The "What's China up to in (Eastern) Europe?" Edition

Hi and welcome to the 5th issue of the Weekly Focus!

How we pick our weekly authors’ team? We ask our many members and partners from our diverse European network. But sometimes schedules can be tricky. This week we ended up as a men’s club, all great journalists. But who knows? Maybe next time we’ll go all-female…

Sometimes the eas(t)iests solutions come from China. While many Europeans (including the publishers of this newsletter) are still scratching their heads over the proper definition of “Eastern Europe” today, China’s answer is as simple as old-school: The region stretches from the top of the Baltics all the way down toward the Adriatic.

Perhaps it is precisely this shared taste for supposedly simple solutions that makes some authoritarian-leaning elites in “Eastern Europe” prone to China’s “economic diplomacy”.

The newest Hungarian veto of an EU statement condemning Beijing for its crackdown on democracy in Hong Kong bears testimony to China’s foreign investment strategy. Although presenting it as “just business”, politics is always its top priority.

As the cases in this newsletter show, this Chinese specialty often thrives best in Central and (South) Eastern Europe — behind closed doors and with an invitation for corruption. 

So, are we witnessing another East-West split in Europe when it comes to China’s People’s Republic? Or is this “Faustian Pact” just less visible in Western European countries like Germany – where Volkswagen sells around 50% of its cars in China? Could it even be that Europe’s contradictory relationship with the Middle Empire is just showing its more honest face in the continents East? 

With China putting its cards on the table more aggressively, it’s definitely time to take a look in the mirror.

The Czech Republic was long known as a staunch critic of China’s human rights record, in large part thanks to its anti-communist founding father Václav Havel. But in 2013, then-President Miloš Zeman made a sudden U-turn from Havel’s legacy when he adopted a pro-China policy. Under the guise of “economic diplomacy,” Zeman promised significant Chinese investments. 

While Zeman became the public face of the turnaround, it was the recently deceased oligarch Petr Kellner who had lobbied for the policy change since 2010. Back then, he was told by cadres of the Chinese Communist Party that if he wanted to expand his business empire to China, “his country” would have to become “friendlier.” With “friends’‘ in high places, it took Kellner and his conglomerate only three years to capture the Czech China policy. 

Soon both the public and the media became mesmerized by China and the promise of “free money” as if it were the new El Dorado. The PRC intelligence and its influence organs penetrated all layers of society, neutralizing the Czech Republic’s human rights based diplomacy.

But five years later, the honeymoon was already over. In 2018, the promises proved to be empty and China’s main investment vehicle in the country got dismantled amid a major international corruption scandal. The bilateral relations were left in tatters. 

This didn’t stop Kellner from trying to keep China’s flame alive, though. He continued  financing propaganda events and flooding the media with ostensibly “neutral” and “objective” content in order to “rationalize the China debate.”

But his sudden death this past March struck another blow to the PRC’s local ally base. With the upcoming Czech elections in October, Beijing-skeptical opposition parties may have the upper hand now.  

Regardless, the Czech-China honeymoon, and its ensuing hangover, remain a cautionary tale of how one business tycoon can quickly capture democratic institutions and co-opt them to serve the interests of an increasingly hostile regime.

It also shows that China only takes advantage of the weaknesses of our institutions, and that it is up to us Europeans to choose whether to be exploited by an increasingly authoritarian regime opposed to liberalism, rule of law and democracy – or not.

One billion dollars – or around 20-25% of its GDP. That’s about how much money Montenegro borrowed from China in 2014 for a much-needed highway that would connect the southern and northern parts of the Balkan country. Now, with the first instalment of the loan repayment due in July, Montenegro’s financial future has never been more uncertain. 

Why? If the Mediterranean state doesn’t repay the debt rate in time, China could seize land and property from Montenegro as compensation, as was agreed in the contract. It could, for example, even take the Port of Bar, Montenegro’s important strategic hub in Southeast Europe. Whether such an arbitration takes place or not, lies entirely within the decision-making power of a party-loyal court in Beijing.

The motorway project turned into a nightmare as soon as it started. An estimated one kilometre of road costs around 20 million euros, which is certainly among the most expensive in Europe. Originally, the highway should have been completed in 2019, but now, because of delays due to COVID-19, it is aimed for November 2021 — but who knows… 

In April, Montenegro asked the EU for help to repay the Chinese loan in order to pull the country out of its dramatic financial crisis. While the EU is willing to offer support through its $10 billion Economic and Investment Plan for the Western Balkans, this remains only a distant option. After all, Montenegro is barred from transferring any part of the loan agreement to third parties without the consent of the state-owned Chinese bank.

The long-delayed and still unfinished highway is at the heart of a wider geopolitical competition at play on the EU’s doorstep, which includes the dramatic increase of Chinese influence in the Balkans in recent years. While China doesn’t publicly show any political ambitions, it is clear that it holds the financial future of Montenegro in its hands.

