CHINA STRENGTH­ENS LINKS WITH CEN­TRAL AND EAST­ERN EUROPE

China Today (English) - - FRONT PAGE - By JOHN ROSS

THE re­cent pe­riod has seen a ma­jor in­crease in eco­nomic and diplo­matic ex­changes be­tween China and Cen­tral and East­ern Europe. In March, Xi Jin­ping paid the first state visit by a Chi­nese Pres­i­dent to the Czech Re­pub­lic. In April Poland’s For­eign Min­is­ter Wi­told Waszczykowski vis­ited Bei­jing and specif­i­cally un­der­lined the im­por­tance of China’s Belt and Road Ini­tia­tive. As Poland is the largest econ­omy in East­ern Europe af­ter Rus­sia, the Pol­ish gov­ern­ment’s con­clu­sions are worth quot­ing.

For­eign Min­is­ter Waszczykowski re­marked: “With re­gard to the eco­nomic as­pect of EU-China con­tacts, I would sin­gle out the Chi­nese Belt and Road Ini­tia­tive as the most promis­ing plat­form for co­op­er­a­tion be­tween Europe and the Peo­ple’s Re­pub­lic of China. Poland highly es­ti­mates this ma­jor ini­tia­tive… The Belt and Road in­tro­duces a new qual­ity into Europe-Asia re­la­tions. If the ini­tia­tive suc­ceeds, it will work out a new for­mula of a strate­gic re­la­tion­ship be­tween our two con­ti­nents…

“Poland is will­ing to take an ac­tive part in forg­ing a syn­ergy of ini­tia­tives within the Belt and Road, cou­pling them with EU projects im­ple­mented in the fields of in­fra­struc­ture … I am con­vinced that the ini­tia­tive ‘16+1’ [a co­or­di­na­tion struc­ture], which bridges the economies of 16 coun­tries of Cen­tral and East­ern Europe and China, could con­trib­ute con­sid­er­ably to … the im­ple­men­ta­tion of com­mon projects.”

Sla­womir Ma­j­man, pres­i­dent of the Pol­ish In­for­ma­tion and For­eign In­vest­ment Agency, sim­i­larly an­a­lyzed China and Poland’s ma­jor com­mon op­por­tu­ni­ties: “China’s ini­tia­tive to strengthen the econ­omy along the Silk Road is very much in our in­ter­est, be­cause Poland is in­ter­ested in op­er­at­ing in the Euro-Asia re­gion. We hope to be much more ac­tive in Pak­istan, Azer­bai­jan, Turk­menistan and all coun­tries along the Silk Road.” Con­se­quently: “Why not de­velop arm-in-arm with Chi­nese part­ners?”

It is there­fore worth con­sid­er­ing what lies be­hind these re­cent de­vel­op­ments, and tak­ing a re­al­is­tic look at both the po­ten­tial and any pos­si­ble prob­lems in re­la­tions be­tween China and Cen­tral and East­ern Europe.

Af­ter the dra­matic po­lit­i­cal changes in East­ern Europe, East­ern and Cen­tral Europe ex­pe­ri­enced frag­men­ta­tion. In 1989 there were eight for­mer Com­mu­nist coun­tries in East­ern Europe and the for­mer U.S.S.R. By 2015 there were 27 in­ter­na­tion­ally rec­og­nized ones. The for­mer U.S.S.R. went from one state to 15, Yu­goslavia from one to five (six if the dis­puted sta­tus of Kosovo is in­cluded), and Cze­choslo­vakia split in two.

