16+1 summit in Budapest aims to grow trade, investment between China and CEE

The process of building links between China and Central and Eastern European countries is kicking into high gear due to efforts of top leaders of the region and China. During a five-day trip to Budapest, Hungary, and Sochi, Russia, starting on Nov 26, Premier Li Keqiang will attend the sixth meeting of heads of government of China and the 16 CEE countries in Budapest.

China expects to deepen mutual trust, further promote trade liberalization, facilitate investment and upgrade the 16+1 mechanism for cooperation between China and the 16 European nations during the China-CEE meeting, said Vice-Foreign Minister Wang Chao at a news briefing.

This effort ties in with the broader Belt and Road vision, laid out by President Xi Jinping, which will link Eurasia with a network of infrastructure and trade. Wang said China is willing, together with the CEE countries, to make 16+1 cooperation an important support for the Belt and Road Initiative.

The meeting will also further advance a multiyear process of deepening relations between China and the countries of Central and Eastern Europe. President Xi and Premier Li have made repeated trips to the region since 2014. And, in 2012, the China-CEE Secretariat was established, linking China with the 16 CEE countries.

CEE leaders have also worked to build the relationship. For example, during Xi's visit to Poland in June 2016, Polish President Andrzej Duda said, "Poland is willing to actively take part in the Belt and Road Initiative and deepen cooperation with China in such fields as infrastructure, railroads, logistics and transportation."

In a visit to Beijing earlier that year, Duda pledged to help boost Europe-China ties and expressed his country's willingness to dovetail its development strategies with those of China.

Li Chenggang, assistant minister of commerce, says infrastructure and connectivity will remain as highlights of China-CEE cooperation, with the planned China-Europe Land-Sea Express Route and the Hungary-Serbia railway being priority projects.

China's trade with Central and Eastern European countries almost doubled from $32 billion (27.2 billion euros; ￡24.2 billion) in 2009 to $60 billion in 2014, according to data from the Ministry of Commerce and the National Bureau of Statistics. As recently as 2003, it was less than $1 billion. Similarly, Chinese investment in CEE manufacturing and infrastructure has soared from $400 million in 2009 to over $3 billion in 2016.

SNOWBALL EFFECT

Still, trade between China and CEE is in its early stages, now totaling only 8 percent of total China-Europe trade, the data shows. And CEE countries still receive only about 2 percent of total Chinese foreign investment.

Furthermore, three-quarters of all the trade and investment so far has been with the four northern CEE countries of Poland, the Czech Republic, Slovakia and Hungary. A key point of discussion at the upcoming 16+1 summit in Budapest is expected to be how to encourage much-needed investment into the less-developed countries in the Balkans.

Until recently, few Chinese businesses had much experience operating in CEE countries. But the recent growth in business and government-to-government interactions has led to a snowball effect, with the growth of Chinese business making it easier for additional Chinese companies to make investments in the region.

Wang Dawen, vice-general manager of Sichuan Changhong Electric Co, which has a television production plant in Nymburk, Czech Republic, says: "The Belt and Road Initiative is very important because it enables more and more Chinese companies to operate in the region. There are more companies with whom we can share experiences."

Changhong extensively uses the new Belt and Road-promoted rail lines from China to Europe. "The railway from Chengdu (in Southwest China's Sichuan province) to Poland was extended to the Czech Republic this September. Now it comes directly to Prague," says Wang. "This can reduce our transportation costs and delivery time. This is very useful for us and, of course, for other Chinese and European companies."

He adds that the Belt and Road Initiative and the 16+1 process have led to more support from countries in Central and Eastern Europe. "The governments in CEE countries want Chinese investment. They give us human resources support, policy support, help with local bank financing."

"It is easier than other places. For example, if we invest in Western Europe or the US, we cannot get support from the local government. But the Eastern European governments can support us. They can give us some suggestions because we don't know all about the local culture and local resources. That is why in the future we will choose the Eastern European countries for investment," Wang says.

Wu Changqi, professor of strategic management at the Guanghua School of Management of Peking University, says Chinese companies are learning how to do business in the region. "CEE countries can be favorable locations, but, of course, when Chinese companies try to develop in this area, they also face competition, from Germany and other developed European countries. This area requires the Chinese companies to be prepared."

Wu says that Chinese infrastructure companies are now world leaders, and large State-owned companies have resources to devote to the region, but more emphasis needs to be placed on attracting dynamic small and medium-sized Chinese companies.

"Private companies are more versatile. They are typically less visible - not doing big megaprojects. The bigger private companies, such as Huawei, already consider the CEE to be a very important area. But there are many entrepreneurial private companies that need to learn more. They need to gain more international experience. Currently, the barriers to them going into CEE are quite high. The countries should put more effort into promoting entrepreneurial private companies. This can facilitate trade for the 16+1."

BYD, China's biggest maker of electric vehicles, owns a factory for making electric buses in Komarom, Hungary.

