The European Union and Chinese plans for the reorganization of the global economy

Over the years I have somewhat neglected Chinese-Hungarian relations, although Viktor Orbán made clear his intense interest in China very early in his tenure. In the fall of 2010 he sent his then minister of national development Tamás Fellegi to China. After five days of negotiations Fellegi returned with little to show for his efforts to expand trade relations between the two countries. On the diplomatic front the situation hasn’t been much better. Although Xi Jinping visited Poland, the Czech Republic, and Serbia last year, he hasn’t yet paid a visit to Hungary.

Finally, after years of lobbying, the Orbán government signed a comprehensive strategic partnership with China two days ago. As Magyar Nemzet discovered, however, the agreement includes the following important sentence: “The two countries jointly promote the construction of the Hungarian-Serbian railroad in Hungary.” According to diplomats consulted by Magyar Nemzet, this means that China expects the Budapest-Belgrade railroad line to be built in exchange for a strategic partnership, something that at this point cannot be taken for granted.

In order to understand what this insertion means, we have to go back to December 2014 when Hungary, Serbia, Macedonia, and China signed an agreement on the modernization of the Budapest-Belgrade-Skopje-Athens railroad, “which will allow the fastest transportation of Chinese goods from Greek harbors to Europe.” Under the agreement, a Chinese consortium, led by the China Railway Group, was awarded a $1.57 billion contract to build the 160 km Hungarian section. The European Union has many concerns about the project. Once again, the project’s profitability is in question. The cost to Hungary would be 550 billion forints, but currently only 4,000 people travel on that line daily. If China uses the tracks to transport its goods, I assume it would compensate Hungary. Whether the compensation would be sufficient to make the line profitable I have no idea. Negotiations with the European Union about the fate of the railroad are still underway. A year ago the whole project was put on hold when infringement procedures were launched against Hungary. It is hard to predict what the EU’s final decision will be. The Chinese government has shown signs of impatience with the difficulties the Hungarian government is encountering with the European Union.

The Orbán government’s enthusiasm for this project is baffling. As far as I can see, the deal is good only for China. According to the agreement, Hungary must take out a large Chinese loan at an interest rate of 2.5% for 20 years, bringing the interest charges alone to close to 100 billion forints on the 550 billion forint cost of building a railroad line Hungary doesn’t need. Most of the work would be done by Chinese firms for a project that serves only Chinese economic interests.

Viktor Orbán among friends

Whether Hungary will again manage to convince the commissioners of the College, as it did in the case of the Paks nuclear power plant, is hard to tell. Over the last few months contradictory bits of information have reached the Hungarian media regarding the possible outcome of the case. In September Magyar Nemzet claimed that the European Commission, thanks to the good offices of Berlin, would give a green light to the project if Orbán toned down his anti-refugee rhetoric. As we know, nothing of the sort happened. In fact, the anti-Brussels, anti-migrant rant has intensified since, and Orbán’s support in the European People’s Party has been dwindling. Yet Magyar Nemzet announced just today that it got hold of a report on the communication between the European Commission and the Hungarian government, which claims that the dialogue between them is coming to a favorable end. The report also states that by the end of January the Commission was no longer having serious reservations about the project. Of course, anything is possible when it comes to the “bureaucrats in Brussels,” but I’m a bit dubious on this score given the latest developments at the Beijing Summit on China’s ambitious “Belt and Road,” a gigantic infrastructure project that would connect Asia, Europe, and Africa. There are potential roadblocks to this project. India didn’t even attend the summit, and “the EU dealt a blow to Chinese president Xi Jinping’s bid to lead a global infrastructure revolution after its members refused to endorse part of the multibillion-dollar plan because it did not include commitments to social and environmental sustainability and transparency.”

