Authors: Ráhel Czirják, László Gere
On 22nd May, 2017, the European Forum for Belt and Road Cooperation Conference was held by EUOBOR (European Institute for One Belt One Road Economic and Cultural Cooperation and Development) and Pallas Athene Geopolitical Foundation, where invited Hungarian and foreign lecturers presented the opportunities and challenges of the CEE-China cooperation. The event also reflected on the Belt and Road Summit, held in Beijing a week earlier, with special regard to issues relevant for Hungary and the CEE countries.
The conference was opened by Zhou Xinjian, Economic and Commercial Counsellor of the Chinese embassy to Hungary, who, reflecting upon the outcome of the summit, said that the event taking place participated by a total of 57 countries was extremely successful. So far, almost 100 countries, including Hungary among the first ones in Europe, have joined the Belt and Road initiative and 40 Memorandums of Agreement have been signed. Zhou highlighted that although the initiative was launched in China, it benefits the entire world, as the continuously constructed economic corridors are creating new opportunities and open new development spaces for the participants, including the CEE region. Regrading Hungary, the China. Hungary relations have never been more favourable throughout their history, he said, therefore it is important to take advantage of the opportunities arising from the good terms.
THE PROSPECTS OF THE EU-CHINA RELATIONS ON ONE BELT, ONE ROAD (SESSION ONE)
In the first session, Hou Yongzhi, Director of the Department of Development Strategy and Regional Economic Studies, Dániel Palotai, Executive Director of the Central Bank of Hungary and Norbert Csizmadia, Chairman of the Board of Trustees of PAGEO delivered presentations. The discussion was moderated by Anton Bendarjevsky, Director of PAGEO.
In his presentation, Hou Yongzhi said that the New Silk Road, i.e. the One Belt, One Road (OBOR) initiative, was launched by China’s head of state, Xi Jinping in 2013. Although there are many who have misgivings about the cooperation, facts are proving the Chinese right: over a hundred countries have signalled their intention to join, and almost 40 Memorandums of Understanding have been signed. In 2016, the value of trade between China and its partners amounted to some $9,500 billion.
The One Belt, One Road initiative exerts its positive effect in several dimensions, Hou argued. On the one hand, the development of transport networks facilitates a more effective market operation and creates a more attractive market environment. On the other hand, cooperation enables more intensive knowledge-transfer, exchange of information and accumulation of knowledge among the participating countries.
The cooperation between Europe and China plays a prominent role within the New Silk Road, Hou highlighted, as the two regions exert considerable economic impact on each other. In 2015, for example, 73 per cent of all transfers in the world economy were made between these two parties. The effective cooperation of the parties may be facilitated by their different approaches, as the traditional Chinese mindset puts emphasis on ethics, while the European mindset puts emphasis on technique, thus they can complete each other well. However, talking is not enough to achieve good results; the cooperation must be further enhanced.
Dániel Palotai primarily spoke about the financial aspects of One Belt, One Road. He explained that the role of Hungary on the New Silk Road is to connect the East with the West. The initiative means an enormous economic opportunity to our country, as Chinese companies intend to significantly increase their investments in the region, and the cooperation creates a good opportunity for the expansion of Hungarian companies in China. In addition to infrastructure investments, such as the development of the Budapest-Belgrade railway, Hungary wants to extend the cooperation with China also in terms of finances, in which the Central Bank will assume a prominent role. The Chinese central bank has concluded several currency swap framework agreements with foreign central banks, including the Central Bank of Hungary in 2013. That is, the Central Bank of Hungary is also on the New Silk Road.
Norbert Csizmadia, Chairman of the of the Board of Trustees of Pallas Athene Geopolitical Foundation, mainly spoke about the role that the Foundation plays in the Chinese initiative. PAGEO, with its focus on East Asia, wants to be a knowledge hub between China and Europe. In his presentation, he described the achievements of PAGEO’s Geopolitical Research Institute: among others, 384 studies and articles have been published in Hungarian and English, which have attracted almost 50, 000 readers from 93 countries; the Institute sponsors numerous Hungarian, European and global events, organises its own professional events, in relation to which twenty-four world-renowned geopolitical thinkers have been invited; and numerous books as well as the Hungarian Geopolitics (HUG) magazine have been published in Hungarian and English. The Research Institute, thanks to the work that has been done so far, has become a member of the 16 + 1 Think Tanks Network consisting of Central-Eastern European research institutes coordinated by the Chinese Academy of Social Sciences.
As a special event of the Conference, the EUOBOR Institute granted the PAGEO Research Institute the Euro-Sino Economic Research Award, as a recognition of its achievements in the research of economic relationships between China and Europe. The award was handed over by Zhou Xinjian and Li Zhen, President of the EUOBOR Institute.
