China in South East Europe: economic or political interests?

A recent theme in SEESOX seminars has been the role of non-EU actors in South East Europe. The the seminar on March 11, with Jens Bastian (ELIAMEP-- Hellenic Foundation for European & Foreign Policy), and Igor Rogelja (King’s College London), and chaired by Professor Rana Mitter (Director of the University of Oxford China Centre) focused on China: how it is expanding its presence, how that expansion should be interpreted, and the related interactions among the players in the region and beyond.

Dr. Bastian posed the question of whether Chinese involvement in SEE was opportunistic or strategic. Grandiose statements have been made about a “Balkan Silk Road” and turning Piraeus into the largest port in Europe, but Dr. Bastian presented a more complex picture. He explained that Chinese involvement in SEE had three main elements:

• Investment in infrastructure. Typically, first one sizeable investment is undertaken by a Chinese government-owned corporation. This investment leads to a cluster of other investments, where the expansion can be geographical (e.g., ports in various counties) or sectoral (e.g., a port followed other infrastructure, etc., in the same country). Investments tend to be in transportation, energy, and telecommunications.
• Ample financing. The Chinese state-owned policy banks have been willing to advance significant sums, under favorable conditions. However, this financing has often been conditioned on host government guarantees and collateral in the form of real estate.
• Enhanced soft power. In pursuit of soft power, the Chinese authorities have, for example, built up the “17+1” platform for cooperation between Central and Eastern European countries and China; financed the establishment of numerous Confucius Centres at universities across the region; engaged in security cooperation, putatively to protect Chinese tourists; and advised on the creation of “safe/smart” cities (e.g. in Belgrade and Sarajevo).

Dr. Bastian emphasized that these tendencies do not necessarily constitute a fully coherent strategy, and have not been without complications. The provision of large scale financing may make countries vulnerable to a debt crisis. The “17+1” platform may provide more photo ops than results on the ground.

Dr Rogelja provided complementary evidence on how Chinese investment in SEE has played out in practice, based on a number of case studies. His theme was the importance, and complexity, of local political conditions. His illustrative case studies included:

• The take-over of Piraeus port by COSCO (the Chinese state shipping company). At the time, the privatization was supported by Greek shipping interests and by the Greek government, which was desperate for privatization revenues. This support allowed the investment to overcome complications related to its environmental impact assessment. Subsequently, local groups have become more vocal and more effective in opposing large-scale expansion.
• The financing of coal-fired electricity plants in Serbia and the Republika Srpska by Chinese state firms. Again there was some local resistance to the heavily polluting plants (which were of dubious viability), but local political and coal industry interests were able to ensure their go-ahead.
• The take-over by a Chinese private company of an oil field in Albania. In that case, the government decided to ban fracking after a spate of earthquakes – this shows the importance of political connections with the host state.

Dr Rogelja emphasized that local politics and policies are crucial in determining the outcome. Local authorities decided to pursue coal-based generation; the Chinese entities would probably have financed investment in renewables if the interest was there. Some of the Chinese financed and built projects had difficulties meeting environmental impact standards, but local authorities differed in the weight they attached to this issue.

Professor Mitter offered a wider perspective. He suggested that the Chinese authorities seek out zones of weak governance, or jurisdictions that are eagerly looking for allies and feel perhaps abandoned by traditional partners. For example, if multilateral development banks refuse to finance carbon-intensive projects, Chinese funding and technology will be welcome.

Chinese involvement in SEE can also be seen as part of a global strategy to seek influence and optionality. Thus, investment in ports and cooperation on security in SEE has counterparts across a chain of developing and emerging market economies. These activities may not only yield benefits in the short term, but could also provide the basis for a support network that may be valuable in various geostrategic circumstances.

One further objective of Chinese involvement in SEE is to increase access to the EU as a whole. The Chinese authorities may see the EU as offering opportunities—some Chinese firms have recently won tenders to build European funded projects—and partnership in some areas—European countries contributed substantially to the capital of the Asian Infrastructure Investment Bank. But Europe is seen also as a rival in economic, political, and soft power terms.

The EU likewise has made quite clear that it views China as both a partner and rival, as opportunity and opponent, in SEE and elsewhere. The question is how this perception will be translated into future action.

Daniel Hardy (Academic Visitor, EuPEP, European Studies Centre, St Antony's Collge, Oxford)