I’m sure that European leaders are serious about both the environment and transparency, but I suspect that these were not the only reasons for their refusal to partner with the Chinese leaders. Economic considerations most likely weigh heavily against the project. As The Guardian put it, “some sceptics see the plan as largely a ruse to boost China’s own economy by shifting excess industrial capacity to less developed nations and draw poorer countries tighter into Beijing’s economic grip.” Or, to quote an Indian newspaper, there is a fear that the project is no more than “a colonial enterprise.”

So, let’s return to Hungary’s attitude to the “Belt and Road” project. We know that Viktor Orbán has courted China for years to achieve a strategic agreement with China. Therefore, I was surprised to read in The Guardian’s report that “the EU’s 28 member states decided not to support a statement about trade prepared by Beijing to mark the end of the summit.” According to a high-level EU diplomat, “apparently to Chinese surprise, the EU was united on this.” AFP’s account, however, tells a different story. It reports that “several European countries—France, Germany, Estonia, Greece, Portugal, and Britain—indicated they would not sign one of the summit documents on trade.” If AFP is correct, the EU countries were not united in their opposition to Chinese plans as they were formulated in the closing document. Because of the discrepancies between the two sources, I’m unable to determine which countries, in addition to Hungary, signed the document.

The Carnegie Europe Research Center published a study titled “China’s Belt and Road: Destination Europe.” It is a sophisticated assessment of the economic and political impact of the Belt and Road project which is not easy to summarize in a couple of sentences, but I’ll try anyway. If the initiative were seen by Europeans “through the misguided lens of pure transportation and communications infrastructure, it would be appropriate for the EU to embrace it with few or no reservations.” But, the study continues, “the initiative attempts to change the rules organizing the global economy, primarily by granting China a set of tools with which it can reorder global value chains.” Such an outcome might have an adverse effect on the whole western economy. Belt and Road is often called the New Silk Road, “a name which in many respects is misleading, but it does have the advantage of reminding China watchers that the Belt and Road is above all a challenge to Europe—a challenge to which Europeans have yet to respond.”

The European Union, it seems, hadn’t given much thought until now to this particular Chinese attempt to reorganize the world economy. Viktor Orbán in this respect is ahead of his colleagues. The only trouble is that he is most likely again on the wrong side of the issue.

May 15, 2017
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Member

I travel on the Budapest-Belgrade railway frequently. The trip is around 380 kilometers and takes 7.5 hours because of the poor condition of the rails. That is ridiculously slow. By comparison, Brussels- Paris is around 320 kilometers and the express train used to take 2:45 (before the Thalys high-speed train slashed it to 1:22).

Part of the reason so few people use the Budapest-Balkans railway is because it is so incredibly slow. Then, there is the awful condition of the rail cars, which still have the smell of smoke from 1974. Hazmat suits required for WC use.

Build it, and they will come. Sooner or later, gasoline is going to get prohibitively expensive. An environmentally responsible train will be in high demand. Immediate profit, in my view, should be a secondary concern.

Ron
Guest

Depending on the conditions of the loan and therefore interest the accumulated interest amount will be the range of HUF 150 billion to HUF 275 billion and not HUF 100 billion, and of course it is also important whether they have to pay it back in Yuan, USD, Euro or HUF, this may increase or decrease the debt level as well.

Further, once the railroad is completed, there is no reason to have Hungary as a “cheap” production country. And therefore, I cannot see the advantages of the railroad for Hungary on the long term.

Guest

I doubt the loan will be labeled in Forints. Does this mean Hungary is facing a future new FOREX loan problem?

bimbi
Guest

This Chinese initiative raises questions of great complexity, certainly beyond my abilities for credible comment in detail. However, I feel very uneasy that Mr. Orban appears to feel that he can, and should, play a leadership role in matters that are of fundamental importance to Europe as a trading block. [Let it not be forgotten that Hungary plays the role of complete puszta amateur in a matters of production, wealth generation and economic development – the pathetic figures speak for themselves.] Orban’s servile dependence on Russia has led to future Hungarian governments being burdened with debt while he enjoys the benefits of the generous Russian loan. The guy needs to be reined in by the significant EU powers before he can do more damage.

