United Front Work by Other Means: China’s “Economic Diplomacy” in Central and Eastern Europe

Introduction—A New Approach to United Front Work in Central and Eastern Europe

In the era of Chinese Communist Party (CCP) General Secretary Xi Jinping, “united front work” (tongyi zhanxian gongzuo, 统一战线工作) has taken on greater significance and a global scale (China Brief, April 24, 2018; China Brief, May 9). Traditionally, the main target of united front work outside the People’s Republic of China (PRC) has been the Chinese diaspora. More recently, in countries with large and well-established “overseas Chinese” (OC) populations such as Australia and New Zealand, united front work has extended beyond ethnic Chinese communities to society at large—via means such as the cultivation of mainstream politicians and political donations to political parties (Wilson Center, September 2017; Australian Parliament, January 2018).

However, the rapid expansion of the PRC’s foreign policy agenda under Xi has also brought CCP liaison activities to newer regions, where traditional approaches may need creative adaptation. Central and Eastern Europe (CEE), now prominent in the PRC’s global plans through the “16+1” (or “17+1” ) framework (China Brief, February 15), is a region that lacks significant OC communities. Local OC communities have been growing in these countries in recent years, but typically remain small and lack broad integration into the majority population. As in other countries, ethnic Chinese residents have been targeted by united front-related organizations, ranging from various hometown and commerce associations to local branches of the China Council for the Promotion of Peaceful National Reunification (Zhongguo Heping Tongyi Cujinhui, 中国和平统一促进会). These organizational extensions of CCP power remain, for now, less influential in most CEE countries than might be the case elsewhere. [1]

Although much of the CCP’s united front work is assigned to a dedicated policy system—with the Central United Front Work Department (Zhongyang Tongzhan Bu 中央统战部), or UFWD in a central role—other entities also serve this function. The united front is not just a specific “system” (xitong, 系统) within the CCP bureaucracy; it is also a basic principle for “all-party work” (quan dang de gongzuo, 全党的工作) (People’s Daily, undated). Under specific conditions like those in CEE, other organizations might supplement the United Front system, or even take the lead— as has been the case in the Czech Republic.

Forthright political liaisons with the CCP in regions like CEE might in themselves risk alienating populations that rejected their own Leninist party-state systems only a generation ago. Instead, the CCP has found a more palatable packaging for “friendly contacts”, playing on the persisting economic differential between Europe’s East and West. These efforts have been focused on the business activities of nominally private Chinese companies, under the label of “economic diplomacy.” In the Czech Republic, this concept became almost exclusively the domain of one rather peculiar Chinese conglomerate, hailed at first as a “flagship of Chinese investment” (see below). In the end, the company brought little investment, but managed to engage a significant segment of the local political establishment—often through direct employment offered to high-ranking politicians and civil servants (Sinopsis, March 10, 2019).

The Czech Republic: Economic Diplomacy with Political Outcomes

The Czech Republic made a rather abrupt shift towards a closer relationship with the PRC in 2014, which was justified by then newly-elected President Miloš Zeman as a pragmatic “economic diplomacy” that would help to attract large-scale investment from China. This invited swift responses from the PRC: the CCP International Liaison Department (Zhongyang Duiwai Lianluo Bu, 中央对外联络部), or ILD, which targets foreign parties and high-level political figures (Sinopsis, August 2018; Party Watch, October 2018), has become prominent in forging intense “friendly contacts” within the Czech political establishment. Despite repeated warnings from the Czech counter-intelligence agency BIS (Bezpečnostní informační služba) that the ILD is “a specific party intelligence organ” (BIS, 2016), the ILD quickly became the primary contact for many Czech delegations visiting Beijing, and ILD personnel now frequent political and even nominally economic events in Prague. [2] The ILD’s leading role in high-level liaisons is supplemented by the UFWD: for example, former UFWD head Sun Chunlan (孙春兰) seems to have developed a particularly close relationship with Czech President Miloš Zeman and other Czech politicians (Deník N, November 2018).

