How China sees CEEC and what to expect from the 16+1 initiative?

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1 How China sees CEEC and what to expect from the 16+1 initiative? MATEVŽ RAŠKOVIĆ, PhD University of Ljubljana, Faculty of Economics & Confucius Institute Ljubljana, Slovenia * Visiting scholar at Shanghai University of International Business & Economics, Shanghai AIB-CEE seminar, January 9, 2015

2 Understanding China-EU/CEEC context EU is China's biggest trading partner (ex+im): China-EU trade (2013): 430 bn EUR 1.2 bn EUR of trade/day China to EU (2013): 280 bn EUR, EU to China (2013): 148 bn EUR (US: 102 bn EUR) EU trade deficit with China: -130 bn EUR (2013/2012: %; 2013/2010: %) Main sources of EU deficit: office & telecom equipment, footwear & textiles, iron & steel About 50% of China exports come from foreign MNEs (ifdis) Trade in services only 10% of trade (significant potential, if liberalization occurs) China is EU's fastest growing export market: 2013/2012: EU export growth +2.9% (nearly doubled last 5 years) Key EU exports: machinery & equipment, motor vehicles, aircraft, chemicals etc. Service ex's (2012): EU-China: 30 bn EUR (+14.6%), China-EU: 20 bn EUR (+9.9%) What about CEEC? CEEC only 10% of EU-China trade, however: trade growth increased 13-fold (CAGR: 32%). Ex's to China increased 39% (CAGR ) China FDI investment stock multiplier in CEE 18 (6.8 in Asia, 8.6 in North America, 5.3 in Latin America) HUN > rest of CEECs (PL, RO, CZ following) Source: European Commission (2014); CEED Institute (2012)

3 How does China see EU/CEECs? How China sees the EU: largest trading partner, but "growing old lady" living beyond her means ambivalent attitude (Opium wars & colonialism) 40 years of dialogues pushing human rights & having "unpredictable & weak" leadership How China sees CEEC: "window of opportunity" not a strategic opportunity combination of "European" and "regional" perspective ("Eurasian countries") Logistic entry point/pipeline into western markets Common socialist history & non-threatening (geo-politics) Divide an conquer strategy towards the EU or complementary to China-EU relations? 16 CEECs a heterogeneous group even for China: Two old friends: Hungary & Serbia (history, support of "One China") Piggy backers: Poland, Czech Rep., Slovakia & Baltics Western Balkans (without Serbia): small, EU-dependent, low competitiveness, limited resources, limited independent development capabilities, but: sea access! Source: Zuokui (2013)., CASS.

4 The 16+1 platform Reasons: 2008 global economic and financial crisis hits EU hardest 16+1 pragmatic platform initiated by China, not Europe Economic reasons sources of recovery/growth & "New Europe" New Silk Route CEECs as pipeline/door to western markets International politics curbing the influence of US in int'l politics Ideological and historical similarities (Yugoslavia, Hungary) Timeline: High-level visits: Budapest (2011), Warsaw (2012), Bucharest (2013), Belgrade (2014) December 2014: high-level meeting in Belgrade by Li Keqiang Continued commitment to build trade volume Mechanisms to support FDIs (i.e. Budapest-Belgrade high-speed train line, Romanian train deal, Zemun-Borča bridge) + additional 3 bn EUR credit Stronger focus on transport infrastructure & link to New Silk Road

5 16+1 and the New Silk Route Initiative since the 1990s (fall of Soviet Union, 1996 Shanghai five mechanism with Russia and Central Asia, recent high-level visits to India, Russia, Central & South East Asia) Motivation behind New Silk Route: trade (EU, Central Asia), investment, energy resources, cultural dialogue, bilateral & multilateral diplomacy & politics: Economic cooperation area from Western Pacific to Baltic Sea Trade network with "abundant goods and more high-end trade" (ASEAN, EU models?) Productivity gains, technological assistance, transportation & infrastructure, trust More capital convergence and currency integration (RMB vs. local currencies) Recent founding of special development bank (paid in capital 800 mn USD, commitment up to 50 bn USD if needed)

6 Implications for CEECs From pragmatic initiative to a set of clear "coordination mechanisms" based on the concept of "one country vs. multiple sides" CEEC not seen as unified political framework 16+1 as a "window of opportunity" not a "strategic opportunity" Linking 16+1 to New Silk Route CEECs part of the land route (i.e. Poland, Czech Rep., Slovakia, Hungary), CEECs part of the maritime route (i.e. Croatia, Montenegro, Slovenia) Key issues: China interested in Western EU technology, brands, moving up value chains In CEEC China interested in logistics, transport, "express pipeline" infrastructure Hierarchy & hub-and-spoke model (Hungary & Serbia as the hubs) Regional integration is KEY Agriculture not a viable option (capacity), limited technology & energy resources Tourism yes, but regional integration needed & focus on specific niches! Cultural diplomacy (Confucius Institutes, Chinese language) Above all, China values stability & consistency in its partners!

7 THANK YOU! Contact: "A sparrow might be small, but it has all the parts for flying" (Chinese proverb)