Czechs seek to steal a march in CEE race for Chinese investment

Czechs seek to steal a march in CEE race for Chinese investment
Zeman has led a turn to 'pragmatic' foreign policy in Prague
By bne IntelliNews March 29, 2016

The Czech and Chinese presidents signed a bilateral ‘Strategic Partnership’ agreement on March 29 during the first ever visit of a Chinese head of state to the Central European country. The accord is part of Prague's new 'pragmatic' foreign policy, and its bid to win the Central and Eastern European race for Chinese investment.

The visit of President Xi Jinping got underway on March 28 with the requisite pomp and circumstance, but was the huge delegation was also met with small but widely reported protests by pro-Tibet and human rights campaigners. President Milos Zeman has led efforts to court the likes of China and Russia, extolling business interests in place of the emphasis on human rights that Prague had extolled since Vaclav Havel took office in Prague Castle following the fall of communism until recently.

About 50 Chinese flags placed along President Xi Jinping’s route from Prague Airport to the city by the Czech-Chinese Chamber were defaced by protesters. Tibetan flags also made an appearance. Activists that had placed a billboard along the route featuring the Dalai Lama and Havel clashed with crowds there to welcome Xi.

However, that's unlikely to derail the raft of big business deals in the banking, energy and tourism sectors that are reportedly set to be signed. The strategic agreement includes a passage in which the Czech Republic recognises the communist country’s ‘One China’ policy. It also, apparently, does not specifically prohibit economic relations with Taiwan, although Zeman said last year that Prague has no truck with Beijing's policy on the island's independence.

Zeman has heralded the strategic partnership as part of what he calls a new era in which the Czech Republic is becoming “an independent country”. Freed from domination by the US and EU, the country is now forming foreign policy according to its own economic interests, he claims.

Down to business

Local Czech and Slovak oligarch groups - which accompanied Zeman on a controversial trip to Beijing last year - have been at the forefront of deals. Mysterious Chinese group CEFC has recently bought into Slovak-founded J&T, and bought a large array of smaller assets. It is now reported to be seeking to use that connection to raise its ambitions, seeking entry into the Czech energy sector and setting up a regional banking group.

On the agenda of the China-Czech Financial Cooperation Forum is the signing of a cooperation agreement between the Bank of China and Home Credit, the consumer-loan and banking unit owned by Czech billionaire Petr Kellner's PPF Group. PPF has, however, denied speculation that it plans to sell the retail part of Prague-listed O2 CR to a Chinese buyer.

The Bank of China, the Asian country’s fourth biggest commercial bank, opened a Czech branch in late 2015 after earlier establishing branches in Poland and Hungary. Ahead of Xi Jinping’s visit, Zeman said there was "a very good chance" the Czech branch could become “the first fully Chinese bank in the EU, and become the banking center of China for all Europe”, not just CEE, China Radio International reported on March 27.

The countries’ respective banking associations are also set to sign a memorandum at the close of a forum at Czech National Bank headquarters on China’s One Belt and One Road (OBOR) initiative, which is focused on connectivity and cooperation among countries throughout Asia, Europe and Africa.

Regional rivals for ‘flagship’ role

Alongside Bulgaria, Poland, Serbia and Slovakia, the Czech Republic signed a memorandum in November aimed at promoting the OBOR initiative, as Central and Eastern European countries race for a slice of Beijing's massive investment war chest and China looks to use CEE as a bridgehead into the EU.

In CEE, the runners are jostling for position, as Beijing appears ready to finally splash the cash. In Hungary, Minister of Foreign Affairs and Trade Peter Szijjarto, claimed on March 22 that his country is already the flagship of Chinese-Central European cooperation following the signing of a banking association cooperation agreement.

For the Czech Republic to become that ‘flagship’, it might have to go beyond the largely symbolic ‘Strategic Partnership’ agreement, which makes no mention of coveted market-economy status for China. Beijing argues its 2001 agreement to join the World Trade Organization requires countries to hand the country that status by December 2016, Lidove noviny reported on March 29.

Neither does the agreement discuss the possibility of Czech membership in the Asian Infrastructure Investment Bank (AIIB) – a Beijing-led multilateral development bank which large EU countries including the UK, France and Germany have joined as founder members. China is also looking to further internationalize the Renminbi, to facilitate economic cooperation, trade and account settlements, and has agreed currency swap agreements with 25 central banks, as Beijing continues to cement its presence in the CEE.