15 November 2019 ISSN: 2560-1628 2019 No. 9 WORKING PAPER Development of Czech-Chinese diplomatic and economic relationships after 1949 Ing. Renata Čuhlová, Ph.D, BA (Hons) Kiadó: Kína-KKE Intézet Nonprofit Kft. Szerkesztésért felelős személy: Chen Xin Kiadásért felelős személy: Huang Ping 1052 Budapest Petőfi Sándor utca 11. +36 1 5858 690 [email protected] china-cee.eu Development of Czech-Chinese diplomatic and economic relationships after 1949 Abstract The cooperation between Czechia and PRC went through an extensive development, often in the context of contemporary political changes. The paper analyses the impact of bilateral diplomacy on the intensity of trade and investment exchange and it investigates the mutual attractiveness of the markets. Based on this analysis, the third part focuses on the existing problems, especially trade deficit, and it highlights the potential fields for further strengthening of partnership. The methodology framework is based on empirical approach and it presents a comprehensive case study mapping the evolution of Czech-Chinese dialogue in terms of diplomacy, economic exchange and existence of supporting organizations. Keywords: Czech-Chinese relationships, bilateral investment, diplomacy, economic and trade cooperation Introduction Despite of the transcontinental geographic distance and intercultural differences including languages barrier, Czechia, a Central European country, formerly known as Czechoslovakia until 1993, and People´s Republic of China (PRC) have experienced a great deal of discontinuity during last decades starting from big expectations in 1950s based on past time investment trade tradition during 1920s-1930s through very cold estrangement till the current strong partnership. The approach of the Czechia towards PRC has rapidly evolved and changed through the history, mainly due to contemporary political forces. As an ex-communist country, Czechia´s hard-won democracy has affected the perspective of foreign policy, especially in terms of severe criticism on the human rights violations in many other countries including PRC. In previous years, the Czech foreign policy however took a new direction, on the ground of a significant change in the political discourse. This transformation together with PRC´s effort to strengthen its position in Europe by the regional format 1+16 and the Belt and Road Initiative, have greatly nourished cooperation in trade and investment, as well as in cultural and educational exchange. PRC has become a frequent subject of political conversations in Czechia and the topic receiving a deep review by the local press. The economic exchange have been a crucial interest but although PRC is trying to be more open to foreign trade, there are still remaining many obstacles for Czech businessman, both tariff and 1 non-tariff barriers. Moreover, insufficient experience at doing business in the culturally different environment persists on both sides. Both Czechia and China are export-oriented countries. Due to the country ́s size of PRC and the position as a global actor, the exports are distributed all over the world. Contrary, Czechia, a small country whose foreign policy is sustained by the European Union (EU) have primary export destinations in the EU member states, that relates to the regional proximity and the principles on which the EU functions. Despite these obvious asymmetries and existence of the intercultural differences, the partnership between the two countries have become stronger and with potential for further future development. The main purpose of this paper is to consider and analyze the variations of Czechia and PRC, two very different countries with specific choices in terms of economic models and policies, and also with continuous existing commonalities in past seven decades. After the PRC was established, Czechoslovakia´s recognition gave an official foundation for the diplomatic relations, and simultaneously to assess the role of mutual economic interests. The paper is organized as follows; the first part reviews the bilateral diplomacy and its consequences for economic exchange from 1949 till 2012. It provides highlights on the impact of governmental changes and political orientation of Czechia and the EU membership. Since then, the partnership experienced a significant transformation and unusual growth, also due to 16+1 regional cooperation program launched by China and the countries of the Visegrad group, including Czechia, got a privileged position in the region. It can be observed in numerous governmental visits on the highest level, elevated cultural exchange and enhanced intercultural awareness. Apparent effects are manifested by overall foreign trade and investment exchange, a crucial component of the Czech-Chinese relations over time, as presented in the next part. The third part then analyses the existing problems in Czech-Chinese bilateral relations and indicates potential fields for further cooperation. The final part proposes further recommendation and concludes the presented analysis. The core sources for the analysis are governmental documents and Czech press releases depicting the diplomatic steps of the Czech-Chinese partnership and supplementing previous researches on the topic. Moreover, the methodology framework of the paper is also based on the official trade and investment statistics providing the data for deeper investigation of economic exchange. 