Time to play a strategic role in eastern Europe
Central and eastern Europe account for only 1.2% of India’s exports. Greater political engagement can help
In a rare high-level engagement by India in an increasingly pivotal region, President Ram Nath Kovind is on a visit to Bulgaria and the Czech Republic. Long seen as an area of competing Russian and western interests, central and eastern Europe (CEE) has not always featured prominently in India’s foreign policy agenda. The region accounts for only 1.2% of India’s exports. The Indian investment is slowly growing — consider Apollo Tyres’ $557-million investment in a greenfield facility in Hungary in 2017 — but it is still modest.
While Indian engagement with the CEE to date has been mostly economic, it is natural that it should start assuming a strategic character as well, not least because of China’s sustained outreach. In July, Bulgaria hosted the seventh ‘16+1’ Summit, a meeting of central and eastern European leaders with China that saw participation from Poland, the Czech Republic, Slovakia, Hungary, Romania, the Baltic States, Albania, and six former Yugoslav countries.
Although Chinese Premier Li Keqiang has stated that the mechanism is not a geopolitical tool, many western European officials have raised concerns about Beijing using the body to drive a wedge between the European Union and some of its member states, 11 of whom are participants.
For Beijing, the region’s true significance lies in Europe being the endpoint of the network of infrastructure projects that comprise China’s ambitious Belt and Road Initiative (BRI). While many European leaders initially welcomed Chinese investments as part of BRI, some have started to express doubts. But despite the considerable coverage — and growing anxiety — over BRI and 16+1 in Europe over the past few years, a few realities need to be kept in mind about Chinese engagement with the CEE.
First, as in other regions, there are significant gaps between the investment promised and the amounts delivered. China’s economic relations with western Europe dwarf those with the CEE states. Beijing’s largest trade relationship in the region is with Poland, but its exports there are still less than a quarter of its outgoing trade to Germany. The disparity applies equally to investment. In the UK alone, China has been involved in deals worth over $70 billion, compared to just $3.3 billion in the nine CEE states for which reliable data is available.
Nonetheless, regional leaders point to the dire need for infrastructure investment from China, and cite the successful completion of Chinese-backed projects such as the Pupin Bridge in Serbia and highways in Macedonia. In private, diplomats from the region reveal concerns about the impact of Chinese investments on trade imbalances, the levels of associated debt, and political strings being attached.
Beyond the gap between promises and delivery, there is also immense variation in China’s economic relations with the CEE countries. As of 2015, Hungary was the largest recipient of official Chinese financing, while other countries had received negligible sums. Among non-EU states, Serbia has been the largest recipient, while Chinese investment in the Baltic States has been relatively insignificant. Similarly, while China’s exports have increased across the region, its trade with the likes of Bosnia and Herzegovina or Albania remains marginal.
Finally, despite the modest economic impact of 16+1 and the variation in relations, China is already beginning to demonstrate its political influence in the region. For example, Hungary, Croatia, Serbia, and Montenegro have supported China’s controversial claims to the South China Sea. Similarly, Hungary has sometimes been outspoken in calling for China to be recognised as a market economy, a position at odds with the rest of the European Union.
The scepticism of China’s efforts naturally presents opportunities for India. Indeed, in one area in which India is carving out a normative leadership role for itself (in terms of sustainable connectivity), CEE may well be an area of promise, one in which India can support efforts by the European Union and others. But the main obstacle, other than scale, is the lack of exposure and knowledge about opportunities in each other’s countries among business communities. Greater political engagement can help to rectify some of that.
LONG SEEN AS AN AREA OF COMPETING RUSSIAN AND WESTERN INTERESTS, CENTRAL AND EASTERN EUROPE HAVE NOT ALWAYS FEATURED PROMINENTLY IN INDIA’S FOREIGN POLICY AGENDA