Central European countries vie to position themselves as transit hubs in China’s ambitious Eurasian trade corridors. The enthusiasm is tempered by concerns that the new transportation lines will ultimately increase the region’s trade deficit with China.
In the modern days of the Silk Road, Chinese leaders are followed not by camels but by cargo trains. The formal openings of new cargo routes were key to Xi Jinping’s visit to Germany in 2014 (Chongqing-Duisburg connection) and to Warsaw earlier this year (Chengdu-Warsaw line). This past weekend, Premier Li Keqiang visited Riga to attend the 5th Summit of Heads of State of Central and Eastern European countries and China under the so called 16+1 format, which was set up in 2012. Once again, a train was the star of the show when Riga’s Central Station welcomed the arrival of the first pilot container train from Yiwu – a commercial hotspot in Eastern China.
The Yiwu-Riga freight train connection is one of many railway routes through the Eurasian continent that were completed within the past two years. According to a representative of the China Railway Express Company, who spoke at the Riga summit, the number of block trains between China and Europe increased from 80 in 2013 to 815 in 2015. For Beijing, Central Europe is the entry point for China’s flagship Belt and Road initiative, which, among multiple objectives, is supposed to boost railway and maritime freight flows between China and Europe.
For the region, the transit of Chinese goods to the rest of the EU is a welcome economic boon. At multilateral summits like the one in Riga there is a sense of competition as almost every country in the group vies to become the main regional hub for the Chinese goods. Apart from the obvious economic benefits that come with being a transportation and logistics hub, the host countries can also expect new investments into supporting infrastructure – built and financed by China.
More trains go West than East
Yet there is a growing sense of disappointment in the region. Some had unrealistic expectations regarding the feasibility of some projects. Others fear that Central Europe’s relationship with China is becoming increasingly unbalanced in China’s favour.
At least so far, the pilot route to Riga only runs in one direction – from China to Europe. Overall, the number of westbound trains is at least twice as high as that of trains leaving in the opposite direction – which has the potential to deepen Central Europe’s trade deficit with China. Despite China’s increased attention to the region under the 16+1 format, the region’s exports to China (10.6 billion USD in 2014) are dwarfed by imports (64.9 billion USD). To make things worse, most of the China-bound trains carry goods from the Western European countries rather than the region’s own products, underlining a shared feeling in the region that it lags behind in terms of market access for its exports to China.
For Central European EU member states the disappointment starts much earlier as very few of the proposed Chinese infrastructure projects have so far materialized. With the exception of the Belgrade-Budapest railway line, there is no Chinese infrastructure project currently underway in the EU - and even the future of this project is uncertain due to possible legal challenges in Brussels, according to an Hungarian press report.
At the first 16+1 summit in 2012, China had offered a 10 billion USD credit line and set up an investment fund to support infrastructure construction in the region. But the EU member states soon realized that Chinese money comes with some unattractive conditions attached. Chinese financing offers don’t allow for competitive tenders but favour Chinese subcontractors. Furthermore, Chinese banks require sovereign guarantees for the projects they finance, shifting the risks onto the recipient states. Both requirements run against EU and national rules which are designed to promote open competition and fiscal stability.
China tries to sweeten the deal
Sensing the disappointment among Central European countries, China tries to sweeten the cooperation with new initiatives. At the summit, Premier Li announced yet another regional investment fund run by ICBC, a commercial bank from China, and based on the co-financing with the region’s major financial institutions. . Li also proposed the so-called “Three Seas Initiative”, a Chinese plan to connect ports in the Baltic, the Adriatic and the Black Sea through a network of railways, roads and inland waterways. This is an attractive proposal to Central European countries, where the density of roads and railways is much lower than in the Western part of the continent.
By increasing infrastructure connections and heralding potential investments in the region’s maritime ports, the initiative may further increase the potential for the transit of Chinese goods. But it falls short of addressing regional concerns over the growing trade deficit and to convince Central Europeans that they have entered a mutually beneficial relationship with China.