals. ECFR isaregisteredcharityfundedbycharitablefoundations, •  •  • that defineitsactivities: ECFR hasdevelopedastrategywiththreedistinctiveelements effective andvalues-basedEuropeanforeignpolicy. promote informeddebateonthedevelopmentofcoherent, conduct cutting-edgeresearch,buildcoalitionsforchange,and pan-European think-tank.Launchedin2007,itsobjectiveisto The ABOUT ECFR and MabelvanOranje. countries. TheCouncilischairedbyCarlBildt,EmmaBonino on policyideasandhelpwithECFR’s activitiesintheirown forces, membersprovideECFRstaffwithadviceandfeedback a year. Throughregulargeographicalandthematictask member statesandcandidatecountries–whichmeetsonce decision makers,thinkersandbusinesspeoplefromtheEU’s distinguished Councilofover250members–politicians, Apan-European Council. reaches out to strategic media outlets. reaches outtostrategicmediaoutlets. debates, and“friendsofECFR”gatheringsinEUcapitals; publishes policyreports;hostsprivatemeetings,public with apan-Europeanfocus.ECFRproducesoriginalresearch; out innovativeresearchandpolicydevelopmentprojects researchers andpractitionersfromalloverEuropetocarry ECFR hasbroughttogetherateamofdistinguished Developing contagiousideasthatgetpeopletalking. debate, advocacyandcommunications. in Europeancapitals,andprovidesaplatformforresearch, European presenceputsusatthecentreofpolicydebates perspectives ofawiderangeEUmemberstates.Ourpan- allowing theorganisationtochannelopinionsand in Berlin,London,Madrid,Paris,Rome,SofiaandWarsaw, Uniquely amongEuropeanthink-tanks,ECFRhasoffices A physicalpresenceinthemainEUmemberstates.

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