China’s New Silk Road Takes Shape in Central and Eastern Europe

First revealed by Chinese President Xi Jinping in 2013, the vision of the New Silk Road has since become a cornerstone of China’s public diplomacy. The idea of establishing two logistics corridors—the Silk Road Economic Belt and the 21st Century Maritime Silk Road—has also gained a firm foothold in the foreign policy domain through numerous specific initiatives that not only aim to lay down infrastructure for a new transportation network but also to facilitate deeper cooperation, economic and otherwise, between China and the countries along the Silk Road routes.

Long neglected by policy makers in Beijing, Central and Eastern Europe (CEE) has grown in importance to China’s foreign policy in recent years, especially since it was “rediscovered” as an important part of the New Silk Road puzzle (CASS, November 13, 2014; Xinhua, December 17, 2014). [1] On the eve of the last Meeting of Heads of the Government of China and CEE (known as the Belgrade Meeting), the now annual meeting of leaders from China and the 16 CEE countries (CEEC), Chinese Premier Li Keqiang emphasized the importance of the CEE region for China’s “one belt, one road” initiative. Li stated that:

The Northern route, thanks to regular trains between China and Europe, could become a new transport and logistics artery extending to Western Europe through Central and Eastern Europe. Based on the Greek Port of Piraeus and the Railway connecting Belgrade and Budapest, the Southern route could be a China-Europe land-sea express line. It will significantly enhance regional connectivity, boost the economic development of countries along the route, and provide new and convenient access for Chinese exports to Europe and for European goods to enter China, as it goes through an area that involves 32 million people (sic) and 340,000 square kilometers of land…The China-Europe land-sea express line, together with regular trains between China and Europe and existing transport and logistics routes, will become an integral, convenient and efficient connectivity network linking Asia with Europe (Tanjug, December 14, 2014).

China-CEE Cooperation Gains Momentum

An important step forward in realizing this vision was made by the signing of two agreements related to the construction of the Belgrade-Budapest High-Speed Railway (HSR) during the recent Belgrade Meeting, a project first brought up by the Chinese side in early 2013 (Dnevnik, February 22, 2013). Although the signing of the ready-to-go contract was delayed, as the parties are still searching for the most suitable financing arrangements for the estimated 2 billion euro ($2.4 billion) project, this was the first occasion on which the vision of the trans-Balkan high-speed railway connecting the China-controlled Greek port of Piraeus and European markets was officially articulated (see China Brief, October 23, 2014). Of note, in addition to the Serbian, Hungarian and Chinese representatives, the agreements were signed by the Macedonian premier, signaling the immediate extension of the HSR southwards to Macedonia, where it will link up with the upgraded Greek section of railway between Piraeus and the Macedonian border, which is also reported to follow soon (China Daily, December 19, 2014).

The Meeting also resulted in the jointly released “Belgrade Guidelines,” setting the medium-term strategy for China and CEE countries “to strengthen all-round cooperation,” including an announcement of an additional fund of $3 billion for Chinese investment in the CEE region through public-private partnerships and Beijing’s contribution of another $1 billion to the China-CEE Investment Fund. The participants also set a goal to double the current trade volume of $60 billion within the next 5 years. Premier Li also announced a steep increase in a number of scholarships available to students from CEE countries to study in China, the establishment of a “China-CEE center of scholars and think tanks” at an early date, as well as increased cooperation in culture and tourism (Tanjug, December 14, 2014; Chinese Ministry of Foreign Affairs, December 17, 2014).

All this comes on top of an already eventful 2014. Premier Li noted that nearly $8.5 billion has been already allocated from China’s $10 billion credit line for the CEE region, and the China-CEE Investment Fund, initially backed by $500 million from China’s Export-Import (Exim) Bank, invested approximately $200 million by the end of 2014 (Tanjug, December 14, 2014). Also, 2014 witnessed China entering the European nuclear energy market by agreeing to an estimated 6.5 billion euro ($7.9 billion) deal to finance and build two nuclear reactors in Romania (Balkan Insight, October 20, 2014). Another eye-catching agreement concerns a 687 million euro ($836 million) loan-and-construction deal between China and Montenegro to build a highway from the Adriatic Port of Bar to the Serbian border (B92, December 9, 2014). Lastly, the establishment of the China-CEE Permanent Secretariat for Investment Promotion, based in Warsaw, hints that many more Chinese investment projects are likely in the immediate future (CIRN, November 27, 2014). [2]

China Drops Anchor in Serbia

The Belgrade Meeting was embedded within Premier Li’s four-day visit to Serbia, China’s key partner in the region. The two countries signed a strategic partnership agreement in 2009, and followed it up with several joint projects in infrastructure and the energy sector (see China Brief, October 23, 2014; China Policy Institute, April 2011). The first, a $260 million bridge financed and built by China’s state-owned heavyweight China Road and Bridge Corporation and largely financed with a loan from China’s Exim Bank, was jointly opened by the premiers of China and Serbia during Li’s visit in a high-profile, live-televised event that featured an assembled crowd of several thousand Serbian citizens cheering the Chinese premier. Of note, the bridge is the first infrastructure project financed and delivered by China in Europe, again demonstrating China’s use of CEE to test and showcase Chinese infrastructure to Western Europe (China Daily, December 19, 2014).

