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Chinese Foreign Policy and Economic Involvement in South-Eastern Europe

1 Comment 🕔14.Dec 2015

This article is part of our feature Re-imagining the Silk Road.

The Prime Minister of China at a China-EU Summit meeting in 2013. Photo credit: President of the European Council.

 

by Yanko V. Yordanov

Many years ago, China’s foreign economic activities were regarded as very limited endeavors having at best regional impacts in the immediate area. Currently, however, China’s economic influence reveals a very different story, as socialism with Chinese characteristics has developed very broad economic and trade infrastructure all over the world. By taking into consideration the evolution of the Chinese external economic policy, which still remains closely linked to internal development within China itself, the implications arising from Chinese involvement in South-Eastern Europe can be placed within four interrelated and mutually reinforcing frameworks: (1) China’s internal economic evolution, (2) China’s ‘struggle for status’ at the international level, (3) China’s relations with the European Union, and (4) the specific characteristics of the regional political and economic environment in the Balkans.

Today, China is aiming to make a considerable transition from an export-oriented model of economic development to an economy based on internal consumption. If this transformation is successfully completed, China will make an important step forward in achieving its overall objective to “build a moderately prosperous society and realize national rejuvenation”—the so-called ‘Chinese dream’ as put forth by Chinese President Xi Jinping. For this vision to be realized, the fundamental prerequisites are internal stability and a favorable external environment. Beijing’s leading priority is preserving domestic stability, which does not just presume continued political control but, first and foremost, sustained economic growth. Both of these dimensions (political and economic) are closely intertwined with the international environment, in particular with economic developments in the Asia-Pacific region and far beyond. In this regard, China must, on the one hand, solidify its existing influence on the regional scale and, on the other, seek to enlarge its trade and economic relations outside the immediate region in order to reinforce its economic stability through diversified international partnerships with countries and economic groupings from other regions.

Such a strategy, based on complementing China’s existing infrastructure presence in its immediate region with persistent involvement in other regions’ economies, demonstrates the important link between China’s stability and its well-calibrated efforts to achieve wider recognition as a great power. In this way, China’s regional policy aims primarily to deepen its economic presence in its periphery, and at the same time, requires implementing political measures to counter the so-called rebalancing policy led by the United States. While the grounds and implications of this rebalancing is out of this article’s scope, one aspect merits mention: the rebalancing policy seeks, among other things, to forge US economic, trade, and in some instances, military alliances in the Asia-Pacific region (including the Treaty of San Franscisco with Japan, the Philippines, and countries like South Korea, etc.). Therefore, from a Chinese perspective, a ‘rebalancing policy’ creates additional obstacles to the realization of some of its regional goals. However, it also opens up new opportunities for China. Beijing strives for stability provided by prosperity, based on internal consumption and a favorable external environment. Rebalancing is a very evident impetus for Chinese leadership both to counter, mostly through economic means, US influence in Asia-Pacific, and to enlarge its relations with other regions which were previously out of the range of China’s foreign policy.

U.S. and Japanese Ships conduct joint exercises in the South China Sea, 2015.

U.S. and Japanese Ships conduct joint exercises in the South China Sea, 2015. Photo credit: U.S. Pacific Command.

 

China’s appetite for additional investment and trade opportunities in Southeastern Europe and other regions is an integral part of Beijing’s desire to expand its influence outside the Asia-Pacific region and strengthen its global stand as an emerging great power. China, mostly through its State-owned companies, spreads a considerable portion of its economic activities throughout Africa and Latin America, along with parts of the EU, indicating ambitions that go far beyond the traditional sphere of Chinese ‘core interests.’ Despite some similarities in the Chinese approach to the aforementioned regions, it is premature to conclude that Beijing seeks to implement a similar strategy in Africa, Latin America, and Southeastern Europe. The pursuit of diversification could be mentioned as a common feature, but apart from this, China and the Balkan region seem to be very different cases than Africa, Latin America, etc. for the following important reasons:

  • From the outset, the EU has a very strong interest in and has taken consistent action to maintain Western Balkan stability. This means that Beijing acts in a very particular environment (different from the state of affairs in Africa, Latin America and Central Asia), where the leading actor is the EU and its member-states. It makes EU-China relations and cooperation more relevant than in any other region. However, at this point, neither Brussels nor Beijing has much appetite to promote dialogue on that particular issue. This could be explained by the current complexity of EU-China relations, further complicated by contentious issues related to human rights, China’s market-economy status, etc. In this context, both sides prefer not to enlarge their bilateral agenda with a new item which, to say the least, may not generate consensus.
  • Within the EU, there is no consensus on whether or not, at this stage, China has enough leverage to be regarded as an important partner on security matters in the Western Balkans. From China’s perspective, it is still keen to be considered mostly as an economic player rather than as stakeholder in preserving security in regions far from Chinese borders. Nonetheless, the more China continues to increase its presence in the Balkans, the more an EU-China dialogue will have to at least include an exchange on developments in the Balkans. Brussels and Beijing would at least identify one shared strategic objective, long-lasting peace and stability in the Balkans, which will provide security and a favorable economic environment, furthering opportunities for foreign investment.
  • The Balkan region is one in which the economic environment and legislation regulating it are very diverse. This is mostly due to the different stages of integration of countries in the EU: Bulgaria, Croatia, Romania, and Slovenia are full-fledged EU member states, while Serbia and Montenegro recently started negotiations for accession; however, the Republic of Macedonia’s relations with the EU are more and more stagnant, and Albania and Kosovo have not even been granted status as EU candidates.
  • Many implications arise from these differences. First and foremost, a variety of economic policies and legislative procedures have emerged both inside and outside the EU, under which foreign investments are regulated and promoted. The amalgam of various national and legal tools for creating economic incentives, and the lack of full regional, economic cooperation are the fundamental hindrances in China’s development of a common approach towards Southeastern Europe. Clear demonstrations of the existing impediments are the developments within the 16+1 platform (Central and Eastern European countries plus China). 16+1 has rapidly gained ground in developing investment and trade projects to be implemented in Central and Eastern Europe by Chinese cash flow. However, in most cases, China’s model to realize these projects is identical to the patterns followed in Africa and Latin America: it offers loans that are far more favorable in terms of interest rates and conditions than credit offered by the World Bank and IMF, but requires state guarantees provided by the respective governments. This model works in the case of non-EU members, but does not for EU member states due to incompatibility with EU regulations regarding state aid. It is for this reason that the 16+1 platform is more beneficial to countries like Serbia than to the EU member states involved. However, this also demonstrates that China has no option for a unified approach towards countries situated in such a politically and economically heterogeneous environment.
  • Furthermore, when Chinese companies invest in Southeastern Europe, the size of the local market seems to matter greatly. This is why more Chinese investment projects, especially infrastructure and energy projects, remain (for now) merely potential interests, inasmuch as the scales of such initiatives are unsatisfactory in size for Chinese investors. An additional factor that restrains China’s intention to invest in the region is Balkans countries’ preference to specialize in high-technological industries, bringing more added value for their economies, while China has more appetite to invest in agriculture and related sectors.

 

Sunset in Belgrade

Sunset over an industrial area of Belgrade. Photo credit: Igor Cvetković.

 

Although some difficulties exist in how China conducts its policy towards the Balkans, many positive results are now becoming more visible. China and Central and Eastern European countries have signed a series of bilateral agreements on economic, industrial, scientific, and technological cooperation, including agreements on investment protection and avoidance of double taxation. Additionally, China and Southeastern countries have held various business forums and trade fairs for entrepreneurs, providing important platforms for the business community to intensify exchange and cooperation.[1] The most important value that China perhaps sees in Southeastern Europe is its strategic geographical position: the region is well placed to serve as a bridge between Eastern and Western markets. By developing transit trade and investing in Central and Eastern European countries, Chinese enterprises can significantly cut their business costs and integrate into the EU industrial system. It is also worth noting that many of the Central and Eastern European countries are situated in the so-called wider Black Sea region, which has a very strategic value because of its proximity to the Caspian region, a vital communication and transportation connection between Asia, Europe, and Africa. China’s involvement in the Balkan region could be considered a long-term political investment in preparing a future strategic response that will complement economic measures applied by Beijing to counter the rebalancing policy.

The observations made above serve as grounds for the following concluding remarks: it should be emphasized that, for China, the Asia-Pacific region continues to be a top priority. Since Beijing needs to overcome some difficulties caused by the strategies pursued by other important actors in the Asia-Pacific region, the drive towards diversification of its economic and trade partnerships outside the traditional zone of core interests will be very relevant.

China’s growing economic presence in the Balkans can also be regarded as a component of Beijing’s overall goal to secure its economy in global and regional environments favorable to its internal stability, and should be placed within the context of the Chinese quest for acknowledgement of its status as a great power.

However, at this stage, China does not seek to develop any special strategy focused on the Balkans. On the contrary, Beijing prefers to apply the same approach, means, and mechanisms as it does in other regions. This may be explained mostly by China’s general aim for diversification of its trade partnerships, as well as by the internal drivers of Chinese foreign policy (above all, the overall objective of keeping the internal stability) that do not allow for more specific approaches to be applied in different regions. At the same time, Southeastern Europe is a region where Chinese interests will continue to grow, mostly for political reasons, but also with some potential long-term political benefits. China will have to further develop its economic partnerships in the region and, at some future stage, start engaging in political and security matters related to the Balkans.

 

Yanko Yordanov has a Ph.D in International Law and International Relation from the Faculty of Law of the University of Sofia St. Kliment Ohridski.

 

This article is part of our feature Re-imagining the Silk Road.


[1] Chinese Premier’s speech at China-Central and Eastern European Countries Economic and Trade Forum, available at http://news.xinhuanet.com/english2010/china/2011-06/26/c_13950035.htm (last accessed on 05-20-2015).

1 Comments

  1. 🕔 1:22, 10.May 2016

    BUCIC

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