Ferenc
Guest

Map of the Chinese ‘Silk Road’ projectcomment image
Here’s a map about attendees last weekendcomment image
Looking to the attendees in China, Greece was present with it’s PM, but the countries in between Greece and Hungary were not (see also missing on the ‘Silk Road’ map). So the Belgrade-Budapest railway (note direction with Chinese eyes) seems to be ‘floating free in Balkan space’.

Ferenc
Guest

Sorry, my mistake, the Serbian PM was also there, but Macedonia was missing in the line to Greece

Ferenc
Guest

OT
Checking the coming EU voting, just came across this letter by MEP Javor Benedek to Mr.Timmermans on the systemic threat to the rule of law in Hungary:
intro: http://javorbenedek.hu/en/letter-to-mr-timmermans-on-the-systemic-threat-to-the-rule-of-law-in-hungary/
letter: http://javorbenedek.hu/wp-content/uploads/2017/05/letter_to_vice-president_timmermans_04052017.pdf
annex: http://javorbenedek.hu/wp-content/uploads/2017/05/letter_to_vice-president_timmermans_04052017_annex.pdf
Very good analysis of the last 7 years, might be even helpful for Eva for future posts on specific subjects.
Looking forward, without having (too) high expectations, for tomorrow’s EU parliamentary voting on Hungary.
EU info: http://www.europarl.europa.eu/news/en/news-room/plenary/2017-05-15/6

Csupor
Guest

If the aim is to get Chinese goods from Serbia to eventually the West the Szeged-Kecsekemét-Budapest version is totally unnecessary.

A much shorter line from Szeged to Bácsalmás (but a Kelebia-Bácsalmás is also an option) could be built from where the trains can go towards Baja-Bátaszék-Pustaszabolcs on existing tracks. From Pusztaszabolcs another short line connecting to Székesfehérvér-Szombathely line is also needed but still the extra investment would be a fraction of the plans — which by now stand over 700bn (!) forints.

The new line is sold in the media as a ‘high-speed’ line even though the max. speed would be 160km/h. In Austria on the Vienna-Innsbruck line the top speed is 220km/h and it’s still called regular train.

But the fright trains for Chinese goods don’t need high speed.

This project is another big giant construction which Fidesz wants Hungary to do because the bigger the project the more that can be stolen.

Guest

Railway construction in Hungary is like road construction – not systematic but hapharzad and depending on the whim of the leader(s)!

If some city has voted wrong, then the railway and the motorway will make a detour around it, kind of crazy …

And what does it mean for Hungarian production if more cheap stuff will come from China?
Not only plastic in garish colours but vegetables too, fruit etc – like garlic (horrible compared to the Hungarian from our neighbours …), apples (already half of apple juice in Germany comes from China), honey (with a nice amount of antibiotics added …) and the list could go on …

My wife always tells me before selecting something to look for the country where the stuff was produced and if it’s China – no way!
But of course companies will cheat here too …

PS and totally OT:
Everyone living in Hungary or Germany etc right now should try the Hungarian asparagus – especially the green variety is wonderful!

Ferenc
Guest

“before selecting something to look for the country where the stuff was produced”
When I was living in Hungary I started and kept looking in which factory the product was made. Some producers didn’t have my sympathy, so I tried to avoid them by buying others. I think since the connection to the EU this info on the labels started to disappear, only country or company for which the product is produced is mentioned. I can only understand this, when big trading companies have lobbied for this, so they can play around with the real producers, but from my point of view, as a simple consumer, it’s not a good thing for me and for the real producers of the products. In the current EU situation the connection between consumer and real producer is too weak, and in the chain between them, too much money is gained by others in the chain, who are getting much more money out of it than they add in value to the product.
PS: now here in western Europe, imho, label info is as terrible as in Hungary

