Eastern Europe, just a stop on the New Silk Road. Chinese investments, limited by government restrictions, but also by Beijing's lack of interest

Containers of a freight train from China to the UK are handled at the logistics center in Malaszewicze, near the Poland-Belarus border crossing, eastern Poland, 11 January 2017.
© EPA/WOJCIECH PACEWICZ   |   Containers of a freight train from China to the UK are handled at the logistics center in Malaszewicze, near the Poland-Belarus border crossing, eastern Poland, 11 January 2017.

The West's relations with China have been called into question in recent years. Beijing has been criticized for its trade practices, from copying technology to dumping prices that have put Western companies in trouble. Efforts to tighten control over Hong Kong and human rights violations in Xinjiang province , where Uyghur Muslims are being targeted by a “re-education” campaign, have also been denounced. The Covid-19 pandemic has brought into focus the opacity of Beijing - accused of not providing timely information about the virus - but also the need to diversify the supply chains, which are largely dependent on China.

The relationship with China has been approached differently by the United States and its European allies. Washington has recognized China as its most important competitor since the Obama administration, which announced the so-called pivoting towards the Pacific; Obama's successor, Donald Trump, went much further and started a trade war with Beijing. The Europeans, on the other hand, have been reluctant to damage their political relations with China because of their economic interests. However, tension also appeared in the relations between some European states and Beijing, especially as Washington put pressure on its traditional allies to be somewhat firmer. One notable case is that of Huawei, well positioned a few years ago to gain a significant share of the emerging 5G network market: amid suspicions that its equipment could be used for espionage by the Chinese government, Huawei was prevented from engaging in the implementation of these networks in many EU states  (but not all,  a notable exception being Germany)

Different European countries have discouraged or even banned China's involvement in other areas considered strategic, a relatively recent example being that of Great Britain, which in November  blocked the takeover of a semiconductor producer . Again, the counter-example comes from Germany, which allowed a Chinese company to partially purchase a terminal in the port of Hamburg.  

Rich Western countries with important markets are a major stake for China. Chinese companies are also present, to a lesser extent, in Central and Eastern Europe. But is this region a stake in itself for Beijing, or just a “stop” on the New Silk Road to the West? How extensive are bilateral relations and to what extent are they influenced by the West? Veridica collaborators in the region – Bulgaria, the Baltic countries, the Czech Republic, the Republic of Moldova, Poland, Romania and Ukraine – have tried to answer these questions.

Bulgaria: good business but no special relationship

Svetoslav Todorov, Sofia

China is one of the major trade partners of Bulgaria, along with Turkey, Serbia, Egypt, the Republic of North Macedonia, the United States, and the United Kingdom.

However, 2022 did not bring any major development in the relations between Bulgaria and China. Diplomatic ties remain scarce: since 2021, Bulgaria has had no ambassador to China despite having an embassy in Beijing. 

There’s a possible increase in Chinese investments through 2022. According to a statement by Luchezar Dinev of the Bulgarian-Chinese Chamber of Commerce and Industry to Bloomberg in September, between January and September 2022, China managed to increase its exports to Bulgaria by 51.74%. At the same time, Bulgaria registered a 26.48% drop in its exports to China.

In an interview for the local website in August, the Chinese ambassador to Bulgaria said that he expected more investments in infrastructure in the near future: “Chinese companies have serious experience in infrastructure construction and are ready to conduct mutually beneficial cooperation with Bulgaria in this area. With the deepening of cooperation between China and the countries of Central and Eastern Europe and the continuous development of relations between the two countries, Bulgaria's popularity in China is expected to grow even more.”

Chinese citizens who have done business in the country in order to obtain citizenship might see their passports revoked. On February 17, the Bulgarian parliament voted to scrap the practice of issuing the so-called “golden passports” – citizenship granted in return of investments. The main beneficiaries of the program were citizens of China, Russia and the Middle East. 120 such passports have been issued since 2013. Twelve of those had been revoked by December 2022, according to interim Justice Minister Krum Zakov who has not specified the nationality of the individuals.

The Baltic States: the “New Silk Road”, some big projects, poor political relationships

Kaspars Germanis, Riga

For a while, Beijing’s “New Silk Road” initiative and the Cooperation program between China and Central European (CE) and Eastern European (EE) Countries were at the core of the relationship between the Baltic States and China.

It was planned that the “New Silk Road” running through Central Asia, Russia, and Belarus will connect the Baltic state’s ports, primarily Latvian and Lithuanian, and China. The first test train came to Latvia from China in 2016, but just one more container train came to Latvia in April 2020. Now, because of the sanctions against Russia and Belarus, this route is totally blocked.