2 1. The evolution of Czech-Chinese relationships After the founding of the PRC on October 1, 1949, the Soviet Union was the first country officially recognizing its existence. After Poland, Czechoslovakia followed three days later as the third state in the world.1 Despite big expectations related to Czechoslovakia-China potentials of flourishing relation, the early bilateral relations were very similar to other small European countries. During the era of the Soviet Union, Czechoslovakia was tied with the Soviet foreign policy and therefore the relationship between Czechoslovakia and China was primary dependent on the current state between the Soviet Union and China. Between the 1950s and 1970s, Czechoslovakia had a well-known status as a technological “West of the East”2 and held a key position as one of the top exporters to China, mainly supplying machineries. Due to the relation between Beijing and Moscow a lot of opportunities were being lost. This so-called Sino-Soviet schism started in the late 1950s and affected many countries of the Central and Eastern European region. The rising tension between China and the Soviet Union damaged Czechoslovakia´s booming economic relations with China of previous period and declined even more during the Cultural Revolution. Another crisis followed in the 1970s. Although the Beijing´s strategy towards the Eastern European countries softened, Czechoslovakia´s ties with Vietnam in both political and economical sphere and a support for the Soviet Union´s attitude towards China only estranged each other.3 The 1980s is marked as historically the best era for Prague-Beijing relations as exchanges of governmental delegations culminated. Not only the Czechoslovakia but the whole communist block negotiated barter trade agreements, made investments in the food production and worked on new projects in the machinery and energy sectors.4 The close relations gradually decreased after the Velvet Revolution in Czechoslovakia in 1989 when the new government led by new president Václav Havel emphasized democratic 1 Lomová, O. The Czech Republic and the People’s Republic of China. „Good old“ relations restarted? Visegrad Revue, 2014. [online] Available from: http://visegradrevue.eu/the-czech- republic-and-the-peoples-republic-of-china-good-old-relations-restarted/ 2 Weiqing, S. China's Relations with Central and Eastern Europe: From "Old Comrades" to New Partners. Routledge, 2017. ISSN 1351850741. 3 Fürst, R. and Pleschová, G. Czech and Slovak Relations with China: Contenders for China´s Favour. Europe-Asia Studies, 2010, vol. 62, no. 8, pp. 1363-1381. 4 Fürst, R. Česko-čínské vztahy po roce 1989 [‘Czech-Chinese relations after 1989‘]. Karolinum, 2010. ISBN 9788024616537. 3 principles and based foreign policy on moral values. Moreover, many politicians were pointing out the violation of human rights and supporting Tibet and Taiwan. For instance, Havel invited the Pope and Dalai Lama to Prague as one of his first presidential steps. The memory of the communist regime in the Eastern Block remained still fresh and it enabled the attitudes express freely. On the other hand, the fall of the communist regime provided another opportunity to reestablish relations with foreign countries, including a huge Asian market. Czechia had become very active in the field of foreign direct investment (FDI). Since 1990s, it took place as one of the highest receivers in the whole post-communist Europe per capita, and a number one as a FDI receiver within the Visegrad group. In 2000, China became a member of World Trade Organization and the Chinese government has launched a policy of “going global” (zou chu qu 走出 去)5 with its transformation towards internationalization of Chinese firms and their competitiveness on the world market as well.6 After Czechia´s accession to the EU in 2004, most of the previous Czech- Chinese bilateral agreements were replaced by common EU-Chinese treaties. The EU membership made Czechia more attractive location for Chinese investors, as the economic situation has been continuously one of the best among the Central Eastern European countries