China targets Croatian port as regional gateway

By bne IntelliNews April 24, 2012

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State-owned China Ocean Shipping Company (Cosco) is in talks over investing in Croatia's Adriatic port of Rijeka and building a rail link to Hungary, as it seeks a gateway to Central and Eastern Europe (CEE), the two sides said after meetings in Zagreb on April 23.

Cosco executives met with Croatian Prime Minister Zoran Milanovic to present their plans for the CEE region, which is coming into sharper focus for Chinese businesses, with a special emphasis on the role that could be played by Rijeka, the government said in a statement.

Cosco chairman Wei Jiafu told national radio station HR1 that the company is interested in acquiring a concession to manage the facility, AFP reports. The company said it hopes Rijeka could serve as China's main link with CEE and significantly shorten transport time for Chinese products destined for the region.

With fixed investment of up to €4bn on the table in what would be China's first investment in Croatia, Milanovic is understandably keen to finalise the deal, and he promised to cut red tape to push it through. "So far there was a lot of talk, now is the right time to put them into action," he said in a statement.

Beijing launched a major investment offensive in Europe this week as it moves to press home the advantage of having massive foreign reserves at the same time as the Eurozone struggles with the debt crisis. The International Monetary Fund has been hoping China will commit some of its $3.2 trillion cash pile to its bailout funds, but Beijing is holding back as it seeks concessions on issues such as its role in international financial institutions and trade barriers.

Many of the CEE region's struggling economies would also heartily welcome a slice of that Chinese cash to be invested in projects in their countries, or to help squeeze debt yields. For its part, China has long seen the less developed CEE countries as a bridgehead into the wider EU. Discussion of a first Chinese investment in Croatia comes just four months after Zagreb signed the final documents to become the bloc's 28th member in 2013.

This week, Chinese Premier Wen Jiabao is on a tour that will take in Iceland, Germany, Sweden and Poland, and he is expected to announce news on his country's investment strategy for Europe. Wen is set to meet with the leaders of several CEE countries and attend the China-Central and Eastern European Countries Economic and Trade Forum whilst in Poland. Vice Premier Li Keqiang will follow the week after with visits to Russia, Hungary and Brussels.

Chinese Vice Foreign Minister Song Tao was in Budapest earlier in April at the opening of a second branch of the Bank of China, and reiterated Beijing's interest in CEE, reports Xinhua. The official said China's relations with the countries in the region can be "an area of growth in China-Europe cooperation as a whole."

Cosco's planned enlargement of Rijeka's port is estimated at €500m-€1bn, Transport Minister Sinisa Hajdas Doncic told HR1. The official added that Cosco is also interested in a railway linking the port via Zagreb with the Hungarian border. The link would require investment of some €3bn, he suggested.

Like many in CEE, Croatia's recently appointed government faces severe economic challenges and the need for structural reform. After peaking at over €4.2bn in 2008 as the end of the global boom met the EU convergence story, foreign direct investment hit a 15-year nadir in 2010 with just over €200m in total.

At the same time, reinvigoration of the country's port infrastructure remains a huge headache after decades of neglect, although in partnership with the World Bank the government had started a piecemeal upgrade of Rijeka in a bid to make it a CEE gateway in 2003. Zagreb is also punting its shipyards to foreign investors after a privatization plan to sell them to a domestic investor failed for three of the four on the table recently. Croatian daily Jutarnji list reported in early April that China's Jiangsu Nordic Investment Management is close to a deal over Rijeka's 3. Maj yard.

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