Isbrand Ho, BYD's managing director for Europe, says of the decision to locate there: "After the Paris climate change conference in 2015, more and more operators were moving to electric buses. So after looking at logistics, support from the government, location and uptime, we realized that Komarom was the ideal location to build our first factory in Europe."

He says the Belt and Road Initiative and 16+1 are a plus for BYD. "This also stimulates a lot of governmental support for Chinese businesses being able to set up our facilities and investment in the CEE countries - Chinese government support on one hand, but also local government support. "For example, the national development bank is very much aware of all the activities of the 16+1 and they are aware of our facilities. Because of our being there in the 16+1 countries, they are very interested in working together with us to stimulate some of these national projects.

"I think the fact that the Chinese government and the Hungarian government are creating a very warm atmosphere helps us with developing a close relationship with the government of Hungary as well as with the local authorities in Komarom. They are very much aware of the Chinese government's movements. Being a Chinese company, they are more than willing to bend over backward for us," he says.

BALKANS LAGGING

Ravik Mima, a former adviser to Albania's minister of economic development, tourism, trade and entrepreneurship who is now studying for a PhD at Peking University, says the CEE countries, especially the less-developed countries in the Balkans, need to use the 16+1 process as a venue for cooperation among themselves.

Mima, who, as a member of the Albanian delegation, attended the 2016 16+1 ministerial meeting in Ningbo, Zhejiang province, says: "You can see that 16+1 is a signature of Xi Jinping. It's a priority for him. I see in the last few months that the vice-ministers of each country have been designated as the national coordinators of the Belt and Road Initiative."

Despite this increased attention, Mima says all the countries of the region need to take a more proactive and coordinated approach. "I don't think people have a good understanding of how important this could be for countries along the Belt and Road.

"The Balkans need to leave behind the stories of competition between each other," he says. "This is minimizing the potential. We do have free trade agreements, but if you see your bordering countries as competition, that is a very closed mindset. The world is too big for small countries to be interesting. We need to understand that. Unless we see southeastern Europe as a common market with a common target, we will not reap those benefits."

Valbona Zeneli, who is originally from Albania and is now a professor and Black Sea and Eurasia director at the George C. Marshall European Center for Security Studies in Garmisch-Partenkirchen, Germany, makes a similar argument. "In Central and Eastern Europe, Chinese investments have gone from $400 million in 2009 to $3 billion in 2016. However, 95 percent of these investments are going to only six countries - the Czech Republic, Hungary, Poland, Slovakia, Bulgaria and Romania."

She says that southeastern European countries are short of infrastructure and investment. "All the Balkans, including EU member Croatia, attract less than 0.9 percent of global foreign direct investment. This is true even for such a strategic region so close to the EU, which is one of the main outward investors. Of course, they are in need of FDI."

However, she worries about the ability of these countries to manage and absorb inflows: "Most of this money is concessional lending. The governments have to pay this money back. Some of the countries have sovereign debt of 70 to 80 percent of GDP. They are very debt-burdened countries.

"Chinese infrastructure investment could be a win-win if the governments have resilient institutions. What I'm concerned about is the countries where institutions are still weak. You have to look at short-, medium-and long term effects of the spillover effects of the projects," she says.

She also notes that there is some EU concern about Chinese investments. For example, European Commission President Jean-Claude Juncker has called for a new EU framework for investment screening. He called for limitations on foreign state-owned enterprises' purchases of harbors, energy infrastructure or defense technology.

LEADERS PUSH TIES

At the 2016 summit in Riga, Latvia, Premier Li Keqiang emphasized that the 16+1 process is a positive factor for world peace and development, is part of and a beneficial supplement to China-EU cooperation, and is conducive to advancing China-EU partnerships.

At that summit, Li announced that China would establish an $11 billion investment fund, to be operated by Industrial and Commercial Bank of China, to finance projects in the region. The bank said that the fund will operate under market business principles and will seek to raise a total of 50 billion euros ($58.8 billion; ￡44.4 billion) of investable capital.

During President Xi Jinping's visit to Prague in March 2016, 30 new deals were announced, potentially worth $9.8 billion. And in a visit to Poland and Serbia, Xi signed 40 bilateral agreements related to construction, energy and finance. Among 22 agreements signed with Serbia were agreements to build a highway in Belgrade and to finance a waste-to-energy plant. Last year, plans for a Chinese company to build the rail line between Budapest, Hungary, and Belgrade, Serbia, were announced. China has signed comprehensive strategic partnerships with both Hungary and Serbia.

While attending the Belt and Road Forum for International Cooperation in May, then Serbian premier (and now President) Aleksandr Vucic said: "Serbia has benefited enormously from participating in the forum. Key projects of the Belt and Road initiative have yielded positive results."

He added: "Serbia firmly believes China's economic development will benefit other countries. Serbia is willing to enhance bilateral cooperation in industrial capacity, infrastructure and agriculture, and actively advance the 16+1 cooperation."

New trade and investment is especially welcome in a region short of capital and infrastructure. President Milos Zeman of the Czech Republic said, "The Belt and Road Initiative brought up by President Xi Jinping is a grand proposition that will connect and benefit the countries along the routes."