The fate of the “New Silk Road” mirrors the participation of the Baltic States in the Cooperation program with CE and EE Countries. In August 2022, Latvia and Estonia announced that they quit the program. Experts noticed that none of the two Baltic countries lost too much by withdrawing. Officially, both countries acknowledged that after the evaluation of the current priorities in foreign affairs and trade, the Baltic countries will continue to strengthen their relationships with China bilaterally and according to the common principles between European Union (EU) and China.

Lithuania had announced its withdrawal even earlier – in March 2021. Unlike all the other EU members, Lithuania allowed the Republic of China to use the name “Taiwan” instead of “Taipei”, the term acknowledged by China, on a “de facto” embassy in Vilnius. This action triggered a sharp reaction from China and one of the outcomes of the dispute was Lithuania’s withdrawal from the Cooperation Program. However, later, Lithuanian president Gintaras Nauseda acknowledged that it was a mistake to allow the use of the word “Taiwan”. This step was welcomed by China. Nevertheless, in November 2022, China warned Taiwan that it opposed its intention to invest more than 10 million EUR to build a chip production facility in Lithuania.

According to official information, in 2020 there were 896 Chinese in Latvia. In Lithuania, there are around 500 Chinese, and in Lithuania – 430.

China is involved in various projects in the Baltic States. Some of them were discussed in the context of state security. Underwater tunnel developer “Finest Bay Area Development” wanted to build a 100 kilometer long tunnel for a railway in the Gulf of Finland, and said that it would get Chinese money for it. However, an Estonian court ruled against the project. Nevertheless, other business ideas were more successful. Guangzhou Hangxin Aviation Technology in 2018 bought the company Magnetic MRO which offers aircraft maintenance services. Also, Didi Chuxing invested an unknown sum of money in the Estonian ride-hailing Taxify, Dalian Wanda Group bought Nordic Cinema Group for 865 million euros, the Estonian post company Omniva created a joint venture with the Chinese company SF Express and the Chinese telecommunications company bought Linx Telecommunication B.V., thus becoming the owners of its Estonian daughter company, Linx.

In Latvia the most famous business cases are the CICC Healthcare Investment Fund’s decision to buy cosmetic producer Stenders, and the fact that Chinese citizen Huang Jianhua owns almost 40% of the sociological company Factum Interactive, and the company MGI was involved in the building of life studies and technologies park.

In Lithuania, China state-owned North China Power Engineering took control over one of the main Lithuanian energetic company, Elektros tinklu institutas, Jiangsu Linyang Electronics controls around 15% of the Lithuanian company Elgama-elektronika , which manufactures electricity meters, the Chinese company International Business Settlement made its European office in Lithuania and, finally, China Binary New Fintech Group has registered subsidiary fintech company Goopal Pay Lithuania.

Moreover, China expressed a great interest in Baltic ports and the international railway project Rail Baltica. Estonia acknowledges that the country and the Baltic region, in general, should expect China’s influence to rise.

Chinese investment in the Czech Republic: unfulfilled promises

Michael Švec, Prague

Large Chinese investments were supposed to come to the Czech Republic mainly after 2016. At least, this was promised by President Miloš Zeman, who received Chinese leader Xi Jinping in Prague and took the deepening of relations with China under his personal control (critics, however, spoke of servility and sycophancy). 

Zeman promised at the time that, by 2020, the Chinese would invest CZK 232 billion (more than EUR 9 billion) in the Czech Republic. However, this was never fulfilled, as the president later acknowledged when he described the "very, very low" level of investment in 2019 as a "stain on cooperation".

Nevertheless, some agreements have been concluded since 2015, when CEFC – one of the 10 largest private companies in China at the time – expanded into the Czech Republic. However, these were not investments as such, but rather acquisitions. However, these have often not been successful, partly perhaps because CEFC itself went bankrupt in 2018 and its portfolio was taken over by Chinese state-owned CITIC. The latter, however, has already opted for a different strategy.

In terms of large acquisitions in the Czech Republic, CEFC bought 49.9 percent of Smartwings, which included Czech Airlines too. It was Czech Airlines, which has been in bankruptcy since last year, which managed to get out of this company – and thus Chinese co-ownership.

"They watched Smartwings' fight for survival from a safe distance and we had the intense feeling that they didn't care how it turned out. They didn't care about the state of the company," said Jiří Šimáně, the Czech co-owner of Smartwing, about the Chinese CITIC.