During Premier Li’s visit, Serbia and China signed another 13 new agreements and memorandums regarding infrastructure, transportation, finance, agriculture, telecommunications and cultural exchange. [3] The most eye-catching is a $608 million loan, with an interest rate as low as 2.5 percent from China’s Exim Bank, for the construction of a new unit at the coal-fired Kostolac power plant, the first new power station to be built in Serbia after approximately three decades (B92, December 17, 2014). In a deal supported by the China-CEE Investment Fund, the state-run Chinese company Goldwind agreed to supply wind turbines to Serbia’s first-ever wind farm (SEE News, December 22, 2014). Among other agreements, China’s state-owned giant Sinohydro is now set to complete the construction of the ring road around Belgrade, and a feasibility study to prepare establishing an industrial zone for Chinese enterprises will shortly be underway. China also donated approximately 4.5 million euros ($5.5 million) in cash to Serbia’s budget, and Huawei announced a donation of an information and communication technologies lab to the University of Belgrade. To round things off, Premier Li was also made an honorary citizen of Belgrade before departing (Tanjug, December 18, 2014). [4]

The Serbian Minister of Economy Zeljko Sertic reported that Chinese enterprises, of which over 300 took part in the Business Forum attached to the Belgrade Meeting, expressed interest in buying a dozen Serbian state-owned enterprises in industries as diverse as agriculture, machinery as well as health and spa (Ve?ernje Novosti, December 20, 2014). According to Serbian officials and media, China is also discussing building a port and duty-free export zone on the Danube river, establishing additional industrial zones for Chinese enterprises and participating in several projects related to the expansion of Serbia’s highway and railway network, including a connection to the China-funded highway from the Montenegrin Port of Bar to the Serbian border (Ve?ernje Novosti, December 17, 2014). Unsurprisingly, a coordination centre for infrastructure and logistics projects under the China-CEE framework is expected to shortly be inaugurated in Belgrade.

Reaching Out to the EU

At the same time as Premier Li’s visit aimed to deepen China’s cooperation with CEE and Serbia, there were also the first hints that these relationships may not remain problem-free. On the economic front, Montenegro suffered the lowering of its credit rating by credit-rating agencies Moody’s and Standard and Poor’s as well as the withdrawal of the World Bank’s $50 million budget support fund, due to fears that the Chinese loan may overload the already debt-ridden country (Reuters, October 20, 2014; B92, December 9, 2014). Serbia appears to be struggling to avoid the same fate by looking into alternative ways of funding the upgrade to its section of the Belgrade-Budapest HSR—such as through its own budgetary means, a concession agreement with the Chinese partner or by utilizing a previously agreed loan from Russia—as the country attempts to keep its external debt and budgetary deficit under control in the coming years (Politika, December 20, 2014). Serbia’s fiscal predicament has already delayed the finalization of the contract for construction of the HSR, and may put into jeopardy other projects under discussion with China.

On the political front, 11 Falungong activists from several European countries were detained by Serbian police upon their arrival in Serbia and duly deported, as they reportedly planned to stage a protest against China’s human rights record during the Belgrade Meeting (Danas, December 18, 2014). Although both Serbian and international governmental and non-governmental organizations remained largely silent on the issue, such handling of activists is likely to have raised a few eyebrows in other capitals of the CEE region, as well as in Brussels, especially as it is not the first time that Serbia has bowed to Chinese demands over human and political rights issues (China Policy Institute, April 2011). It remains to be seen whether these and similar economic and political problems may recur and evolve to impede the progress of China’s influence in Serbia and other CEE countries.

The more important challenge to the deepening of Sino-Serbian and China-CEE relations is posed by the ambiguous attitude of the EU toward China’s growing involvement in its backyard. Discussion in the EU over the last year has centered on whether China-CEE cooperation may be utilized by Beijing to split the EU for China’s benefit (European Institute for Asian Studies, January 23, 2014; Deutche Welle, December 15, 2014). In his article for the Serbian National News Agency on December 14, Premier Li addressed this issue (see China Brief, September 25, 2014). Li said:

China supports the European integration process, as well as a united, stable and prosperous Europe that plays a greater role in the international community… China’s cooperation with the 16 CEECs will not result in fragmenting the European Union. Much to the contrary, it will help deepen cooperation between China and the European Union and narrow the development gap between the eastern and western parts of the European Union… China-CEEC cooperation is undoubtedly part and parcel of China-Europe cooperation, and the two could naturally go in parallel and be mutually reinforcing (Tanjug, December 14, 2014).

