China’s investment in influence: the future of 16+1 cooperation

Press release

Uneven progress towards “16+1” cooperation frustrates Chinese ambitions

Four years after the initiation of the 16+1 format for economic cooperation between China and central and eastern European (CEE) nations, uneven results are leading to rising frustrations in both Beijing and Europe, according to a new report from the European Council on Foreign Relations.

The format was kick-started by China as part of its plans to ultimately connect the full East-West span of the Eurasian landmass under its One Belt One Road (OBOR) project. The CEE countries are strategically positioned between Western Europe and the 51% Chinese-owned port of Piraeus in Greece, and as such have strategic value for Beijing as a pathway to the lucrative Western European market. But their growing markets have also taken on additional value in themselves in light of depressed demand from Western Europe since the 2008 financial crisis.

The format has enjoyed some success: CEE-China trade rose by 86 percent between 2009 and 2014 and last year hit the $100 billion target set in 2012. Yet this growth has been severely imbalanced, with just five countries out of the 16 – Poland, Czech Republic, Hungary, Slovakia and Romania – constituting 80 percent of these exchanges. Similarly, Chinese investment into the region rose from $400m in 2009 to $1.7bn in 2014, but just six countries (Bulgaria being the sixth) received 95 percent of the total in 2014.

This varying success rate is accounted for by both economic and political differences between the 16 countries. Larger economies have been better equipped to take on China’s large-scale investment projects, while smaller countries have struggled to implement specific projects. For small EU member states like Croatia and Slovenia, their size constraints are exacerbated by EU regulatory requirements, which are often incompatible with Chinese investment proposals. For example, a proposed $10 billion financing scheme by China remains restricted by parts of the EU’s stability and growth pact, frustrating ambitions in Beijing and in the CEE group and leading to a lack of willingness to pursue further cooperation.

The format as a whole is also viewed with suspicion by many in Brussels, who see it as an example of China’s ‘divide and rule’ tactics. There are concerns that CEE countries’ cooperation with China could undermine their relations with the EU institutions or undermine EU policies. This has potentially already begun, with Hungary (a leading recipient of Chinese investment) playing a leading role in frustrating the union’s efforts to issue a strong, unified statement in response to China’s military actions in the South China Sea.  In the end, thanks to the objections of Hungary among others, the statement avoided any mention of China itself.

In the words of one author, “a cold war mentality has emerged”, which is also triggering suspicion of China’s intentions in establishing the One Belt One Road project. To combat this, the paper suggests Beijing should engage in a cultural PR campaign to reduce prejudices among the European public and enhance China’s soft power. 

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