The 16+1 Summit: Exercises in Diversification

By: Sara Skejo, CASE Analyst

On November 27th, the sixth annual 16+1 summit of Central and Eastern European (CEE) countries and China was held in Budapest. As with previous years, this summit contained many promises but was critically low on tangible results or concrete measures for the future.

The 16+1 initiative was established in Warsaw in 2012 by the Chinese government as a framework of initiatives focused on bolstering cooperation between China and the Central and Eastern European (CEE) countries. The group includes eleven EU countries (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) and five non‑EU Balkan countries (Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia), as well as (of course) China.

Photo: Reuters

The different countries of the CEE region see China as an opportunity for different reasons. Some are especially interested in the infrastructure investments that China can offer, as China’s “Silk Road Economic Belt and the 21st Century Maritime Silk Road” project plans to connect Europe, Asia, and Africa. New hopes of additional spending on this goal were raised at the summit with the signing of the second phase of the China-CEE Investment Cooperation Fund worth USD 1 billion. Moreover, some projects are already underway: in Serbia, China is financing a railway reconstruction project, which will create a transport route between Belgrade and Budapest. The route will be an important section to connect the Greek port of Piraeus with the rest of Europe, and is part of Beijing’s strategy to unlock alternative energy routes to overcome the limitations of the Strait of Malacca and boosting its trade.

Hungary, the host of this year’s summit, will also avail itself from Chinese infrastructure projects, with the construction of the Hungarian section of the Belgrade-Budapest railway scheduled for 2020. Moreover, Hungary aspires to create strong financial links with China and increase its business significance in the region. Earlier this year, Hungary issued state bonds in China amounting to RMB 1 billion (USD 151 million).

Source: European Council on Foreign Relations
Source: European Council on Foreign Relations

Poland, the largest country and economy of CEE, a founding member of the Asian Infrastructure Investment Bank, and an important transportation hub, is also perceived by China as politically and economically influential in the region, and hence a strategic partner. According to Mao Yinhui of the Guangdong University of Foreign Studies, the main reasons for Poland to foster relations with China are investment and trade opportunities. In 2016, trade between China and Poland reached EUR 23.4 billion, but the Polish exports (EUR 1.7 billion) were almost thirteen times lower than the imports (EUR 21.7 billion). A heavy trade deficit with China is not specific to Poland, but present in every CEE country.

However, despite predictions, trade between CEE and China was still below USD 100 billion as of 2016. Moreover, trade is almost entirely concentrated in five countries: the Czech Republic, Hungary, Poland, Romania, and Slovakia account for about 80% of the total exchange. China’s investment in the region increased as of late compared to the overall Chinese investment in the world economy, but it still accounted for only 2.7% of total Chinese investment in 2016. Similarly to trade, China’s investment in the region is concentrated in select countries, with Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia absorbing 95% of the financing.

The real reason behind the Chinese economic interest in the CEE region is political. In the light of the EU‑China Investment Agreement negotiations, China is looking to enhance its position by fostering competition for foreign investments between the sixteen European countries. EU-China relations have reached a critical point and are becoming a stepping stone for China-CEE cooperation. Although China is the EU’s second largest export market, and trade between the two has reached EUR 1 billion a day, the EU is facing difficulties when it comes to enforcing fair trade principles. The European Commission is also worried that China will use its investment funds to influence the countries in the region, and that member states will lead divergent foreign policies.

Despite these concerns, the total amount of funds invested in CEE countries is still marginal, and it is very unlikely that European countries will profit more from Chinese capital than from the EU funds. When political factors are combined with economic ones, it can be argued that China remains focused on the Asian market, and the 16+1 initiative is to be seen as a pilot project to test the waters in Europe. Thus, the opportunities created by China in the CEE region must be taken for what it is: a useful complement to integration with the Western economies, not a substitute for it.

Like what you read? Give CASE a round of applause.

From a quick cheer to a standing ovation, clap to show how much you enjoyed this story.