Go East and Build: Chinese Forays into Eastern Europe

China is making its presence felt in Eastern Europe, the traditional preserve and backyard of the Soviet Union and then later the ground for the European Union (EU) to recruit new state members and for Russia to regain its old influence. In other words, Eastern Europe is a contentious battleground for major powers to exert their influence. When the West successfully expanded by incorporating former Eastern European states into the EU fold, it startled the Russians who considered these states to be part of its strategic backyard.

In fact, two areas suffered warfare and actual conflict. In Georgia, the pro-democracy Orange Revolution incurred the wrath of Russian President Putin who warned the West that it would retaliate if its backyard was further transgressed. Hence, when democratization swept into Ukraine, the Russians promptly reacted by annexing Crimea and they were sympathetic to the pro-Russian independence factions and rebels of Eastern Ukraine. Thus, any movement by major powers into Eastern Europe is watched very carefully by all other major powers.

In contrast to the other powers, China is trying a subtle economic approach based on mutual interests. Its One Belt One Road (OBOR) initiative, the most important and perhaps the only economic foreign policy initiative by Chinese President Xi Jinping’s administration, focuses on what China has been good at, which is dishing out development aid, financial assistance, and infrastructure expertise for connectivity and market access. In the OBOR, small- and medium-sized states and economies like Slovenia in Central Europe have already staked out their interests and they have also indicated their delight at the accessibility of funds in the OBOR project and its financial backers like the Asian Infrastructure Investment Bank (AIIB), Silk Road Fund, and BRICS Bank. The OBOR’s recent foray into Eastern Europe is no exception as well.

This time round, instead of President Xi Jinping, Chinese Premier Li Keqiang has become Beijing’s envoy to bring financial cooperative initiatives to the developing and emerging half of the European continent. Beijing has set up the USD 11 billion China-Central Eastern European fund to finance projects located in Central and Eastern Europe. This was jointly announced in Riga in the Baltic state of Latvia by Premier Li and Latvian Prime Minister Maris Kucinskis. The entity in charge of administering the fund is Sino-CEEF Holding Co. Ltd which comes under the purview of the Industrial and Commercial Bank of China (ICBC). Jiang Jianqing, the retired chairperson of ICBC, is slated to manage the project.

Eventually, ICBC hopes that it can raise €50 billion for funding the construction of infrastructure facilities, empowering and jumpstarting technologically sophisticated manufacturing activities, and encouraging consumption. Like other instruments, for example the AIIB, it is a market-responsive entity and will operate according to profitability and its viability to users. Taken in a more macro and broader concept, the idea of Chinese funding for Eastern Europe is not so surprising, given the strategic location of this region as the access point to Western Europe when travelling from continental East Asia. 

In a pattern replicated throughout the world in accordance with the OBOR format, China is forging relations with new markets and consumers in order to combat slowing growth at home, a surplus of commodities for infrastructure development, and also to channel labor, skills and materials to where it is needed. Connectivity is also envisioned to benefit Chinese companies in the long run. The Chinese private sector can eventually benefit from greater access to new and under-accessed markets as bilateral trade between China and Eastern Europe is projected to grow starting from a low base. There is a separate component of the project that looks at upstream high-value added industries like energy solutions and the medical sector.

Geopolitically and strategically, cultivating good economic relations and rapport may carry the possibility of rebalancing and counterbalancing calls by protectionist, pro-democracy, and human rights groups in economic interactions. The EU including Germany has been having a tough time with Chinese-made solar panels and steel for some time. This time round, Beijing has come to mingle with an Eastern European organization: Riga is receiving top leaders from 16 central and eastern European countries and China (this grouping was nicknamed the “16+1” organization circa 2012). All eyes are on the 16+1 organization now.