Earlier this year, Viktor Orbán became the face of China’s Sinopharm COVID-19 jab. Ignoring the criticism of Hungarian scientists and doctors, his government simply bypassed the European Medicine Agency (EMA) and became the only country within the EU to accept the vaccine. 

But although Orbán failed as a vaccine influencer in his own country, the fear that he is becoming China’s “viral vector” inside the EU is growing again. His latest sabotage: Blocking a statement by European Foreign Ministers who have protested against Beijing’s crackdown on democracy in Hong Kong.  

The newest scandal shouldn’t come as a surprise to anyone who has been following Hungary’s cosy relationship with China for the past years. Take the so-called ‘Eastern Opening’ policy, for example. It was meant to build stronger political ties between Hungary and the world’s fastest growing economies in Asia. And although Orbán constantly boasts about his business deals with China, the actual figures don’t show a success story at all.

So, what’s in it for ‘Mr. Sinopharm’? Could it have something to do with the fact that Hungary is by far the Number 1 misuser of European funds? And that it is widely regarded as a top performer in funneling foreign investments into the pockets of government-friendly businessmen? Well, luckily for Orbán, China doesn’t ask questions about that…

A closer look at the Sinopharm deal reveals similar patterns as the purchase of overpriced Chinese ventilators last summer: a Hungarian middleman company, with a questionable role and background, bought the Chinese products at an overcharged price, raising the suspicion of price manipulation and corruption.

What does this tell us about future infrastructure projects like the Belgrade–Budapest railway or the planned settlement of the controversial Fudan University in the Hungarian capital? 

Maybe that for Orbán (and his oligarchs), the quick and non-transparent flow of money is much more important than the proclaimed goals of such supposedly groundbreaking deals. In other words, the path is more important than the destination. That would make Orbán, himself, the founder of Central European Taoism.

In Serbia, if you were to  throw a brick out of a moving car, you’d most likely hit a factory linked to Chinese investment — be it a steel mill in Smederovo, a copper mine in Bor or a coal power plant in Kostolac. While the bricks may be produced locally, the roads are likely financed by Beijing, too. Soon, even the tires will be produced nearby: by Shandong Linglong, a Chinese company that is already sponsoring Serbia’s first football league and the Volkswagen-owned German Bundesliga club VFL Wolfsburg.

The new tire factory will be built near the city of Zrenjanin, in Serbia’s breadbasket, the Vojvodina. Serbian politicians proudly announced that Linglong will invest 800 million euros and promised 1,500 new workplaces. But the heavy money comes with a heavy price: the potentially disastrous impacts on the environment. Chinese companies in Serbia are famous for often ignoring the local environmental laws. 

And that goes for Zrenjanin, too. The obligatory environmental impact study for the “Class A pollutant” tire factory is not complete. Consequently, it has not received a building permit yet. But why can bypassers already get a view of garages, workshops and foundations built by (often exploited) Chinese workers?

With or without a permit: Concerned citizens and environmental activists are suspecting that the factory will be built anyway – step by step, taking advantage of legal loopholes. During a public hearing last year, 215 complaints were raised by the public and NGOs. But the local government scrapped them all.

That’s not all: The 95 hectares large factory site was given away for free to the company by the city of Zrenjanin – together with an additional 3.8 million euros for supplying the factory with clean water. The bitter irony: Water is the very resource the citizens of the town have been struggling with for over two decades. 

While there is no drinking water coming from their kitchen taps, the locals’ tax money guarantees clean water to the rubber factory and its high chemical production. In a region already hit by global warming and pollution problems, the question remains: where will the factory’s dirty water end up? For now, that remains a secret. 

Usually, Estonia’s counter-intelligence service KAPO is well-known for its high efficiency in catching Russian spies. But this March, Estonia convicted its first spy recruited by the Chinese military intelligence. The marine scientist Tarmo Kõuts, who held both Estonian state and NATO security clearances, was sentenced to three years in prison. 

China’s intelligence activity is part of its quest to become a world leader. Beijing is hoping to gain a foothold in European politics and economy, as well as, the technology market. For this, they need to protect their interest in all European countries, regardless of their size. As part of the EU and NATO, and recently also as a non-permanent member of the UN Security Council, the threat posed by Chinese intelligence is a daily growing reality for Estonia.

But it’s not only our membership in international organizations that explains China’s increased activity. Estonia’s geographical location as a transit country between East and West, as well as currently planned infrastructure projects, such as the “Rail Baltica” that will connect Tallinn with Warsaw, are equally intriguing. 

One of the most common strategies we observe are online recruitment attempts of EU citizens by Chinese companies. Public officials and professionals are approached on the internet with lucrative job offers or sponsored foreign trips. Often, they are simply paid for compiling an apparently innocent summary or analysis.

But these companies are not really interested in paying thousands of euros just for a review of some publicly available material. KAPO has reason to believe that Chinese special services are behind most such offers, and that they may lead to a deeper collaborative relationship – involving requests to pass on state secrets or other confidential information.

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