© REUTERS/Laszlo Balogh

Nowhere else in Europe has China’s Belt and Road Initiative (BRI) been met with such a warm embrace as in Central and Eastern European Countries (CEEC). The cash-strapped economies of Europe’s Eastern periphery are hoping that Chinese infrastructure financing and investment will drive economic growth. Even if the economic outcomes on the ground have been varied so far, China’s intense political engagement with the CEEC poses a growing challenge to the EU, and requires not only a cohesive strategy from Brussels, but also the biggest EU member states to revisit their China policies. Otherwise, they risk further tilting the EU-China balance of power in Beijing’s favor.

Beijing’s economic and political advances in the region are hardly news. As early as April 2012, China created a distinct, sub-regional economic and political cooperation format with 16 CEEC, the “16+1 platform.” Made up of 11 EU member states—Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia—five EU neighborhood countries—Albania, Bosnia and Herzegovina, Macedonia, Montenegro, and Serbia—and China, the 16+1 celebrated their fifth anniversary in late November 2017 at a high-level summit in Budapest.

As with previous 16+1 summits, CEEC heads of government from North to South used the Budapest gathering to unequivocally praise the benefits of closer economic cooperation with China. Estonia’s Prime Minister Jüri Ratas even hinted: “There are a lot of untapped opportunities in the economic cooperation of Estonia and China.” Hungary’s Viktor Orbán praised China for recognizing “this region as one in whose progress and development it wants to be present.” Speaking for the whole of Southeastern Europe, Bulgarian’s leader Boiko Borissov reiterated that “investments from China are precisely what I have always said will be beneficial for the Balkans.”

Targeting the Weak Spot

China’s large-scale financing of highways, railways, ports, and other infrastructure to better connect China to Southeast Asia, Africa, the Middle East, and Europe on the back of the BRI has clearly struck a chord with CEEC leaders. This is hardly surprising; the CEEC still display a remarkable infrastructure gap, especially when compared to Western Europe. Rather conveniently, China has pledged an estimated €12.7 billion in investments in CEEC infrastructure since the launch of the 16+1 platform. The five non-EU 16+1 countries expect to benefit in particular, with China offering an alternative to notoriously unreliable Russian financing and EU or multilateral development banks that, in the Balkans, are seen as administratively cumbersome and heavy on reform requests.

In cooperating more closely with China, the 16+1 CEEC countries also hope for an inflow of foreign direct investment in a wide range of sectors. In November 2016, the Industrial and Commercial Bank of China established a €10 billion fund to finance investments in sectors such as high-tech manufacturing and consumer goods. At the Budapest Summit, Chinese Premier Li Keqiang pledged additional money. China has also promised substantial investments in CEEC countries at a bilateral level, underlining that 16+1 is also an important tool for the CEEC to strengthen their bilateral economic and political ties with Beijing.

Aside from the lures of potentially growing Chinese investments, 16+1 has been highly attractive for Central and Eastern European leaders, as it promises to upgrade their countries’ political standings with Beijing—and by extension the rest of the EU and even the United States.

Yet the political dimension cannot disguise the fact that Chinese economic promises have so far not been matched by action. The few China-financed infrastructure projects currently underway in the region—notably, all of them are in the five non-EU 16+1 countries—suffer from the same problems that have plagued BRI projects in other parts of the world: Chinese loans are linked to Chinese companies performing all, or at least substantial parts, of the projects to be delivered. As a result, capital associated with individual projects fail to provide a lasting stimulus to local economies.

In the 16+1 EU member countries, the economic picture is similarly bleak. In February 2017, the European Commission opened a formal investigation into the flagship BRI construction project in Europe, a €2.45 billion high-speed rail link between Belgrade and Budapest. Brussels has expressed doubts about the financial viability of the project and its compliance with EU public procurement rules. Overall, Chinese loans for large-scale infrastructure remain rather unattractive in light of existing EU financing, such as the EU’s structural cohesion funds, the European Fund for Strategic Investment (EFSI), and the Trans European Transport Networks (TEN-T), which tend to come as partial grants.

However, even if China’s infrastructure financing and investments in Central and Eastern Europe were to significantly expand in the years ahead, this would only create another set of fundamental challenges for CEEC economies, since a key rationale underpinning China’s economic engagement is opening up local and Western European markets to Chinese products and services. Already, the CEEC trade relationship with China is characterized by massive trade imbalances. The countries having attracted the most Chinese investment to date also have some of the biggest trade deficits.

Driving Breaks

Despite the sobering economic realities, political elites in some CEEC states cling to cooperation with Beijing. They actively position closer ties with China as a counter-narrative to European cooperation and the liberal values underpinning the European project. In a clear reference to the EU, Hungary’s Viktor Orbán remarked at the Budapest 16+1 Summit: “We see the Chinese president’s ‘One Belt, One Road’ initiative as a new form of globalization that does not divide the world into teachers and students but is based on common respect and common advantages.” And in May 2017, Serbian President Aleksandar Vučić declared: “There are no problems in our economic and political relations, we are always on the same side, and when China has something to say, we are always on the side of China.”

