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Central and Eastern Europe Between China and the EU: The last 17+1 Summit Relaunches Cooperation

2013 China - CEE Summit © Partidul Social Democrat from Romania / CC BY 2.0 / Wikimedia Commons

An overwhelming volume of literature has been devoted to deciphering what the European Union is for China, from both a geopolitical and geo-economic perspective. The CEE region, however, is often overlooked in conversations on contemporary geopolitics. In Western Europe, in fact, ties with China have become institutionalized over decades of intense relations with Beijing. Yet in Central and Eastern Europe, relations with China started much later and often from scratch. The 17+1 Forum of cooperation is a powerful case study to understand the multi-faceted China-EU relationship, especially in this historical moment in which the tensions between the two blocs are intensifying on various fronts. In addition to concerns about the construction of a Chinese infrastructure for 5G technology in Europe, the enlargement of China's sphere of influence into the EU's eastern neighborhood has raised further concerns within EU institutions. In March 2019, the EU defined China as "an economic competitor in the pursuit of technological leadership, a systemic rival promoting alternative models of governance" and also adds that "the balance between the challenges and opportunities posed by China has changed" (European Commission, High Representative of the Union for Foreign Affairs and Security Policy, 2019). The 17 + 1 group has been labeled by some as a Chinese tool for dividing and conquering Europe (Karásková, 2020). This dynamic also had a short-term negative effect on the advancement of the Belt and Road Initiative (BRI). Now the key question is: is 17 + 1 really a Trojan Horse (Turcsányi, 2014; MacDowall, 2018) donated by China with the intent of increasing its geopolitical influence in the region by jeopardizing the unity of the EU, or is it an economic initiative designed to improve Eurasian connectivity and infrastructure within the broader framework of the BRI?

“17 plus One” Cooperation Forum and the Belt and Road Initiative

The worsening of economic conditions (especially after the 2008 crisis) and therefore the need to attract foreign investment has led Central and Eastern European countries (CEECs) to deepen bilateral relations with Beijing, rather than conforming to the EU's common China policy. This is the case of the format known as 17 + 1, where 1 is China and 17 are 12 EU member countries — Bulgaria, Croatia, the Czech Republic, Estonia, Greece (who joined the group only in 2019), Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia — and 5 aspiring ones — Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia.

The 17+1 represents China's foreign policy strategy towards CEECs. The group meets once every year at the level of heads of government. Since 2012 (year of foundation of the Forum), 9 summits have been held. The last one was held on February 9, 2021 after almost a year of stalemate. The 2020 summit, which was scheduled to take place in Beijing in April, was initially postponed to autumn, but was, in the end, not held. Formally canceled due to the pandemic emergency, it has been the victim of deeper problems that have slowly cooled relations between China and CEECs (Kavalski 2020). To try to understand what happened, we need to frame their relations within the ambitious Chinese BRI project.

It is no coincidence that the format was founded in April 2012, just a year before the Chinese government launched the OBOR in 2013 (later renamed BRI), and in fact the two are strongly associated. CEE has a strong need for infrastructure and China has the financial resources to deal with it. China values their geostrategic position as a bridgehead to the EU market and a crucial transit corridor for its BRI (Grieger, 2018) which is the ambitious Chinese initiative for improving its trade links from East Asia to Europe and East Africa. Infrastructure, transport, and logistics are the main sectors addressed with the 17 + 1, but cooperation has gradually embraced other areas such as trade in goods and services, education and culture, tourism, new technologies, the green economy, and finance (Cooperation between China and Central and Eastern European Countries, 2015). China is also strongly interested in the region as a possible negotiating lever in the dialogue with Brussels to debate on other fronts such as China's recognition of the status of a market economy within the World Trade Organization, greater access to the European market, and its relationship with the U.S.

CEE, A Region of Strategic Importance: Expectations vs Reality

Seven years after the BRI was launched, however, growing discontent has spread among CEECs which essentially compete with each other to attract Chinese investment. Most have not seen the hoped-for Chinese investments (bridges, roads, and other infrastructure) that remained only on paper but were never built, and their products still struggle to enter China's markets. As Long Jing (2016) explains, “large economies (such as Serbia) were better able to deal with China's large-scale investment projects while small and medium-sized economies (such as Croatia and Slovenia) initially welcomed the establishment of the 17 + 1 framework, but then they found it difficult to implement specific projects afterwards”.