wrfree
Guest

Well on a light note one thing which just might look good with that ‘silk road’ especially in culinary affairs is that VO will probably be getting better moo goo gai pan or the noodles that’s been floating about. But Im not sure if he likes Chinese food.Another item: Look for takeout menus around Parliament…;-)…

wrfree
Guest

Something says VO likes the the ring of the ‘new’ Silk Road with all its ancient connotations of caravans opening up that great trade between Asia, China, the Middle East and Europe. He probably sees visions of sugar plums where the country gets its share of that global trade. If the example of the EU is illustrative in eco matters look for VO to now contemplate how he can get perhaps overflowing oases as he will help the Chinese inroads again into Europe centuries hence. Russia, China bring them on. Magyarorszag is waiting.

LwiiH
Guest

Any deal China makes is structured so that Chinese companies and Chinese workers benefit to the detriment of the local population. By the looks of this deal the Chinese will do two better in that they will get the locals to pay and the Chinese will reap the benefits of the loan. Good deal for China is everyone is crazy enough to sign up for it.

IIRC, the reason the last deal with China failed is that they insisted on a level of oversight and control which meant China would control the flow of funding from source, them, to termination, again them. This left no possibility for Fidesz to siphon off funds.

Chang
Guest

Orban doesn’t understand how China works, how Chinese projects get realized. He is totally clueless about the far-East.

In this case as in many other ones Orban simply thinks that he (his companies) can get a portion of the project whose budget given its size is virtually open-ended.

If there’s an international agreement with the Chinese to construct the railways for let’s say 750 billion forints and then it turns out to be 2,000 billion forints that’s ok too.

Who cares about the Chinese, right? They are far away, it’s not like the Chinese will send an army to Hungary to get their money back. Nor can they turn off the tap they way Putin can.

Although the Chinese will be the general contractors and there will be many Chinese people working in Hungary Orban reckons that if he can get 25%-30% of the – continuously increasing – budget then that’s a rare fat business.

It’s like with Paks 2. If the budget is really infinite than that supposed 30-40% Hungarian portion is also infinite.

It’s irrelevant that there’s no business case. There’s never any rational consideration behind these projects other than to loot Hungary.

Guest

China wants to be number one in the world economy – do they really need help from Hungary for this?

Interestingly enough, India is not participating in the Chinese plans …

Totally OT:
I can’t access politics.hu today – anyone has an idea what’s going on? Hopefully no ransom attack like that “wannacry”.

Istvan
Guest
I would say in terms of being a low cost producer with higher quality products China is already being replaced by Vietnam and other emerging markets. The fact that China is now attempting to make money off of construction infrastructure projects shows its maturing economy, the rate of return for those projects is far less per dollar invested than for consumer production. Because of the community I live in here in Chicago has a heavy Vietnamese and Asian banking sector I have been investing in Vietnamese firms via an exchange-traded fund for about ten years and my returns have been excellent. I have been back to Vietnam several times in the last ten years and its development is incredibly rapid. I have a basic Vietnamese vocabulary going back to my service there in the early 1970s and regularly speak simple Vietnamese with neighbors one of whom is a former ARVN general. I can’t read Vietnamese at all. So in terms of lower cost products flooding Europe and Hungary via the railroad project, more and more will be made in places like Vietnam, Sri Lanka and Bangladesh, instead of China. Vietnam is considered for investment purposes to be a frontier market… Read more »
Ferenc
Guest

“India is not participating in the Chinese plans”
Of course not, they’re sworn enemies, and even more when China is cooperating with Pakistan and proposes “economic corridors” through disputed areas (Kashmir in this case).
And of course China doesn’t need help of Hungary, as far as I can see the Belgrade-Budapest line is not connected in the whole Chinese scheme, so seems just a for China profitable loan at the moment.
The whole idea for traintransport from Athens to Budapest doesn’t make any sense to me. If I look to the map, transport from Istanbul into CEE or from Triest or Koper into CEE seems much more logic.