As a form of “economic diplomacy,” after five years the new approach can only be judged as a failure for the Czech Republic. It brought negligible economic results: the expected massive investment from China never materialized, and investment flows have actually declined since 2016. In any case, the cumulative value of PRC investment, estimated at between 0.7 and 1.1 billion U.S. dollars, remains macroeconomically insignificant (Česká národní banka; Lidové noviny, January 22, 2019; Merics, March 6, 2019; Sinopsis, March 10, 2019). Countries like Denmark are actually bigger investors in the Czech Republic than China, and the PRC’s much smaller bête noire Taiwan has invested 14 times more in manufacturing (Česká národní banka; Lukáš Kovanda, March 31, 2019; BusinessInfo.cz, September 14, 2018). The paucity of Chinese investment is so striking that it provoked a mild complaint from Zeman in an otherwise laudatory CCTV interview before his trip to the BRI Forum in April 2019. [3]

Bilateral trade has increased, but only to further widen the Czech trade deficit: in 2018, imports exceeded exports by a factor of ten (Ministerstvo průmyslu a obchodu, February 7, 2019). China remains insignificant both as an export destination and as a source of investment. In fact, investment from the Czech Republic to China has arguably been more significant, as both Czech-based Škoda Auto and Czech-owned PPF have large footprints in China. The former’s success in the PRC is unrelated to the 2014 policy change: Škoda had been expanding in China since the early 2000s, building on the market position of its parent company, Volkswagen Group (Škoda Auto, 2007; Česká televize, January 11, 2019; Škoda Auto, April 19, 2019). The latter company, the financial conglomerate PPF, is by contrast intimately linked to the 2014 turn-around. As the largest Czech company that emerged from the privatization process in the 1990s—making its majority owner Petr Kellner the richest person in the country—PPF has always exerted a disproportionate influence on Czech politics. PPF’s interests in the PRC, namely a coveted national license for their consumer credit subsidiary Home Credit, drove the foreign policy U-turn (Sinopsis, March 10, 2017).

Home Credit duly obtained its national license in China in 2014, shortly after the new Czech policy towards the PRC was officially declared during a visit to Beijing by the Czech foreign minister Lubomir Zaorálek. Home Credit’s business in the PRC has grown substantially, and China has become its main international profit center (Bloomberg, March 2019). The company is, however, registered (and taxed) in the Netherlands, and it is unclear what benefit their PRC operations bring to the Czech Republic. At the same time, the company’s influence on Czech politics essentially holds the country hostage to PPF’s business activities in China. The favor of Beijing regulators can be withdrawn as quickly as it was won with the support from Zeman and his cohort.

In short, the U-turn in Czech policy towards China in 2014 has been justified in terms of economic diplomacy; however, on the Czech side it has only worked in those terms for a single private company registered in Holland. After five years, it has become painfully clear that there has been little economic impact for the country as a whole. The general public has grown frustrated with the lack of tangible economic results (as well as with occasionally embarrassing political theatrics). However, despite popular discontent, the narrative of “economic diplomacy” persists, propagated by a relatively narrow circle of Czech politicians and politically connected entrepreneurs. Some of these politicians were originally hired as lobbyists by PPF in its quest for regulatory approval in China. Many more, including some originally working for PPF, have ended up on the payroll of a mysterious (and by now internationally notorious) Chinese company called CEFC (Sinopsis, December 2016).

CEFC: The Flagship of Political Cooptation

CEFC China Energy (Zhongguo Huaxin Nengyuan, 中国华信能源), hailed by the Czech President as “the flagship of Chinese investments in the Czech Republic” (China Digital Times, February 8, 2018)—and linked to PRC military “political work” through the company’s connections to the China Association for International Friendly Contact (Zhongguo Guoji Youhao Lianluo Hui, 中国国际友好联络会), or CAIFC (South Sea Conversations, June 7, 2013; Project 2049, October 2013)—effectively dominated the Czech-China relationship from 2015 through 2018. The company’s chairman Ye Jianming ( 叶简明) was even appointed an “honorary advisor” to Czech president Miloš Zeman in early 2015 (Renmin wang via qq.com, April 2015). Ye still officially holds that position (Český rozhlas, April 28, 2019), even in his conspicuous absence after disappearing a year ago—possibly due to investigation by the CCP’s disciplinary apparatus  (Caixin via South Sea Conversations, March 29, 2018; Beijing News, October 11, 2018).

