Tag Archives: Cooperation between China and Central and Eastern European Countries

Is China buying up Eastern Europe on the cheap?

It was in May of this year that I wrote a post about Chinese plans for the reorganization of the global economy and Hungary’s role in this scheme. At that time, I outlined Chinese plans for the modernization of the Budapest-Belgrade-Skopje-Athens-Piraeus railroad line, announced in December 2014. The Hungarian section, which runs between Soroksár, just south of Budapest, and Kelebia, on the Serbian border, is 166 km. long and will cost 750 billion forints or $2.85 billion. It will be built with the help of a 20-year Chinese loan at 2.5% interest, which will cover 85% of the cost.

The contracting entity is the Chinese-Hungarian Railway Nonprofit Ltd., which was set up about a year ago. (I don’t know whether it chose nonprofit status to avoid paying taxes or to admit that the line would never turn a profit.) The state-owned China Railway International Corporation and China Railway International Group hold 85% of the Chinese-Hungarian Railway and the Hungarian State Railways (MÁV) holds 15%. The deal was structured as an EPC (“Engineering, Procurement, and Construction”), whereby the EPC contractor is made responsible for all activities–from design, procurement, and construction to the commissioning and handover of the project to the end-user or owner.

According to Hungarian economists, this deal is good only for China. The line is barely used for passenger trains and it touches only one small city, with a population of 27,000. Clearly, it was designed for freight trains that haul Chinese goods from the port city of Piraeus through the Balkans to Hungary. Since China isn’t sinking any money into the project, if the rail line is a flop, it is nothing off the skin of the Chinese. Hungary would be left holding the bag. According to some critics, the Belgrade-Budapest line will be the world’s most expensive, and if the project fails, Hungary will never be able to recoup its investment. HVG’s Benjámin Zelki figured that perhaps after 2,400 years the line might be profitable. I don’t think he meant it as a joke.

Viktor Orbán’s decision to get a loan from China when the European Union is quite willing to give money for the development of Pan-European corridors can be explained by the unprofitability of the project. It is unlikely that he would have gotten money from Brussels for such a financially hopeless project. The lure of the project, if it ever becomes reality, is that China might use Hungary as a distribution hub. For that  elusive prospect, the Orbán government is ready to get involved in this risky venture.

Of course, there is a good possibility that nothing will come of the whole project. The Chinese have offered Hungary many enticing deals, including a loan for a railroad line between the Ferenc Liszt Airport and downtown Budapest, but nothing came of it. Beijing also offered loans for building railroad lines in Greece, Macedonia, and Serbia, but none of these projects got off the ground.

The European Union is not all happy about Viktor Orbán’s close “strategic partnership” with China. First, just like with the Paks II Nuclear Power Plant, there were no competitive bids. Therefore, about a year ago the project was put on hold when infringement procedures were launched against Hungary. The latest news is that Hungary announced on Monday that it would publish a new procurement tender for its section of the line. As HVG put it, “there is no escape” from this monstrous project.

Another, more serious political consideration makes the European Union suspicious of Viktor Orbán, who hosted Li Keqiang for the sixth annual meeting of the Cooperation between China and Central and Eastern European Countries or “16+1.” Eleven of these countries are member states of the European Union. According to The Financial Times, Brussels is rattled as China reaches out to Eastern Europe because “some of the arrangements between China and these countries are touching on EU competences, or they are going into new areas where there are already initiatives between the EU and China.” They are worried about Chinese influence in the region. Diplomats fear that closer Chinese-East European relations could undermine Brussels’ effectiveness in dealing with China. According to Forbes, China is in the midst of buying “Eastern Europe on the cheap” while Viktor Orbán is using the occasion to “poke Western Europe in the eye.”

Boyko Borisov, Viktor Orbán, and Li Keqiang at the fifth summit of “16+1”

According to Süddeutsche Zeitung, China knows the weak spots and fault lines in Europe, and therefore in the last five years it has developed close relations with the “16+1” club. “There is mighty China with 16 dwarfs, receiving lucrative orders.” With investment they are buying influence. The European Union must recognize how the internal divisions and contradictions weaken it in the eyes of the outside world. The article specifically mentions Viktor Orbán and Miloš Zeman, whom it describes as the most vulnerable political leaders to the siren voices of the Far East because they are “representatives of secluded societies.” They believe that in China “they find not only sponsors but also allies in the fight against liberal democracy.”

Yes, Viktor Orbán has committed his country to another risky venture. But since work will begin on the rail line only after 2020, there is always the faint hope that the whole project will die, as so many other Chinese ventures did.

November 29, 2017