As China seeks to expand its political footprint, the political damage to the European Union is already visible. For some time now, the EU has been unable to act cohesively towards China on what have been trademarks of EU foreign policy, namely upholding the international rule of law and protecting human rights. In March 2017, Hungary derailed the EU’s consensus, refusing to sign a joint letter denouncing the reported torture of detained lawyers. In June 2017, Greece—a 16+1 observer and major beneficiary of Chinese investment in recent years—blocked an EU statement at the UN Human Rights Council criticizing China’s human rights record. This marked the first time the EU had failed to make a joint statement at the UN’s top human rights body. Similar instances of CEEC blocking EU statements on China have occurred since.

Current discussions in Brussels about creating a European investment screening mechanism, which is geared initially at Chinese strategic investments in European high-tech industries, will become a litmus test for the EU’s ability to act decisively on China. Chinese investments have already prompted individual 16+1 EU members to challenge the current proposal. Opposition is also building up among EU accession countries with sizable Chinese investments. Even if the EU manages to adopt the mechanism by summer 2018—as is currently envisaged by the biggest member states—this will not help overcome what is already a central theme in European China policy-making: a growing lack of trust between the Eastern and the Western member states.

High Time for a Response

In light of these developments, Brussels has set up a working group to develop a European narrative and strategy for engaging with China’s BRI and its economic offensive in the EU and its neighborhood. An internal EU strategy paper is due to be released this year. Key recommendations are already clear: the European Commission should actively close infrastructure financing gaps that China would otherwise seek to fill, earmarking European resources from the structural cohesion funds. EU member states also need to make sure that the post-Brexit 2020 EU budget will not result in a significant reduction of funding for the CEEC and thus a greater opening for China.

At the same time, the EU will need to implement more modest measures to align BRI investments in its neighborhood with European interests. These include enabling third countries to properly evaluate, monitor, and prepare large-scale infrastructure projects, including those financed by China. To protect and promote EU norms and standards in the neighborhood, the development policy apparatus of European institutions and EU member states need to support related capacity-building.

The EU also needs to leverage institutional frameworks that can help to promote greater convergence of EU investment priorities and principles and Chinese investment activities. This includes channeling as much Chinese infrastructure investment as possible through multilateral frameworks like the EU-China Connectivity Platform and the largely Western-styled Asia Infrastructure Investment Bank (AIIB), as well as through co-financing models involving Chinese institutions and the EIB and EBRD.

As China plays to deep political divisions within Europe, it will not be sufficient for bigger EU member states to appeal to Central and Eastern Europeans’ “European sentiment” when dealing with China. Besides strengthening EU solidarity across the board and fighting the rise of populist governments across Europe, France, Germany, and Italy should expand their policy coordination on economic engagement with China to also include Poland. Among the 16+1, Warsaw has chosen to pursue a soberer approach towards Beijing, and therefore might seem susceptible to greater EU engagement on China.

Calling on China to pursue a “One Europe” policy, as German Foreign Minister Sigmar Gabriel did in August 2017, and encouraging CEEC to close the ranks also implies that bigger EU member states need to consider their own hypocrisy. As long as Berlin and Paris pursue their own interests in their relationships with China, they will struggle to convince the CEEC not to use the 16+1 for similar ends. Germany and France should deploy their privileged relationships with China to serve wider European interests. Both Angela Merkel and Emmanuel Macron have recently pointed out how important it was for European companies to get better access to the Chinese market. They also warned about the risks of state-driven Chinese takeovers of European hi-tech companies.

CEEC governments, however, do not consider these issues priorities. They hope that Chinese investment will give their economies a push, and that closer relations with Beijing will increase their political influence. It is up to Germany and France to initiate a debate within the EU to find a compromise for Europe’s policy vis-à-vis China that takes everybody’s interests into account.

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© REUTERS/Kim Kyung Hoon

On May 18-19, representatives from participating states and partner countries will gather in Berlin for an Organization for Security and Cooperation in Europe (OSCE) conference on economic connectivity. While China is not a part of the 57-member organization, the German OSCE chairmanship has invited senior Chinese officials to join the discussion.

Engaging China on security challenges in Central Asia within the framework of the OSCE could turn out to be a smart strategy for the EU. As China expands its security activities globally, EU member states need to rethink the way they pursue their own security interests. The need is especially pressing with regard to Central Asia, where both the EU and China have high security stakes.

Originally founded as a venue for dialogue between East and West during the Cold War, the OSCE today is an intercontinental forum encompassing the five former Soviet republics in Central Asia, three of which share a border with China. A wide range of Eurasian security issues, from the protection of infrastructure to the fight against organized crime, have topped the OSCE’s agenda recently.