Havelaar
Guest

The politics.hu link does not work anymore. Maybe it is blocked by the “glorious”Fidesz government. Dunno.

Guest

It’s been unavailable since this morning – just have to wait.

Ferenc
Guest

Google search result for “politics.hu”: “This site may be hacked.”
Latest and normal looking ‘Google chache’ is from early this morning.

Jean P.
Guest

Editor-in-chief of Index.hu resigns. Coincidence?

http://budapestbeacon.com/news-in-brief/editor-chief-index-hu-resigns/46821

Jean P.
Guest

The grand Chinese plan is a challenge to Europe and Europe needs a challenge. In stead of trying to make obstacles for the plan Europe should concentrate on how to fill the return trucks with European products.

FreeWheeling
Guest

Last Saturday when dropping off a dear elderly relative at their after attending a wedding reception in the countryside they invited us in to relax and kibbitz before we continued home. Something that we do with them often. They habitually turned on the Saturday night Lotto extravaganza on state television in which the results for the big jackpot lotto come at the end of some inane banter with a celebrity and usually some Hungarian pop singer. Really a very sorry state of affairs that this appears to be a popular show on state television. To my astonishment the pop singer was a male Chinese-Hungarian singing in Hungarian whom I’ve never nor heard of before. Given the obsequiousness of this regime towards the greater powers do we think that it is just happenstance that this Chinese-Hungarian was given this spot to perform while OV was in China grovelling? It’s not as if they haven’t gone to these lengths before.

Jogfosztott
Guest

Éva you are such a pathetic ulta-leftlib faschistoid dictator who is unable to practice what you preach; free speech and freedom of expression and free flow of idea’s. You are a little-hitler, little-stalin, little-rakosi and a major soros crony that is a political prostitute. I demand that you delete your ban list and restore everybody’s free commenting right. Should you not do it your side does not deserved to be on-line. You got 48 hours to act.

Ferenc
Guest

Jogicske,
You take ALL your disrepectful words BACK, you know yourself the ones!
And come back with just one real argument, before anything can be discussed with you.

Blocked
Guest

I cannot because Eva exercising fascist censorship method locked me (and many other commenters who do not push her agenda) from commenting in a civilized manner. Ferenc and others please advise her to stop employing such unfair practices. I always commented in a nice but debating way. She doesn’t like it because she wants everybody to agree with her point of view. She is suppressing every argument to fully satisfy her the anti-Jewish, anti-Christian and anti-everything that carries cultural and human value puppet master.

Ferenc
Guest

Can’t you understand what I wrote first?

Havelaar
Guest

ulta-leftlib? …your side?, You are so intensely stupid. First, spend some time to learn how to speak English properly. It will take an enormous amount of time and it still will lead nowhere. Second, very funny that you think this kind of lunatic intimidation will work.

Chameleon
Guest

@Havelaar…. thank you for your nice comment. Actually I do not think it will work. Leftists never learn. Labeling also never work. See the current US President and cry!

By stamping my with the “intensely stupid” label shows that you have no argument that is worthy to debate so you resorted to the usual liberal method; insulting someone you know nothing about. But the suggestion to ” to learn how to speak English properly” is highly appreciated. It goes both ways. You should perhaps spend some time to learn how to be respectful when you have no reason not to be.

Chameleon
Guest

Éva! Ismered Korda Gyuri “Visszatérek én hiába üzöl el … ” dalát?
Nem szabadulsz meg tőlem ameddig megfosztod az ellenvéleményen levőket a hozzászólás lehetöségétöl!

Eva do you know George Korda’s “I will return regardless of you chasing me away …”. You will not get rid of me while you deny free commenting to all not only the ones agree with your opinion.

Free your hostages Eva. Stop blocking access to this block by opposing opinion commenters. Censorship is not comparable with democracy. It only acceptable and being employed by far left ultra liberal dictators and soros paid political prostitutes. Wake up Eva before too late. 48 hours and counting down!

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