"Nobody could have guessed that CEFC would collapse and CITIC would take over the shares. We simply inherited them and they apparently got something they either have no interest in or don't know how to handle," he added.

An attempt to expand into the media sector ended with even less success. In 2015, CEFC bought a stake in media group Empresa Media, which operates the television channel Barrandov and publishes weekly newspapers. It acquired as well a majority stake in the influential media agency Médea. Both of these companies were controlled by Jaromír Soukup, who was previously close to President Zeman. However, in 2017 at the latest, he got into a dispute with the Chinese and they gradually left his companies.

Among the machinery companies, CEFC took over Žďas, which produces, for example, blasting and hydraulic presses. It is now owned by Chinese state-owned CITIC. Žďas is thriving, but its subsidiary TS Plzeň went bankrupt in 2019.

Although President Zeman and some other politicians have sought to maintain relations with China even at the cost of disregarding some Western values, serious conflicts and cooling have come anyway in the end. Apart from the Senate President's trip to Taiwan, this was mainly due to an official warning by the Czech Republic's National Cyber and Information Security Agency against Chinese companies ZTE and Huawei. 

"The main problem is the legal and political environment of the People's Republic of China, in which these companies primarily operate. Chinese law requires private companies operating in China to cooperate in intelligence activities, among other things, and therefore allowing them into systems that are crucial to the operation of the state may pose a threat," explained director Dušan Navrátil at the time.

The warning applies to both public and private administrators of critical infrastructure systems or operators of essential services.

The Republic of Moldova: trade balance in favor of China

Corneliu Rusnac, Chișinău

The relations of the Republic of Moldova with China are, at present, mainly limited to the commercial dimension.

According to the National Bureau of Statistics in Chisinau, in 2021 the volume of trade between the two states was worth some 849 million dollars, of which the export of Moldovan goods was 12.4 million, and the import of Chinese products exceeded 836 million dollars, the trade balance being categorically not in favor of the Republic of Moldova.

The Republic of Moldova exported to China wines, pieces of furniture, undenatured ethyl alcohol, medical equipment, beer, etc. It imported from China telephones, computers and monitors, lighting fixtures and their components, tires, shoes, fabrics, etc.

In 2021, China was among the main trade partners of the Republic of Moldova and ranked 4th after the European Union, Ukraine and Turkey, with a share of 11.58% of the foreign trade volume. It's true, the EU, which is in first place, had a share of over 60%, of which more than a quarter belongs to Romania.

The last president of the Republic of Moldova to travel to China was Vladimir Voronin - on a state visit in 2003 and a private one in 2006. Also during Voronin's time (who was also the leader of the Party of Communists), the Republic of Moldova intended to borrow a billion dollars from China in July 2009, just days before the Party of Communists lost the parliamentary elections. A memorandum was also signed in this regard between the Chisinau government and the Chinese state corporation COVEC. The respective credit would have been used, according to the then authorities of the Republic of Moldova, for infrastructure projects such as roads, aqueducts, the industrialization of the agricultural sector, etc. But the deal went off after the communists lost power.

The governments that followed in Chisinau apparently focused on strictly commercial, sometimes technical-scientific or humanitarian aspects in their relation with Beijing, avoiding a too close political or economic rapprochement.

Poland: just another stop on the New Silk Road

Michal Kukawski, Warsaw

Iga Świątek, the best Polish tennis player, winner of two Roland Garros tournaments and this year's US Open, leader of the WTA world ranking is easily spotted in Warsaw. Her face is on giant billboards advertising phones from the Chinese brand Xiaomi. Previously, the best Polish football player, Robert Lewandowski, was featured on advertising posters hung all over the city center - until March he was the ambassador of the Chinese brand Huawei (he resigned from cooperation due to China's ties and close relations with Russia). These huge billboards are not only a way to deform the city; they are also proof that Chinese companies have dominated Polish telecommunications. Huawei, present in Poland since the beginning of the 21st century, has strongly supported technical universities with technologies; Huawei has provided equipment worth several billion zlotys for telecommunications, railways and traffic control systems. A significant part of the masts of traditional communication comes from Huawei, and it is obvious that it would most likely create the infrastructure for the fifth generation (5G) mobile network in Poland. However, in 2020 the Polish government withdrew from announcing a tender for the construction of the 5G network (perhaps under pressure from the US).