AREAS AND CHALLENGES OF THE CEEC-CHINA COOPERATION (SESSION TWO)
The lecturers of the second session of the Conference included Wang Yiwei, Director of the Centre for European Studies at Renmin University, Zhu Xiaozhong, Professor of the Chinese Academy of Social Sciences, Gergely Salát, head of the Department of Chinese Studies at Pázmány Péter Catholic University, and Dragana Mitrovic, Professor of Belgrade University.
In his presentation entitled Belt and Road initiative and the revival of civilisations, Wang Yiwei outlined the ancient Silk Road, and then he spoke about the global role and the economic opportunities of OBOR. He highlighted that China wants to share with other countries the experiences gained in industrialisation and the related economic upturn, which lifted millions of people out of poverty. This way, OBOR van exert a positive impact on the global economy.
Figure 1. Onland and offshore routes of the OBOR (From the presentation of Wang Yiwei. Source: Economist)
In his speech, he emphasized the importance of the New Silk Road initiative in the development of transport links. “OBOR is about interconnectivity, he said; this is a transportation network stretching through Eurasia which is also the longest economic corridor across the globe.”
After the presentations given in a more or less optimistic tone, Gergely Salát spoke about the weak point of the initiative, namely the weakness of the Chinese cultural influence, and its root-causes. According to the university professor, OBOR does not have only infrastructure and economic elements, but also soft ones, such as education and culture. but China is less successful at promoting these in the Central-Eastern European region. This is illustrated by the fact that, according to surveys, the majority of the region’s population do not regard the rise of the Asian giant as a positive phenomenon. Among others, China’s negative perception can be contributed to biased European media, but also to historical events considered as unfavourable by the world, such as opium wars, the Boxer Rebellion or the Communist Party’s rise to power and the rise of the totalitarian dictatorship.
According to Salát, if China wants to strengthen its cultural relationships in the Central-Eastern European region, aside from maintaining government support, more space should be allowed for the players of the private sectors, who—due to their profit-oriented nature—sell various “cultural products” in a professional manner. In addition, it would be important to involve local players more actively, as they can have a better understanding of the existing demand in the region.
As a conclusion of the session, Dragana Mitrovic talked about the 16+1 initiative, that is that part of the New Silk Road that brings Central-Eastern European countries together. The participants laid down the viewpoints determining the fundamentals of the cooperation in Warsaw, in 2012. The initiative was not—and has not been ever since—perceived unequivocally positively by the EU, as 11 of the 16 Central-Eastern European countries are EU Member States. But the community considers the cooperation with China as building a “Great Wall of China” within Europe.
Along the 16 + 1 Cooperation, trade with China as well as the volume of investments have increased in recent years, but China’s economic ties are still much closer with Western European countries. Furthermore, trade deficit has increased in the Central-Eastern European region? China exports much more to the region than it imports from here.
In this context, the question arises: can we really talk about a win-win situation? In the professor’s opinion, for the present we cannot. Central-Eastern Europe would need more Chinese investments, tourists and export to strike a balance. The partner states of the 16 + 1 Cooperation have to take an active role to realise these.
NEW OPPORTUNITIES OF THE CEEC-CHINA COOPERATION AFTER THE BEIJING SUMMIT (SESSION THREE)
In the next part of the Conference, László György, Director of the Pallas Athene Domus Mentis Foundation, Zhao Dongwei, Director of the Department of Institutions of the People’s Bank of China, Altay Atli, Research Associate at the Istanbul Policy Center, and Ferenc Bánhidi, Professor at the Pázmány Péter Catholic University gave presentations. As a member of the Hungarian delegation, László György participated at the Beijing summit held a week earlier. In his presentation, he reflected upon and summarised the speech delivered by China’s head of state, Xi Jinping. This year’s Belt and Road Summit can be regarded as a milestone in the history of the initiative, because the Chinese head of state declared the initial phase of One Belt, One Road has ended. But what is this new Silk Road? It is a complex cooperation process: business, political and, at the same time, civilisation project.
In orderto successfully implement the initiative, China intends to act as a peacemaker in a region—Eurasia—where several wars were fought in the last decades, as the success of One Belt, One Road requires a peaceful, stable environment, this is China’s primary interest in the region. But it is an important aspect of the cooperation, László György highlighted, that China does not seek to promote only its own interests, but also listens to the countries having their own visons and recommendations, and is willing to align its activities to them.
Zhao Dongwei gave un update on the latest news and prospects of One Belt, One Road. Among others, he described how various bond market instruments promote the efficiency of the implementation of the project. These comply with international standards, eliminating the misunderstandings and conflicts between countries. The Director also talked about their risk assessment methods, which are being increasingly developed in order to keep the risk level of various developments to a minimum.
In his presentation, Altay Alti, Research Associate at the Istanbul Policy Center examined OBOR from a Turkish perspective, seeking the answer to the question as to whether Turkey, often referred to as a bridge between the East and the West, can capitalise on its geographical location? The key to this is the development of transport infrastructure, since the country has considerable deficiencies in this respect. Therefore, Turkey primarily sees the One Belt, One Road initiative as a source of investments in transport infrastructure. This development of the country will have a positive effect also on international trade, as goods can get from Asia to Europe, and vice versa, through Turkey faster and cheaper than they do today.