The Emerging EU-OSCE-China Security Nexus

The OSCE and China will not be meeting for the first time in Berlin. A decade ago, the organization engaged Beijing in tentative talks on China becoming an OSCE cooperation partner in Asia. And over the past 20 years, EU and US security experts have attempted to convince Beijing to embrace the OSCE as a blueprint for East Asia’s security architecture. None of these initiatives yielded any results.

Now, as Beijing continues to promote its “One Belt, One Road” initiative to build an infrastructure and transportation corridor from Asia to Europe, it is in a fundamentally different context that the OSCE and China encounter each other in the German capital.

China’s projects in Central Asia are increasingly confronted with the same security concerns as Chinese economic entanglements in other unstable regions. Beijing is under growing pressure to protect Chinese assets and citizens abroad in the face of civil unrest, terrorism, and anti-Chinese sentiment over environmental and labor issues. China’s steadily growing dependence on energy imports from Central Asia, combined with the fear of transnational terrorism and refugee flows, has also heightened Beijing’s interest in stabilizing Central Asia and neighboring countries, notably Afghanistan.

Like China, EU member states also have significant stakes in the energy infrastructure of Central Asia. Moreover, the recent mass influx of migrants into the EU and the terrorist attacks in Paris and Brussels served as forceful reminders of the need to remain actively engaged in stabilizing Europe’s wider neighborhood.

EU and Chinese security interests do not just converge in Central Asia, however. There is substantial disagreement between the EU and China over how security should be achieved in the region, with differences being particularly pronounced when it comes to the role of human rights, the rule of law, and the sustainability of infrastructure.

EU Deployment of the OSCE

In light of these differences, the OSCE is an attractive tool for pursuing EU member states’ security interests in Central Asia vis-à-vis – and on occasion together with – China.

First, EU member states have already invested considerable resources into the OSCE’s efforts to get security in Central Asia right, for example by building capacities for good governance, border management, and combatting illicit trafficking. These capacities should be deployed when responding to Chinese security activities in the region.

Second, EU member states’ engagement with China within the framework of the OSCE, renowned for its “stealth diplomacy,” would attract much less public attention than similar engagement on a bilateral or EU level, opening up room for a frank exchange with Beijing.

Third, the OSCE’s holistic notion of security — encompassing politico-military, economic, environmental, and human aspects — provides a suitable “playing field” for addressing a wide range of issues in a cross-dimensional manner.

Finally, given the challenging behavior of Russia and the Central Asian republics within the OSCE, EU diplomats serving with the organization have extensive experience when it comes to promoting and upholding a security paradigm derived from the liberal norms of Western democracies in the face of competing authoritarian notions of governance.

To convince Beijing of the value of engaging more actively with the OSCE, EU member states should suggest areas of cooperation that would be of obvious and genuine interest to China. At the same time, they should focus on areas that will also have the support of the US and Canada, the EU’s most important partners within the OSCE. Proposed projects should have at least the tacit consent of other OSCE states, each of whom holds the power to veto initiatives.

With these considerations in mind, the EU should start deploying the OSCE strategically to engage China in all key areas of common concern: the protection of critical infrastructure as well as the fight against organized crime and terrorism.

Points of Departure for Engaging Beijing

Seizing the momentum that might emerge from the Berlin connectivity conference, EU member states should promote greater Chinese participation in OSCE expert workshops. In particular, Chinese officials should be invited to join training courses for Central Asian law enforcement officials on the protection of energy infrastructure from cyber-attacks. Further confidence-building measures in this field could eventually lead to a wider dialogue on cyber security.

With a view to combating the illicit trafficking of arms, drugs, and human beings, Chinese experts should be encouraged to participate in seminars at OSCE field offices, for instance at the organization’s Border Management Staff College in Dushanbe. OSCE training events on drug trafficking for Afghan police officers could be another venue open to Chinese participation.

Even though the EU and China clearly have a joint interest in combating transnational terrorism in Central Asia, the OSCE is not the right forum for a strategic dialogue on counter-terrorism or the exchange of sensitive information. What the OSCE can do is help the EU engage China in a dialogue on the root causes of violent extremism and terrorism.

EU member states should encourage the OSCE to invite Beijing to take part in select events of its campaign against violent extremism, which is intended to raise awareness in participating states and partner countries. Engaging China in a dialogue on countering radicalization within the OSCE framework could open up a venue for addressing wider human rights and rule-of-law issues, which have so far been stumbling blocks in EU-China cooperation in the fight against international terrorism.

As the EU and its allies grapple with China’s expanding global security activities, creating a new space for engagement with Beijing can be a useful tool for building trust and increasing global security. Yet European policymakers should proceed with caution and refrain from overreaching.

Entering into security cooperation agreements should not be seen as an end in itself. Engagement with China in Central Asia through the OSCE has to have realistic, substantive, and measurable goals. Above all it needs to help further the EU’s own security interests.

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