Tag Archives: New Silk Road

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