Latvia has done much to deepen ties with Beijing ahead of hosting this week’s 16+1 Summit of central and eastern European nations plus China. But its most significant act was refusing an official welcome for the Dalai Lama.
In contrast with its Baltic neighbors, Estonia and Lithuania, which risked Chinese censure by greeting Tibet’s spiritual leader, the Dalai Lama’s status was relegated to a private visit in Riga. Few could have been surprised when Latvia went on to reap the biggest benefits of Chinese trade, becoming the first country in the region to sign a memorandum of understanding for the Belt and Road initiative.
Latvia may be favorite but China is also rapidly building investment elsewhere in an area it barely touched economically a decade ago. Bilateral trade with central and eastern Europe has jumped from next to nothing to $56 billion last year. The hope here is that Belt and Road will compensate for a lackluster Western Europe to boost economic growth.
Budapest to Belgrade
To China, the region is key to connecting and integrating Eurasia. It’s the logic threading new freight train routes from Far Eastern coastal cities of China through central Asia and Russia, central and eastern Europe and beyond. One flagship project is the Budapest to Belgrade rail link, promising to cut travel time from nine hours to less than two by 2018. The $3 billion bill is being picked up not by Brussels but Beijing.
Elsewhere, a port and rail link is planned from a logistics hub in Burgas, on the coast of Bulgaria, through Georgia and Kazakhstan, all the way to Zhengzhou in China. Alibaba, the e-commerce giant, is among the companies behind the Burgas hub. To corporate China, central and eastern Europe offers a relatively cheap but with a well-educated work force – and access to Europe’s single market.
Relationships are built through the 16+1 nations’ annual summits, grouping China with Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech, Estonia, Hungary, Latvia, Lithuania, Macedonia, Montenegro, Poland, Romania, Serbia, Slovakia and Slovenia. Eleven of the countries are already in the European Union while the Balkan states are at varying stages of the membership process.
For all the pomp of the 16+1 ceremony, however, in reality China prefers to deal with trade partners bilaterally. It’s easier to set terms to relatively small nations than dealing with a club, and certainly easier than battling with a wealthy market of 500 million people from Brussels. That sets the EU’s eastern countries in competition with each other as they vie for attention from Beijing.
With the center of economic gravity shifting east, politics risks sliding in the same direction. China’s government is challenging European assumptions that liberal democracies are the best suited to capitalist development. The drift to authoritarianism seen in Turkey and Russia can arguably also be seen in Hungary and Poland.
China has been visibly stepping up political leadership. President Xi has visited twice this year, signing cooperation agreements, investment deals and political pledges. Prime Minister Li Keqiang has been leading the delegation to the 16+1 Summit in Riga.
As Latvia bends to Beijing’s will, economic benefits will no doubt flow in. But after centuries spent fighting for independence and free will, some will also increasingly wonder whether in pursuit of deals with the developing world’s superpower they risk selling their nations’ soul.
Merlin Linehan has worked in development finance within Eastern Europe and Asia, and spends much of his time investigating the risks and opportunities that are created from the ongoing expansion of Chinese businesses that invest overseas in emerging markets.
This column does not necessarily reflect the opinion of the editorial board or Frontera and its owners.