Figure 2. Rail network of Turkey(From the presentation of Altay Atli)
The session was closed by Ferenc Bánhidi, speaking about the infocommunications aspects of OBOR. OBOR. The topic is a very relevant one, the Professor argued, as, on the one hand, globalisation is being digitised and, on the other hand, the development of infocommunications infrastructure forms an important part of the New Silk Road. To support his former argument, he showed a graphic illustration of the global increase of data flow. OBOR has strategic goals concerning infocommunications technology, such as promoting network interconnection among partner states, reducing the costs of network access, bridging the digital divide within and between countries, etc. It would be useful for Central-Eastern European countries to get familiar with such Chinese initiatives as the Made in China 2025 development strategy Central-Eastern European countries in order to take advantage of the opportunities offered by the cooperation, the Professor proposed.
Figure 3. Data flow in the world(From the presentation of Ferenc Bánhidi. Source: TeleGeography; McKinsey Global Institute analysis)
PROJECTS AND PLANS ALONG ONE BELT, ONE ROAD(SESSION FOUR)
After learning about the long-term effects, possibilities and challenges of OBOR, specific plans were introduced in the fourth session, through presenting the projects related to the New Silk Road and the activities and ideas of Chinese companies operating in Hungary.
Anett Szabó, Head of Communications at Chinese-Hungarian Railway Nonprofit Ltd., gave insights into the details of planning the Budapest-Belgrade railway and outlined the importance of the project for Hungary.
The line is connected to the One Belt, One Road initiative through Piraeus Port, the majority ownership was acquired by China Ocean Shipping Company, COSCO (the fourth largest container shipping company of the world) in April, 2016. The goods reaching the port would be transported farther on the mainland by railway, and the section between Budapest and Belgrade would form a part of this line. The budget of the project amounts to some HUF 472-550 billion, entirely financed by Chinese loans, on which the two countries have already concluded an inter-governmental treaty.
As a result of the development, a double-track line would be constructed replacing the current single-track one, allowing a speed of 160 km per h for passenger trains and 120 km per h for freight trains. The upgrading the line is an absolute necessity as it was last renovated in the 1960s, but the question of return on investment arises (in the currently relatively under-utilised section) due to extremely high costs, which is further aggravated by the fact that so far no preliminary impact assessment has been done on the project; furthermore, the European Committee has also launched an investigation into the development. Implementation is only possible on condition that a positive decision is made by the Union.
The second presentation was given by Mariann Gecse, Director for Government Relations and Communications at Huawei Hungary, during which she briefly introduced the company, China’s largest non-state, i.e., privately owned company, which is present in some 170 countries. The copany is ectremely significant for Hungary, as it is Hungary where Huawei has built its largest assembly and logistics centre outside China.
The company has three major business branches: development of network solutions (e.g. antennas), installing business solutions (servers, etc.), and maybe the most widely-known branch is the smartphone one. In Hungary, mostly the former two activities are pursued by Huawei; in addition, the company—primarily to retain its competitiveness—pays special attention to research, development and innovation. Finally, the presentation also covered the importance of Hungary as a deployment destination and the potential underlying in our advantageous geographical location.
In his presentation, this topic was continued and explained in more detail by Ernő Pető, President of ChinaCham Hungary, who, among others, spoke about why Hungary means a hub. On the one hand, our country is a market hub, sue to its well-functioning banking and financial system; for example, it is at the vanguard regarding renminbi financing. On the other hand, it takes a central place within Europe, its primary market consists of ten Central-eastern European countries, and its secondary market is constituted by Germany, France and the Benelux states, as well as Ukraine and Russia. Thus, a market of 500 million people can be reached relatively quickly through our country, and this is a considerable size even on a Chinese scale. Most probably, it is one of the reasons why only two special economic zones have been established in Europe so far, and both of them can be found in Hungary. There are two more aspects that can make Hungary an attractive investment destination for Chinese companies: on the one hand, it is a Members State of the European Union, with all its advantages; on the other hand, wage levels are already below the Chinese ones in many cases.
In his presentation, he also spoke about the fact that China is not only a manufacturer any more, but also a significant consumer market, thus not just Made in China but also Made for China are both relevant. In relation to the economic corridors, Pető underlined that maritime routes have always been and will be the most important routes, but railway can present an alternative in many cases, as it is faster. It is more expensive than shipping, but still cheaper than air transport.
Finally, the presentation highlighted the ambivalent situation of Central-Eastern European countries. On the one hand, they compete with each other; on the other hand, they are increasingly forced to cooperate with each other, as they would need to combine their production capacities to be able to produce goods in volumes sufficient for China.