Chinese premier seeks to revive plans for CEE bridgehead into Europe

By bne IntelliNews November 26, 2013

bne -

Chinese Premier Li Keqiang arrived in the Romanian capital on November 25 to meet with leaders from Central and Eastern Europe. As ever, talks focused on investment in return for a bridgehead into Europe.

Travelling back from the 16th EU-China summit, Li stopped in Bucharest to meet with his counterparts from across the region at the third China-CEE summit. Previous gatherings - in Poland last year and Hungary previously - have produced promises of huge investment by Beijing, particularly in regional infrastructure. The spending remains limited for now, but plans for China to fund railway development were announced.

One major deal will see China help build a rail link between Hungary and Serbia. Flanked by Hungarian Prime Minister Viktor Orban and his Serbian counterpart Ivica Dacic, Li said: "We reached important agreement... we agreed to begin cooperation on the construction of railway linking Hungary and Serbia," according to Reuters. "The three parties agreed to immediately set up a joint working group to launch the project as soon as possible."

The Chinese premier was also busy talking trains with his host: Romanian PM Victor Ponta. Amid talks on trade and energy investment, the pair signed an agreement to set up a working group on developing high speed rail in Romania.

"Most CEE countries see a need to upgrade and renovate their railway lines, roads, ports and other transportation facilities," Li wrote in an article, according to Xinhua. "China is making rapid progress in the manufacturing of transportation equipment, especially in the field of high-speed railway. We are fully capable of undertaking transportation infrastructure projects with high quality in CEE countries." No details on likely investment levels were offered on either rail project.

Li also met with leaders from Bosnia-Herzegovina, Croatia, Lithuania and Estonia as he pushed China's bid for business across Europe's eastern flank with offers of cheap construction contracts and capital to break the ice. In May 2012, the then-Chinese premier Wen Jiabao embarked on a Central European tour, during which he announced a €10bn infrastructure investment fund for the region.

Few deals have followed that declaration, although potential projects have started to emerge in recent months. On November 15, Shanghai Electric was reported to have placed the lowest bid in a tender to build a large new coal-fired unit for PGE, Poland's biggest utility. Sources told news agency PAP that the PLN3bn (€715bn) offer was a full PLN1bn cheaper than the next best bid. That will likely please Warsaw, which is pushing companies for new capacity whilst warning of an impending power crunch.

At the same time, Poland - which is looking to give a leg up to its own struggling building groups - remains wary of such cheap offers in the wake of the highly publicized failure of Chinese contractor Covec on an important highway project in 2012. Late last year, Prime Minister Donald Tusk unveiled plans for a Polish infrastructure fund to help stimulate the economy, while the Chinese facility appears to remain untouched.

Yet China's $3.66 trillion stash of foreign currency reserves has no little clout. At the same time, China's continued push towards the EU via CEE is notably free of ideology. In stark contrast, another eastern giant is busy building barricades.

Russia looks to have won the most recent fight over Ukraine's path, using both carrot and stick, but that has only entrenched hostility further in the former Soviet satellites of CEE. While Moscow maintains a stance of confrontation, Beijing has the self-confidence that the world's largest reserves offer, to believe it can expand its interests whatever the stance of Brussels.

Li was perhaps highlighting that contrast when he played up China's growing appetite for food from the region. In the course of the struggle over Ukraine, Russia has banned produce from several countries, ostensively due due to quality issues. In October, Lithuanian PM Algirdas Butkevicius accused Moscow of running a "trade war" against his country.

"CEE countries produce meat, dairy and wine products with high quality," the premier said, according to Xinhua. "China's urbanization will unleash greater demands for beef, lamb, cheese, wine and other products. It will not be difficult for us to see exponential growth in agricultural trade."

Last week, the Chinese premier was playing up the positives of an enlarged EU. In an article published in the Daily Telegraph, Li pledged China will, as always, firmly support Europe's integration process, and stressed that a united, stable and prosperous Europe is in the interests of the world and China.

There was more of the same as he sat down to do business in the east of the bloc. "We believe that comprehensive cooperation between China and CEE countries will not only serve the people of both sides but also lend fresh impetus to the sound, balanced and sustained growth of relations between China and Europe," Li said in an article sent to major news outlets on November 25.

Meanwhile, in some CEE states, China is increasingly seen as a potential counterweight to Brussels. Hungarian PM Orban, who has spent practically his whole term in office since in 2010 fighting the EU over his policymaking, has been chasing Chinese cash throughout. It has not yet turned up, however. Beijing is well known for being an extremely tough negotiator when it comes down to making a deal.

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