Li expressed hope that “17 countries align our respective mid- and long-term development goals and the China-EU 2020 Strategic Agenda for Cooperation.” This message was reinforced by Premier Li at least several times during his stay in Serbia. Li also stated that China is committed to ensuring that future infrastructure projects would be in line with EU laws and standards (Tanjug, December 14, 2014; Tanjug, December 18, 2014). As Brussels has political leverage over the CEE region, what policy response the EU decides to eventually take toward China’s involvement in the region may greatly affect the future trajectory of China’s relations with CEE.

China’s Breakthrough in the CEE and the New Silk Road Strategy

Premier Li’s visit to Serbia for bilateral and multilateral meetings was sandwiched between his visits to Kazakhstan and Thailand, two other key parts of the Silk Road Economic Belt and Maritime Silk Road vision. These visits also combined elements of both bilateral and multilateral diplomacy, as Li attended the meetings of two other multilateral forums, the Shanghai Cooperation Organization (SCO) and the Greater Mekong Subregion (GMS) Economic Cooperation, in Astana and Bangkok, respectively. Among various agreements of great breadth and depth, these visits resulted in a $10.6 billion deal to provide Thailand with nearly 560 miles of high-speed railway, a pledge of $3 billion to GMS countries with $1 billion specifically intended for infrastructure, as well as $14 billion worth of agreements between China and Kazakhstan that cover yet-unspecified cooperation in areas of nuclear energy, electricity, water resources and infrastructure construction (China Daily, December 12–21, 2014).

As in the case of Premier Li’s visit to Serbia, activities in Astana and Bangkok were framed both by Chinese officials and media as “another step forward in efforts to revive the ancient transcontinental Silk Road.” For example, in a special section devoted to these visits, China Daily went to great lengths to relay Beijing’s vision of “openness, reciprocity and mutual benefit” that will be ensured by greater inter-connectivity and cooperation along the New Silk Road routes (China Daily, December 12–21, 2014).

This message hit the target with audiences in Serbia and the other CEE countries. During the Belgrade Meeting, CEE leaders vociferously hailed the prospects of deeper cooperation with China and emphasized the advantages that China will enjoy by investing in the region and their respective countries. In Serbia, this was accompanied by a media frenzy that included over ten hours of live television coverage and top headlines and double pages in print media devoted to the Meeting and Premier Li’s visit, as well as numerous expert panels that unanimously agreed that China’s involvement in the country and the CEE may be a game-changer for struggling regional economies. Furthermore, the Serbian government not only presented cooperation with China as a great developmental opportunity, but also used Premier Li’s visit to showcase itself as a reformed, stable and business-minded regional force where “East Creatively Meets West” to both foreign and domestic audiences, in an attempt to boost both its international standing and the electorate’s support (Politika, December 14, 2014).

In conclusion, the New Silk Road narrative now provides both a strategic orientation for China’s foreign policy, as well as a conceptual umbrella under which multiple and so-far disparate Chinese multilateral and bilateral diplomatic initiatives are unified and promoted around the globe. As the outcomes of Premier Li’s December tour and Beijing’s initial success in incorporating CEE countries into the “one belt, one road” initiative testify, the New Silk Road appears to be an effective platform for China to increase its global clout, even in those parts of the world where it has never had much presence.

Notes

1. CEE was not part of the ancient Silk Road, but both routes of the New Silk Road transit through CEE. While CEE was previously largely outside the scope of China’s foreign policy, China has ramped up relations with the region since the onset of the Global Financial Crisis, and especially since 2012 when it established the so-called “16+1” multilateral framework for China-CEE cooperation.
2. The secretariats for different areas appear to be strategically “awarded” to different CEE countries (for example, Bulgaria will host agriculture, Poland will host investment, Serbia will host infrastructure, among others). They are placed within governmental institutions in host countries (such as the Polish agency for foreign investment, or Bulgarian ministry of agriculture). They will likely be staffed only with local personnel, but at the same time, part of the multilateral institutional structure will likely be coordinated by the general China-CEE Cooperation Secretariat in Beijing.
3. Among these deals, only the building of a new unit at the Kostolac power plant represents the continuation of a pre-existing, multi-phase agreement regarding the upgrade and revitalization of the Kostolac power plant, while others are brand new agreements (Balkan Magazine, December 15, 2014).
4. Premier Li is the 27th person and the third senior Chinese official to receive honorary citizenship of Belgrade, along with former leader Hua Guofeng and former President and Politburo Standing Committee member Li Xiannian (B92, December 18, 2014).