Chinese Strategy towards Central Europe

Even though the Great Wall no longer isolates China from the outside world and since 1992 the state has been involved in the process of globalization, and even earlier it unprecedentedly opened to the world (kaifang), still, for foreigners, China remains a closed, inscrutable and opaque system, which has recently seen a spectacular growth in strength and has been returning to its past position as a superpower. It remains a difficult partner, but transactions with China are more and more profitable.

Divide and Conquer

From the point of view of Central Europe there are further pitfalls that add up to this state of affairs: China’s long-term thinking includes a strategy towards the whole of Europe, whereas our politicians, who frequently are dependent on dynamic democratic impulses, are only able to think short-term: from election to election or from poll to poll. Also, independently or collectively, as a region or as a whole European Union, we have neither a common concept of China nor a shared approach to it. Additionally, given our uneven capabilities, there is a serious threat that China could reach for the old—in fact of Roman origin— but efficient principle: Divide and Conquer.

We saw its practical application after the failure of Covec to construct a section of highway in Poland. Once the atmosphere among the Polish media and political elites grew tense with regard to China, the Chinese shifted their focus to Hungary, Bulgaria and Romania. Yet not for long, the Chinese quickly learnt their lesson. They had insufficient knowledge of the market, local factors and different business culture in EU Member States and just six months later, they signed a strategic partnership agreement with Poland.

The two visits from Prime Minister Wen Jiabao to the region and his policy speeches at the ELTE University in Budapest in June 2011 and at the Europe Business Forum in Warsaw, April 2012 are the best evidence that the Chinese consider the region as one entity and are aware of its enormous potential for cooperation—especially with respect to the economy, but also to culture, tourism, research and even youth exchange. The choice of Poland for a strategic partner, despite the extraordinarily enthusiastic approach of Viktor Orban’s government in Budapest towards the Middle Kingdom, was not the result of an extensive pursuit of that goal by Poland, but rather of cold calculation by the Chinese. Indeed, Poland has a strategic location on the axis between Russia and the EU, as well as between Moscow and Berlin. This is just one manifestation of the Chinese way of thinking which could be described as geopolitical, wellcalculated, pragmatic and lacking emotions or zeal. Today’s China—in contrast to the era of lunacy under Mao Zedong—is no longer driven by any ideology, but rather by pure interest and cold calculation defined by profit and loss.

Having gone through the political transformation after fall of communism, Poland, like the Czech Republic during the presidency of Vaclav Havel, perceived China in a basically ideological and reluctant way, relegating it to the status of a dishonest partner, responsible for flooding the world with counterfeit products and infringing on the rule of law and democracy, crushing ethnic minorities in Tibet and Xinjiang and giving harsh sentences to dissidents. There is one particular date; 4th June 1989, when the first semi‑democratic election took place in Poland, which in turn led to the fall of the communist government, and when Chinese tanks trampled demonstrating students; for two decades it was a sort of cornerstone for bilateral relations between the two states—relations based on distrust or hostility. The Dalai Lama was a hero for the people of Poland, and not any Chinese politician. All in all, Poland had a dark or at least a considerably shady picture of China.

Strategy Shift

It was only in the aftermath of the financial crisis of 2008 and the increasing importance of China’s role on the world markets when our approach to the Chinese changed. Finally, Central and Eastern Europe (CEE) realized what China is: the second largest economy in the world (and in all probability the world’s future top economy); and since 2009, the world’s largest exporter as well as the holder of the world’s largest foreign exchange reserves. No wonder then that when Chinese companies started making offers, they did not have to wait long to find partners. Actually, only the Czech Republic—and the only state in the region to have done so—has developed strategic relations with China which included a relatively detailed cooperation agenda, defining the domains of cooperation. Poland, after the breakthrough visit of President Bronisław Komorowski to China in December 2011, changed the tone and instead of concentrating on human rights, as was established practice, increasingly focused on business. Whereas Hungary, under the “command” (that is possibly the most correct expression here) of Viktor Orbán—who on numerous occasions has publicly presented the view that the West is struggling with some serious trouble and a crisis and therefore it’s the East where the “real hope” lies and especially in China—puts China first and has even established an office for a Special Representative for Cooperation with China.

