China Trends #5 - "17+1": Overriding the Complaints

Asia

Author

Justyna Szczudlik

Deputy Head of Research, China analyst at PISM

Blurred Definitions and Membership Criteria

There is a large grey area between the 17+1 format (China-Central and Eastern Europe, CEE)¹ defined stricto sensu and how it corresponds to the Belt and Road Initiative (BRI). Chinese analysts mostly depict the China-CEE cooperation format through the prism of, or references to, the BRI. It appears that the BRI should be considered as the umbrella over the 17+1. 17+1 now serves as part of the Silk Road initiative, despite the fact that it was created more than a year before the BRI. Yet according to Zang Shumei, Research Fellow at East China Normal University, 17+1 is a specific and more targeted platform than the BRI.² A similar argument is made by Ji Wengang³, Director of the Center for Poland Research at Xi’an International Studies University and Cheng Jianbing⁴, Professor at Zhejiang Financial College. They both posit that China-CEE format is within the BRI remit but more specific.

There is also a problem with the definition (or perception) of CEE countries. Among those seventeen states, twelve are EU member states, while five are outside the European Union. Xi Jinping’s 2015 speech referred to 16+1 as a "new platform of South-South cooperation characteristics within the North-South cooperation", suggesting that China perceives CEE as a group of developing countries, differentiated from Western developed countries. For Ji Wengang, CEE seems to be even more limited, as he gives examples of Chinese investments only in the Western Balkans, without any mention of CEE EU member states. On the other hand, Liu Zuokui, Director of the Central and Eastern European Studies Department at the Chinese Academy of Social Sciences (CASS)⁵ suggests that the CEE region should be depicted as being a region comprising both developed and emerging market countries (中东欧国家这种介于发达国家和新兴市场国家之间的区域).

Furthermore, the criteria of the membership in the format are blurred as well. The best example is the first enlargement case with Greece in April 2019 and its narrative. Since the very beginning, China has been arguing that the socialist past was a key criterion for the selection of the sixteen members. However, after Greece’s accession, the situation has changed. Liu argues that Greece has various identities (多样的身份). The country could be perceived as a Balkan, Mediterranean, Eastern or Southern European state… This means that China – as Liu points out - no longer wants to create a "club of former socialist states" ("前社会主义国家俱乐部"). Instead, it wants to open the format to any country interested to join (任何有兴趣的国家 […] 都可以加入). But he omits one important fact: the decision does not lie in Chinese hands. According to the Sofia Guidelines (2018), any changes in the format should be based on prior consultation and consensus by all participants. This clause was added to the Guidelines on the CEE’s request, after China’s one-sided attempts in 2018 to invite Germany and other EU countries to the format or at least to its high-level summits.

Since the very beginning, China has been arguing that the socialist past was a key criterion for the selection of the sixteen members.

Meanwhile, the Dubrovnik Guidelines (2019) indicate that participants would be working on enlargement procedures, which means that conditions of accepting new members might be worked out soon. So far there are no any enlargement procedures. Greece became a member due to a consensus based on consents presented by all participants in the form of diplomatic notes.

"17+1" Successes

Despite a lack of coherent definition and strict membership criteria, Chinese experts see 17+1 as a successful cooperation format. Ji Wengang even claims that 17+1 has already enhanced its global influence (17+1合作的全球影响力进一步提升). As Liu Zuokui emphasizes, the first enlargement (首次扩员) of the 16+1 to include Greece has empowered and enriched the format, changed the cooperation pattern, and "expanded the pie of cooperation" (做大了合作蛋糕). Greece has also made the format more visible internationally, more open and more attractive (吸引力大增). Greece, an ancient civilization and maritime power located at the start of the ancient Silk Road, also gives a new impetus for BRI.

Other examples include economic dimensions such as the rise of China-CEE trade and Chinese investments in Central Europe. Liu and Cheng rightfully admit that it is China’s exports that are increasing more. In 2019, the trade surplus for China was over 45 billion USD. On investment, Chinese analysts almost only give examples of projects in non-EU CEE states such as Serbia, Montenegro or Bosnia and Herzegovina. This provides indirect proof that there is scarce Chinese investment in CEE EU member states. It is worth mentioning that CEE EU member states are generally praised for high-level economic development since their accession to the EU. Cheng Jianbing⁶ from the Zhejiang University underscores that Europeanization (欧洲化) has led to a better trade structure, higher quality standards and norms (标准较高). As a result, European integration made CEE countries attractive partners for China.