The Chinese are reluctant to engage in greenfield investments and the creation of new jobs, they are rather focused on tenders (e.g. road construction) and takeovers of existing companies. They also prefer indirect investments, carried out through companies registered in Western European countries. Like the Netherlands or Luxembourg, where tax solutions are additionally conducive. Or via Cyprus. This is where Sino Frontier Properties is based - the owner of the Polish GD Poland International, a company that presents itself as follows: "Cheap clothing and footwear wholesaler near Warsaw, which is the largest distribution point for products of Asian origin in Central and Eastern Europe."

They exert their influence also through the United States. America is an intermediate level for the largest Chinese investment in Poland (taking into account the scale of operations). We’re talking about Animex, the largest meat producer in Poland. Berlinki, Krakus, Morliny (well- known Polish brands producing cold cuts, wieners, sausages etc.) – all belong to the American concern Smithfield Foods, which in turn belongs to the largest pork producer in the world – WH Group, formerly operating under the name Shuanghui Group.

In short, it seems that if the Chinese want to invest in Poland, they should build factories. Meanwhile, they prefer to bring here what they produce at home. Poland, where China invested less than USD 50 million in 2021, is just one of the stops on the New Silk Road.

Romania discourages China's participation in strategic projects

Ioana Dumitrescu, Bucharest

A community of approximately 5,000 Chinese living in Romania, most of them in Bucharest or around the capital, can say a lot about the interest of a country the size of China in a democratic state located on the eastern border of the EU and NATO.

No major Chinese strategic project has materialized in Romania so far. For example, China was excluded, after long negotiations, from participating in the construction of reactors 3 and 4 of the Cernavoda nuclear powerplant. Or, more recently, it missed the participation in the construction of the Sibiu-Pitesti highway. At this year's level, China's presence in Romania is visible only through small and medium-sized companies that operate in sectors without strategic importance. From data provided by the National Bank, it appears that China's direct investments in Romania have been a little over one billion dollars. From Beijing's perspective, perhaps Romania is not the key to China's strategy to increase its presence and influence in Europe because it does not play a decisive role at regional level or in Brussels. But Bucharest does not look at the relationship with that country with much interest either, especially after the pandemic. China's position towards the Russian invasion of Ukraine is another factor, so it is understandable why the authorities in Bucharest are more cautious, to protect themselves against the potentially toxic Chinese influence.

However, it is not unimportant that Romania appears on the list drawn up by the Spanish NGO Safeguard Defenders alongside other European states where China allegedly opened clandestine police stations with the undeclared purpose of tracking and harassing Chinese dissidents in exile.  The authorities in Bucharest deny that they approved the opening of such offices, but they have not ordered an investigation into the existence or not of these centers.

Ukraine: Chinese investments, safe from Russian bombings

Marin Gherman, Cernăuți

Investments and industrial targets controlled by China on the territory of Ukraine started being a major topic of discussion  in 2021 when the Government of Kyiv made the decision to nationalize  the engine producer Motor Sich in Zaporozhye, preventing its takeover by the Chinese company Skyrizon.

Ukraine, pressured by the US and its Western partners, has not allowed China to have access to the production capabilities for aeronautical turbojets, turboprop engines, airplanes, drones and helicopters. The Chinese industrial groups' takeover of Motor Sich was supposed to happen after Ukrainian state-owned Ukroboronprom agreed to sell them 50 percent of the company's shares in 2019. Skyrizon representatives said they would seek compensation through the International Court of Justice in The Hague in the amount of 4.5 billion dollars. President Volodymyr Zelenskiy, who signed the nationalization decree, said he would not allow China or any other state to take control of the strategic enterprise. And so, the relations between the two states got chillier.

Despite this fact, a number of enterprises in Ukraine are owned by Chinese companies : 10 solar stations in the Odesa and Mikolaev regions, the “Satellite” oil distillery in Mariupol, the Danube naval logistics complex, the agro-industrial complexes “Belgravia” and “Junigrein- Bazis”, the elevator in Nova Oleksiivka, Kherson region, the agricultural company “Fanda” in Cherkasy region, owned by the Chinese government agency Huangfa.

According to a study by Intelligence Online, Russia has not bombed any industrial targets held by China, and there are suspicions that Moscow and Beijing colluded on the subject in the run-up to the invasion of Ukraine. The only enterprise that was destroyed or damaged during the fighting was the oil distillery in Mariupol, but it was set on fire by the Ukrainians, not by Russians. Most of the Chinese-controlled enterprises on the territory of Ukraine are located in the east, center and south of the country, less so in the west. China owns some insurance companies and banks in Ukraine, with the number of Chinese assets increasing in recent years.

Cătălin Gomboș

Cătălin Gomboș

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