However, we need to keep in mind that China is the main player in this game, not to mention the fact that it holds more trump cards. Why is that so? The answer is to be found among others, in the post-2008 crisis on world markets. China realized that their national strategy is based on two pillars: exports at any cost and cheap and mercilessly exploited labor which cannot be pursued any longer. The cheap China is over—and following the disturbances on world markets China had to boost their internal market and increase consumption. Moreover, the fast-growing middle class, even if it’s normally strongly connected with the establishment, the Communist Party of China (just by the name, in fact it is a contemporary collective empire), has its own aspirations and desires. If you add all these factors together, you may conclude that China needs a smooth landing after the unprecedented phase of high growth (the average annual rate of growth from 1978 to 2010 was 9.8%). Simultaneously the time has come to diversify markets and, by all possible means, to search for an answer to new challenges related to high-tech development. In this respect China seems to have concentrated on Europe, and in particular on CEE which, according to their calculation, shall act as a “gate”.

And in respect of this “new opening” of CEE, we must pay even more attention to the exorbitant foreign exchange reserves worth up to 3.4 trillion USD. For this reason China, mainly accepting direct foreign investment, will now start investing them. One of the directions of this expansion will be Europe, instead of Africa and Latin America, and CEE in particular, as could be concluded from the official information concerning the visit from Wen Jiabao to Poland. Importantly enough, the first visit of a Chinese head of state after 25 years.

At the same time, in line with the strategy adopted by the Chinese, one should expect Chinese financial and capital expansion in the region where they had not been present before. Until now you rarely saw a Chinese person here, except for the estimated 30–35 thousand people in Chinese diaspora, who arrived here mostly after the Tiananmen Square Massacre of 1989. Now they should be expected. Chinese investments in CEE and similarly across the whole of Europe were so far negligible. Their start came as late as 2004, with their value at the end of 2010 of only 821.28 million USD, half of which went to Hungary where considerable effort was made for that purpose, especially after Viktor Orban’s government came to power.

Yet in mid-2011 the situation seems to have considerably evolved. After the visit and talks with Wen Jiabao in Warsaw, important contracts for Chinese investments in the energy sector were approved, two Chinese banks, including the Bank of China, made plans to open subsidiaries in Warsaw and direct flights between the capital cities were to be resumed. This is of special significance for Polish partners, most of whom are exporting SMPs, whereas on the Chinese side these are mainly huge publicprivate conglomerates. A similar pick-up can be seen with respect to other partners in the region, not only with Poland and Hungary. Companies from Zhejiang province have already started in Bulgaria, near Sofia, building a special industrial zone with particular emphasis on the development of modern technologies. The biggest investment in the region so far has already opened operations: the Great Wall car plant, the first plant of this type in Europe. Also, Romania has been preparing for the largest Chinese investment in the region: a nuclear power plant which is to be constructed by companies from Guangdong province, an investment worth USD 2 billion. The Chinese have been offering regional partners joint projects for wind and solar energy facilities. Apparently, they are interested in advanced technologies, as confirmed by joint projects with the Czech Republic to manufacture airplanes and light aircraft, as well as precision instruments.

Asymmetrical Partners

The relations between China and CCE states are characterized by asymmetry. The two sides have different capacities, a fact which the weaker side should not forget as they are the ones especially vulnerable to any potential turbulence and with less bargaining power. Surpluses have been observed in the Chinese trade relations with all regional partners. In the case of Poland it is 10 to 1. And now the Chinese are offering financial and capital expansion, a move which CEE states do not seem to be prepared for whatsoever, neither mentally, institutionally or structurally. It is high time that we developed not only a strategy, which as of now we are missing, but also proper infrastructure, starting with capable think-tanks which can provide us with more insight into today’s Middle Kingdom, which still remains largely unknown, not to mention appropriate analysis of the Chinese market and the rules underlying its functioning.

Another extensive issue are cultural and psychological differences between the partners. China has already begun the expansion of its soft-power, with their ubiquitous campaigns promoting so-called “Confucius Institutes”. Four such venues are currently running in Poland. Therefore, CEE states need to open their institutions in China as well, be it culture centers, business or tourist agencies or even subsidiaries of larger companies. Not doing that could mean that our relations will remain largely one-sided, as has been the case so far in the field of mutual trade, considered to have been considerably more advantageous for China.

Let me reiterate that China, being a viable partner, still remains a difficult and unique partner, not easy to understand. It definitely has a lot to offer and we should not miss this opportunity. Let us not allow for a situation when, after 20 years of denial (and here we need to beat our breast and take more blame) and ignorance we suddenly jump to the Chinese swimming pool just to realize that despite our expectations, there is no water inside. China needs a smooth landing at home, but it’s the CEE states who need to ensure a smooth landing in their region. Now that it looks like Chinese do, in fact, want to land there.