The out­come has been Rus­sia’s dom­i­nant eco­nomic weight among in­di­vid­ual East­ern Euro­pean states. Rus­sia’s 2015 GDP of US $1,325 bil­lion at cur­rent prices is 69 per­cent of the for­mer USSR and five per­cent larger than the whole of the rest of East­ern Europe out­side the for­mer U.S.S.R. put to­gether. Rus­sia equally dom­i­nates lo­gis­ti­cal as­pects of the Belt and Road Ini­tia­tive. Goods can pass from China al­most to the borders of East­ern Europe and vice versa ex­clu­sively on Rus­sian ter­ri­tory. There are al­ter­na­tive routes via Cen­tral Asia but these in­volve sev­eral dif­fer­ent states. The lat­ter does not pose any great prob­lems at pre­sent, with China hav­ing good re­la­tions with Cen­tral Asian states of the for­mer U.S.S.R., but strate­gic plan­ning must al­ways take into ac­count pos­si­ble neg­a­tive de­vel­op­ments which could cre­ate un­cer­tainty in the fu­ture. How­ever, China’s re­la­tion with Rus­sia firmly an­chors the lo­gis­tics for con­nect­ing China to East­ern Europe via the Belt and Road.

If Rus­sia forms a firm land bridge for China with East­ern Europe, Poland is the key state in East­ern and

Cen­tral Europe out­side the for­mer U.S.S.R. – hav­ing 34 per­cent of the pop­u­la­tion and 38 per­cent of the re­gion’s GDP. This far ex­ceeds any other state. Ex­clud­ing Al­ba­nia, whose pop­u­la­tion is less than three million, Poland also has had the re­gion’s most rapid eco­nomic growth – greatly aided by bud­get trans­fers from the Euro­pean Union. It is for this rea­son that the strong sup­port given by Poland to the Belt and Road is so sig­nif­i­cant.

Given that geopo­lit­i­cal re­la­tions be­tween Poland and Rus­sia are at pre­sent not favourable, as Rus­sia is lo­gis­ti­cally key to Belt and Road Ini­tia­tive, and as geopo­lit­i­cal re­la­tions be­tween China and Rus­sia are good, this makes clear the great eco­nomic im­por­tance Poland at­taches to its re­la­tions with China, and that Poland is not al­low­ing any such com­pli­ca­tions to get in the way of eco­nomic co­op­er­a­tion.

The rea­son Cen­tral and East­ern Euro­pean states are now pay­ing ma­jor at­ten­tion to China is clear. Im­me­di­ately fol­low­ing 1989 their fo­cus was al­most ex­clu­sively on the EU in terms of hopes of mem­ber­ship and eco­nomic growth. But since the 2008 in­ter­na­tional fi­nan­cial cri­sis, growth in most of Western Europe within the EU has been slow. Tak­ing a five-year av­er­age, to re­move the ef­fect of short-term fluc­tu­a­tions, re­cent av­er­age EU GDP growth has only been one per­cent, and in the Euro area only 0.6 per­cent. It has there­fore be­come im­por­tant for Cen­tral and East­ern Euro­pean states to es­tab­lish eco­nomic re­la­tions with more rapidly grow­ing re­gions – and China is the world’s most dy­namic ma­jor econ­omy.

Equally for China the at­trac­tions of Cen­tral and East­ern Europe are ev­i­dent. The IMF re­cently noted: “Economies in Cen­tral, East­ern and South­east­ern Europe ( CESEE) are poised to over­take the con­ti­nent’s tra­di­tional eco­nomic pow­er­houses like Ger­many and France in terms of rate of growth … ro­bust growth con­tin­ued in most Cen­tral and South­east­ern Euro­pean economies … de­spite prob­lems plagu­ing wider Europe such as de­fla­tion in the euro zone.” The IMF pre­dicted East­ern and Cen­tral Euro­pean growth this year at three to four per­cent com­pared to 1.6 per­cent for the euro area.

Firm eco­nomic fun­da­men­tals, there­fore, un­der­pin China and East­ern Europe’s re­cent mu­tual in­crease in con­tacts de­spite the con­sid­er­able dis­tances and any geopo­lit­i­cal com­pli­ca­tions in­volved.

John Ross is a se­nior re­search fel­low at Chongyang In­sti­tute for Fi­nan­cial Stud­ies, Ren­min Univer­sity of China. From 2000 to 2008 he was di­rec­tor of eco­nomic and busi­ness pol­icy in the ad­min­is­tra­tion of Mayor of Lon­don Ken Liv­ing­stone. He pre­vi­ously served as ad­viser to sev­eral ma­jor in­ter­na­tional min­ing, fi­nance and equip­ment man­u­fac­tur­ing com­pa­nies.

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