The third success story is a social dimension, about people-to-people contacts. Despite the fact that existing meeting and exchange formats (various sectoral platforms, centers and associations) do not present any tangible results, the analysts assert that those mechanisms under the 17+1 umbrella are good channels for establishing contacts. These contacts are not only with high-level officials but also with ordinary people. Liu even argues that the relations between China and CEE should be government-led, but socially-oriented (including business) (政府引导，社会（含企业）为主). People-to-people exchange is being seen as the integral part (有机组成部分) or one of the pillars (支柱之一) of the 17+1. China seems to appreciate its own agenda-setting power and sees this social dimension as a crucial factor to create an atmosphere of bonhomie.

…but also Problems

Chinese experts also acknowledge problems, and even failures, which either stem from Chinese shortcomings, including the so-called inherent problems (自身存在的问题) in China-CEE cooperation, or from external factors.

The Chinese-led problems mainly include a lack of experience in dealing with CEE, and little knowledge about those countries’ needs, regulations, specificities and characteristics. Wang Yichen⁷, Associate Researcher at the Economic Forecasting Department of China’s National Information Center, highlights the need to match Chinese investment offers with the demand of the respective country and in line with the EU regulations.

Liu claims that the inexperience of Chinese financial institutions may eventually create a debt trap (债务陷阱). Liu Zuokui and Zang Shumei highlight the management problems (管理和引导也日益复杂化) with sectoral mechanisms or platforms (covering culture, tourism, investment, agriculture, etc.) under 17+1 (专业性协调机制或平台), and add that the non-homogeneous nature of the region (中东欧是非同质区域) presents a challenge to the Chinese activities.

Wang Yichen highlights the need to match Chinese investment offers with the demand of the respective country and in line with the EU regulations.

China-Europe cargo trains (中欧班列) have recorded losses in operation (亏本经营) due to one-way transportation (单向运输) and the scramble for subsidies by Chinese local governments (地政府争相补贴). There is a problem with logistics cooperation due to undeveloped infrastructure in CEE, and differences in size between Chinese and CEE companies (企业规模不对等). The Chinese economic model is based on big state-owned enterprises (SOEs), while in CEE the core of the model is small and medium companies (SMEs).

Liu points out inherent problems in China-CEE cooperation: the CEE trade deficit which is very harmful especially for Poland and the Czech Republic – both countries are very critical of China due to this problem; difficulties in expanding exports of agriculture products to China because of brands not being recognizable (知名度不高) and small quantities of products (量产不够); politics in the CEE, with change of governments after elections resulting eventually in changes of the country’s approach towards China and its ongoing and planned projects; differences in values and ideologies (意识形态和价值观方面存在差异) between China and CEE.

The external problems are connected mainly with geopolitical risks (地缘政治风险). This rather vague issue raised by Liu and Wang, as well as by Long Jing, Deputy Director of the Center for European Studies of Shanghai Institutes for International Studies (SIIS)⁸, is linked to the current US pressure on other countries, including CEE, to limit ties with China. Liu argues that US-China tensions might have a negative impact on CEE countries’ attitudes towards China, as this region pays close attention to the US. Moreover, the EU’s recently sharpened China policy (e.g. the March 2019 "EU-China: A Strategic Outlook" document) has an impact on CEE as well.

For example, Long Jing argues that economic issues in Poland are politicized. Poland, as a close US ally, uses security excuses to suppress Chinese companies. The country has one of the most important military NATO bases in CEE, led by the United States. These non-economic factors cast a shadow on the activities of Chinese companies in Poland, and could even lead to the interruption or termination of investment cooperation, which will bring huge economic losses to China. She predicts that in the context of rising US-China competition, and the strengthening of US and EU influence on CEE, Chinese companies must remain cautious and vigilant to avoid highly sensitive and high-risk investment, prevent and mitigate the adverse effects of changes in the political environment in Poland.

Why is the EU Critical about "17+1"?

Chinese experts also try to outline the motivations behind the EU’s harsh criticism of 17+1. They are aware that this formula is seen by the EU institutions (mainly the European Commission) and member states (mostly developed ones such as EU’s dual core 欧盟"双核心" Germany and France) as a Chinese instrument to undermine or even split the EU (分裂欧盟). It should be noted that they mostly refer to the criticism coming from the Western countries, not 17+1 members. But recently CEE is becoming more cautious about China and 17+1 as such (examples are Poland, Czech Republic, Baltic states). Only Long Jing, to some extent, refers to Poland’s doubts about the PRC, but not due to the 17+1 as such. The concerns are about Chinese investments and the PRC’s general policy.

The EU is concerned about its diminishing influence in CEE because of Chinese investment, which is based on different rules from the EU.

