China puts links with central and eastern Europe on the fast track

Beijing woos region’s leaders with high-speed tour as it looks to join development bank and pledges boosts for investment and infrastructure

PUBLISHED : Wednesday, 25 November, 2015, 11:57pm
UPDATED : Thursday, 26 November, 2015, 5:47am

China is scaling up its economic presence in central and eastern Europe, pledging to boost investment in the region and hoping to join the European Bank for Reconstruction and Development next month.

The heads of 16 countries from the region, who have been visiting China for the past two days, yesterday joined Premier Li Keqiang for a high-speed railway trip from Suzhou to Shanghai during which Li vowed to step up cooperation on infrastructure.

Beijing has been strengthening its engagement with Europe in recent months, with President Xi Jinping visiting Britain in October, when London gave its support to the yuan’s inclusion in the “supranational” reserve currency of the International Monetary Fund and Chinese efforts to reach a free-trade pact with the European Union.

READ MORE: Best of ‘frenemies’: ideological divide means China’s warmer ties with Europe can only go so far

In talks with Poland’s President Andrzej Duda yesterday, Xi called on the two countries to explore using Poland as a hub for logistical cooperation with central and eastern Europe, and for cooperation over the “One Belt, One Road” initiative.

“We would like to see Poland push the ‘One Belt, One Road’ initiative to connect with the EU development strategy,” Xi said, state-run CCTV reported.

Hungary said it would issue government bonds denominated in yuan with the Bank of China in the hope of attracting more Asian investors.

Hungary’s economy ministry did not provide any details about the timing or size of the issue, but said Hungary “would be the first country in central-eastern Europe to issue renminbi bonds”.

A consortium led by China Railway Group has been awarded a 10 billion yuan (HK$12.1 billion) contract to build the Hungarian section of a railway linking Budapest with Serbia’s Belgrade.

The railway, which will be 350km long when the Serbian portion is included, is scheduled for completion in two years. When finished it will be able to accommodate trains travelling up to 200km/h.

In a sign of Chinese funds heading to the region, the European Bank for Reconstruction and Development is likely to accept China as a stakeholder by December 25, the bank’s president Suma Chakrabarti was quoted by Xinhua as saying.

China’s inclusion fulfilled Beijing’s strategic intentions of participating more in multilateral financial institutions, he said.

The European leaders are in China for the fourth China-CEEC (Central and Eastern European countries) summit.

On Tuesday, China proposed creating a financial firm to fund projects in the region.

In a joint plan for cooperation, covering the period 2015-2020 and issued after the summit, the leaders agreed to strengthen financial cooperation, and explore the setting up of a US$3 billion investment fund, currency swap and local currency settlement.

We would like to see Poland push the ‘One Belt, One Road’ initiative to connect with the EU development strategy
President Xi Jinping

Beijing scored a diplomatic success earlier this year when it set up the Asian Infrastructure Investment Bank, with key European countries signing up despite objections from Washington.

Zhao Xijun, deputy director of the School of Finance at Renmin University, said while the AIIB focused on infrastructure in Asia, China also needed to consider Europe.

“China should establish a financial institution to specifically service central and eastern Europe and connect with the AIIB’s business in Asia…the ‘One Belt One Road’ can be extended to Europe from West Asia,” he said.

READ MORE: China proposes joint financing firm with central and eastern Europe

Cui Hongjian, head of European Studies of the China Institute of International Studies, said China had pledged to provide US$10 billion in special loans to central and eastern European countries in 2012, but that had not worked out because it required governments to provide guarantees, which conflicted with EU policies.

By setting up a financial firm, such government guarantees would not be required, he said.

Central and eastern European countries needed investment from China after the global financial crisis and China wanted to use the region as a gateway to the EU, he said.

Additional reporting by Reuters, Associated Press