China’s trade and investment policy can break up the European Union

At the current moment, the European Union is as divided as ever: Central and Eastern European nations are fundamentally at odds with the vision of EU leaders in Brussels. The one thing that has been holding the group together is a common investment and trade policy. The People’s Republic of China however, has the potential of turning it all upside down.

Strategic investments

In 2012, China created the 16+1 Summit, which is an annual gathering between Beijing and 16 European countries. This includes the Baltic countries (Estonia, Latvia, Lithuania), Central European nations (Poland, Czech Republic, Slovakia, Hungary, Slovenia), Eastern Europe (with Romania), as well as Balkans nations (Croatia, Bosnia, Serbia, Bulgaria, Montenegro, Macedonia, Albania). The latest addition was held earlier this month in Sofia, Bulgaria, where around 1,000 businesspeople from the participating nations gathered to witness the signature of some 18 new bilateral agreements and memorandums.

This summit attempts to promote cooperation in the fields of investments, transport, finance, science, education, and culture, but ultimately focusses on infrastructure, high technologies, and green technologies. In essence, this means that China’s Belt and Road Initiative (BRI) (also know as “the Silk Road Economic Belt”, and the “21st-century Maritime Silk Road”) strategy will build roads and bridges in Europe.

China falls nothing short of selecting the most crucial areas for investments. Despite the EU’s Regional Development Policy, Central and Eastern Europe often fall short of adequate transport infrastructure, which hurts their economies. Meanwhile, Brussels requirements also demand a structural lowering of CO2 emissions, which increases the prices of infrastructure projects.

An example of such a massive infrastructure project is the Budapest-Belgrade railway connection: this part of what was constructed as the “Orient Express” in the 19th century, is a 300 km (180 miles) railway line from Hungary’s capital Budapest to Serbia’s capital Belgrade. Current travel time is eight hours. Through a $3.7 billion investment with over 80 per cent of Chinese loans (on reduced interest), and through a complete renovation with a high-speed rail infrastructure with trains driving 200 km/h (120 mph), China intends to remove this time to two-and-a-half.

China’s foot in the door

The question is of course: to what benefit does China fund railway connections in Europe? Budapest-Belgrade isn’t a particularly interesting route for either tourism nor for the economic development of Hungary itself, so why the hassle?

On one hand, it is likely that the tender procedure, which is still ongoing, will be rigged in favour of Chinese companies, which means that the People’s Republic will construct a very long railway connection that it does not have to pay for itself. (We won’t give Donald Trump any ideas for his border wall…) On top of that, Hungary’s government is still celebrating the project. This is because China’s investment plan is strategically political. One by one, the country befriends Central and Eastern European nations and transforms them, not only into debtors, but also into loyal allies. In the example of the Czech Republic, this has been taken this far, that the capital of Prague has been banning Tibetian flags during Chinese state visits, and the president disavowing politicians meeting the Dalai Lama.

As the European Union is rigid on free trade with China, as it considers environmental and labour rights standards, as well as dumping prices, to be an obstacle to negotiations, Europe’s East has increased reasons not be worried about the same criteria. In fact, many of the countries which joined the European Union after communism, have China as their second trading partner. If this relationship were to improve, and the Chinese to rank number 1, then why would Eastern Europe still find economic interest in a membership in the EU? The 16+1 Summit excludes partners such as Germany and France for a reason.

Furthermore, large infrastructure projects such as these, will catapult Chinese construction companies into the European market, with the possibility of becoming a rival to local industries. With larger political support from the East, the EU could find itself unable to impose protectionist measures to prevent such a take-over.

The Solution? Free trade

The European Union could find an easy fix to this particular situation, by allowing member states to conclude their own trade agreements. This would allow Central and Eastern European nations to set their own trade agenda, and not be torn apart in a battle of protectionism, investments and loans, between east and west.

Pictures are Creative Commons.

Thanks for liking and sharing! Consider subscribing to this blog.

About Bill Wirtz

My name is Bill, I'm from Luxembourg and I write about the virtues of a free society. I favour individual and economic freedom and I believe in the capabilities people can develop when they have to take their own responsibilities.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s