But why is the EU critical about 17+1? According to Zang Shumei, EU is afraid of PRC’s increasing control over the major infrastructure in Europe through Chinese investment (逐步控制欧洲的主要基础设施). What is more, as Wang Yichen underscores, the EU is concerned about its diminishing influence in CEE because of Chinese investment, which is based on different rules from the EU.

EU is also convinced that China is using its own investment to exert political pressure (政治压力) on CEE to interfere into the EU’s internal affairs, which may undermine the EU’s political unity (影响了欧盟的政治统一).

A Chinese expert also argues that some internal EU problems (like Brexit) make the Union vulnerable to China, and that the EU uses criticism of the CEE-China cooperation as a bargaining chip, for example, to pressure the PRC to open the Chinese market. Apart from the EU and its institutions, Wang refers to concerns presented by some Western (or developed) member states such as Germany. The development of the port of Hamburg has been impacted (我国的投资影响了汉堡港的发展) by the well-functioning port of Piraeus controlled by a Chinese company in Greece. Transport of goods from China to Piraeus is 9 days quicker than to Hamburg. Moreover, CEE used to be an area of German influence, and the Chinese presence undermines the German impact on the region.

What China Needs to Do?

Experts are trying to provide Chinese decision makers with recommendations. Those arguments are not innovative and might be divided into two groups. The first one is merely rhetorical. As Wang suggests, China should confirm that it supports European integration and has no intention to split and weaken the EU. Cooperation with the CEE countries is an important part of EU-China relations. When it comes to the trade deficit, Liu argues that China should highlight that it is a structural problem which the PRC government has only little impact on. The deficit is not harmful for CEE, and the emphasis should be put not only on trade in goods but also in services.

The second group of arguments embraces slightly more specific recommendations. Liu argues that the 17+1 format should be better positioned (明晰的定位) and play a stabilization role for EU-China ties. To do so, there is a need to focus on specialized areas (专业性领域) such as the financial sector, cooperation with third parties (第三方) such as Germany, France, Italy and Turkey; to strengthen cooperation between SMEs from the both sides. Liu also highlights the need to create favorable views on China within CEE public opinion, and better management of the various platforms and mechanisms under 17+1. Cooperation between China and Germany in terms of investment in CEE is also encouraged, so that Chinese companies may learn from German enterprises which are more experienced in investing in Central Europe.

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¹The format (16+1) was established in 2012. Till 2019 it included China and 16 European states. Since 2019, after Greece accession, the name has been changed into 17+1. It consists of China and the following seventeen European states: Albania, Bosnia & Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Greece, Hungary, Macedonia, Montenegro, Latvia, Lithuania, Poland, Romania, Serbia, Slovakia and Slovenia.
²Zang Shumei, "China-Central and Eastern Europe Regional Cooperation under ‘the Belt and Road Initiative’ – Analyses of Multilevel Cooperation Mechanisms (‘一带一路’背景下中国与中东欧地方合作一种多层级合作机制探析)", Social Sciences 社会科学, No.1, 2020
³Ji Wengang, "17+1 Cooperation: a Full Demonstration of Pragmatism (17+ 1合作：充分彰显务实性)", China Social Science Network 中国社会科学网, 4 September 2019
⁴Cheng Jianbing, "Promotion of China-Central and Eastern Europe Cooperation to a New Level based on Development of High Quality Trade (以贸易高质量发展助推中国—中东欧合作迈上新台阶)", China Business Herald 中国经贸导刊, Mid-February 2020
⁵Liu Zuokui, "Greece energizes ‘China-Central and Eastern European Countries Cooperation’ (希腊赋能’中国—中东欧国家合作’)", China Social Science Network中国社会科学网, 5 September 2019; Liu Zuokui, "‘China-Central and Eastern Europe Cooperation’ under the Great Change [of Global Order] 大变局下的 ‘中国-中东欧国家合作’", [China] International Studies 国际问题研究, no. 2, 2020
⁶Cheng Jianbing, "Promotion of China-Central and Eastern Europe Cooperation to a New Level based on Development of High Quality Trade (以贸易高质量发展助推中国—中东欧合作迈上新台阶)", China Business Herald 中国经贸导刊, Mid-February 2020
⁷Wang Yichen, "Analyses of EU’s Attitude towards China-Central and Eastern Europe Cooperation and Chinese Response (欧盟对中国-中东欧合作的态度、原因分析及我国的应对措施)", Development Research 发展研究, No. 7, 2018
⁸Long Jing, "Recent Developments in Poland’s Special Economic Zones and Prospects for Chinese Investment in Poland (波兰特别经济区的最新发展及中国对波投资的展望)", Eurasian Economy 欧亚经济, No. 5 2019.