In the end, CEFC’s economic activities in the Czech Republic proved underwhelming. The company seemed less interested in business deals than in developing political relationships by hiring a plethora of former politicians and civil servants, including a former defense minister and a Czech Euro-Commissioner.  This fits a broader pattern: outside the Czech Republic, CEFC has cultivated politicians from Serbia to Georgia, and also in Africa, while helping to advance the CCP’s interests at the United Nations (China Digital Times, June 24, 2018; Sinopsis, March 12, 2018). After a spectacular rise, the company unraveled in similarly dramatic way: in November 2017 in New York, the FBI arrested former Hong Kong politician Patrick Ho (何志平), the head of CEFC’s non-profit arm, on charges of bribing politicians at the United Nations and in Africa. Shortly afterwards, CEFC Chairman Ye Jianming disappeared in China. Simultaneously, CEFC has been exposed in Chinese media as an elaborate Ponzi scheme that accumulated billions in debt in China and abroad (South Sea Conversations, March 29, 2018).

After the arrest of Patrick Ho in New York and the disappearance of Ye Jianming in China, CEFC became unable to raise any more credit to pay off its debts and quickly collapsed. Its distressed assets in the Czech Republic are being consolidated and sold off by the giant Chinese state investment fund CITIC. Despite this, the narrative of economic diplomacy lives on: President Zeman has doubled down on his unconditional support for the PRC, substituting CITIC as his new economic champion. More recently, he has also heavily invested himself in defending Huawei amid current international controversies (TV Barrandov, January 10, 2019; Sinopsis, January 12, 2019; Respekt, May 2, 2019).

Conclusions: “Economic Diplomacy” and Elite Capture

The elite capture achieved by CEFC’s political work has helped the PRC to manage the fallout from the company’s economic meltdown, mobilizing the political connections that CEFC established in its heyday. The politicians directly hired or otherwise indirectly engaged by the company now spin a new narrative in which CEFC’s collapse was just the work of its faulty chairman: CITIC has now resolved CEFC’s “troubles,” and the economic diplomacy with China is back on track (Deník N, November 14, 2018).

The peculiar kind of “economic diplomacy” demonstrated by CEFC in the Czech Republic is not an isolated case, and provides an illuminating example of the adaptation of old Leninist concepts for the present day. United front work as a tactic, without limitations in a specific bureaucratic system, can be innovatively employed through new channels towards the same end: temporary tactical alliances with local elites in areas beyond direct Party control. The resilience of the “economic diplomacy” narrative in the Czech Republic—despite the project being an obvious fiasco—is a testimony to the efficacy of the kind of elite capture performed by companies like CEFC. The company may have collapsed, but the local alliances it helped forge remain available when the CCP’s interests are at stake—as seen, for example, in the ongoing controversies surrounding Huawei (Sinopsis, January 24, 2019).

In circumstances where the usual bottom-up united front approach through local ethnic Chinese communities is unavailable or impractical, engaging local elites through top-down “economic diplomacy” could yield similar (and perhaps better and faster) results than the more traditional forms of united front work. The ultimate goal, however, remains the same: forging temporary tactical alliances to advance the CCP’s strategic goals in environments that the Party cannot yet control by more direct application of force.

The author is grateful to Jichang Lulu for comments and suggestions provided to assist with the preparation of this article.

Martin Hála is a Sinologist with Charles University in Prague, and the founder and director of Sinopsis.cz, a project that provides analysis of China-related topics in Europe.

Notes

[1] Individuals associated to the United Front system have, however, been active in political influence activities in CEE as well (Sinopsis, June 2018).

[2] On ILD presence at events and contacts with Czech officials, politicians and even a university administrator, see Sinopsis, November 21, 2016; ILD, January 18, 2017; ILD, February 21, 2017; ILD, July 19, 2017; ILD, September 9, 2017; Sinopsis, December 10, 2017; ILD, May 28, 2018; Sinopsis, January 24, 2019.

[3] No more than the innocuous final section of the interview seems to have been broadcast on CCTV; a Xinhua summary likewise omits Zeman’s mild complaint and mention of CEFC (Pražský hrad, April 18; Xinhua, April 23; Xinwen lianbo, April 25, 44:28 to 45:02; Deník Referendum, April 29).