The positions taken by the CEECs are varied: while some have taken pro-Beijing stances, others have shown themselves more reluctant to carry on cooperating. There are countries in the region that may seem more friendly towards China - the Czech Republic, Hungary, and Serbia - but each has very different stories behind their ties to the Asian giant and none, in fact, depend on China. Furthermore, among the CEE countries, some - such as Romania, Poland, Lithuania, Latvia, or Estonia - are faithful allies of the United States; others, such as Bulgaria or Croatia, are more flexible (Brînză, 2020). Countries that have benefited substantially from cooperation with Beijing include Poland, Czech Republic, and Hungary, but even Beijing's biggest supporters have been discouraged. “I don’t think the Chinese side has done what it promised. I’m talking about investments,” Czech President Miloš Zeman said to Czech media (Grzegorz, 2020).

As for the completed projects, further problems have arisen. China has often been accused of using "debt trap" diplomacy to entice CEE governments to borrow more than they can afford to finance infrastructure projects and thus seize strategic resources as a loan guarantee (Rowley, 2020). The high levels of debt in these countries raise concerns about the performance of the Chinese project in the CEECs, which is encountering more and more skepticism because it is interpreted exclusively as a Chinese growth tool. As ISPI explains, the accusation is that “Chinese loans are collateralised by strategically important assets, from mineral resources to port projects, and the debt is used deliberately to leverage or extract strategic advantages from poor indebted countries — including asset seizures — when they are unable to meet debt obligations” (Chen, 2020). It is therefore not surprising that countries that have attracted the most investments are those outside the EU, while some Chinese infrastructure projects in EU member countries have suffered setbacks because they collide with EU standards that limit the overall level of public debt of the EU Member States.

CEE and Western Europe: A Comparison

CEE represents a relatively small portion of the substantial bilateral China-EU relations and it is far less economically dependent on China than the rest of the European Union. As economic data shows, trade between China and the CEECs actually jumped before 2012, but since then it has increased at a much slower pace, with Chinese exports to the CEECs expanding much faster than CEEC exports to the China, thus generating an unbalanced trade strongly skewed in favor of China (Grieger, 2018). Chinese FDI into Europe in 2019 was concentrated in Northern Europe but the “Big Three” economies (UK, Germany, France) have traditionally received the most Chinese capital. Eastern Europe’s share rose from 2 percent in 2018 to 3 percent in 2019, a low level given that (in the same year) the region accounted for 10% of EU GDP (Kratz et al., 2020). Specifically, Chinese investments in the 12 EU member states joining the 17+1 remain modest, amounting to EUR 8.6 billion between 2010 and 2019 (Stec, 2020). Although the flow of investments from China to the North, South, and West has drastically decreased in recent years, it remains evident that only Great Britain, France, Germany, and Italy constitute a significant economic burden for China.

What's Next? CEE Between China and the EU

The EU is the largest Chinese trading partner and China, at the same time, has become the EU's largest trading partner in September 2020 (surpassing the United States). Although 2020 has been a difficult year for EU-China relations, it has not proved fruitless and at the end of 2020, negotiations for EU-China Comprehensive Agreement on Investment (CAI), that had been going on since 2013, were finally concluded. The CAI should ensure China's entry into the European energy market in exchange for more access for European companies. The text of agreement still requires the approval of the European Parliament and the ratification process could take months, but it could constitute a first small step towards a possibly broader free trade agreement. This could mean more confidence in the 17 + 1 as well, given that some members of the group seem now more suspicious of cooperation with China. Despite concerns about EU unity, European leaders have slowly come to recognize that they need to cooperate with China. After the 22nd EU-China summit, President Charles Michel said "differences exist and we won't paper over them. But we are ready to engage. Ready to cooperate where we can, and ready to roll up our sleeves to find concrete solutions." (European Cou